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RS20787 -- Army Transformation and Modernization: Overview and Issues for Congress Updated March 11, 2004 Modernization is not a new issue or objective for U.S. military forces, but it has taken on new urgency because of: the post-Cold War downsizing andprocurement reductions, the new global environment and unexpected requirements, and the promise of a "revolutionin military affairs" (RMA) suggested byrapid developments in computers, communications, and guidance systems. The last notable surge in modernizationculminated during the "Reagan build-up" ofthe 1980's. Weapons and doctrines developed and fielded in that era made fundamental contributions to UnitedStates successes in the Cold War, the Gulf War,and Kosovo. For the Army, such weapons included the M1 Abrams tank, M2 Bradley armored fighting vehicle,Apache attack helicopter, Blackhawk utilityhelicopter, and Patriot air defense system. During post-Cold War downsizing, the Army greatly decreased purchase of new equipment and largely deferred development of a next generation of weapons,with notable exceptions being R&D for a howitzer, the Crusader, and a reconnaissance helicopter, theComanche. (1) Much older equipment was retired. Modernization was approached through upgrading and inserting new technologies into previously acquired"legacy," systems. Information technology wasseen as the most immediate, promising aspect of RMA. It exploited Desert Storm successes such as pinpointtargeting and navigation, while addressingproblems such as friendly fire casualties. A major initiative was launched in the 1990's to create Army Force XXI,based on the "digitization" of thebattlefield, now dubbed "network-centric warfare." Modern computers and communications systems would connectall weapons systems and give U.S. soldiersand commanders advantages in situational awareness and speed of decisions. (2) One heavy, mechanized division at Fort Hood, TX was so equipped in 2001and was battle tested in Iraq in 2003. Other units were at least partially equipped and trained with this capabilitybefore commitment in Iraq. Even before Desert Storm, the "battlefield" was changing as the Army was called upon to respond to numerous, lengthy operations short of war rather thanoccasionally to defeat a large army. Near-term readiness became a problem as fewer troops were asked to covermore missions, and operation and maintenance(O&M) funds were diverted from fixing aging equipment and facilities to pay for unbudgeted deployments suchas Bosnia (funds eventually replaced in part byemergency supplemental appropriations). The problem of rapidly projecting heavy forces had been highlightedbeginning with the long buildup required for Desert Shield/Desert Storm in 1990-91. In 1999, it was suggested that an Army task force inserted intoAlbania for potential action in Kosovo was too heavyfor rapid air insertion and the unimproved roads and bridges found there. The Army determined that a newcapability was needed in addition to mobile, lightforces and heavy, lethal forces - a medium, lethal force. In October 1999, the Army announced its priority program to transform into a force that could better meet future requirements to be both rapidly deployable andlethal. The first step was near-term fielding of a new unit, first called the Interim Brigade Combat Team but nowcalled the Stryker Brigade Combat Team(SBCT), based on a wheeled armored vehicle much lighter than the standard M2 Bradley. For the long-term, theArmy is developing a Future Combat System(FCS) based on new technologies that would equip very mobile formations with lethality and survivability equalor greater than that of present heavy units. Until the FCS is fielded, the Army believes it must also continue to maintain and upgrade legacy weapons systems(e.g., M1, M2, etc.) and equipment in unitsthat can meet any potential foe across the spectrum of conflict. These Legacy, Interim, and Objective Forces wouldeventually meld into the transformedObjective Force of the future. In Summer of 2003, the new Army Chief of Staff emphasized that the Army was atwar and transforming. The Current Forcewould incorporate usable technology and other ideas being developed for the Future Force without waiting, movingtowards the Future Force while fighting theGlobal War on Terrorism. He also began a short term reorganization of the active Army from 33 to 48 combatbrigade modules using existing resources and atemporary increase of 30,000 in soldier end strength. (4) Stryker Force. The Army is fielding a new capability based on the SBCT. This unit is designed formaximum strategic and operational mobility in that its equipment can be airlifted inter-theater in all U.S. cargoaircraft, including the comparatively smallC-130 Hercules. All vehicles weigh less than 20 tons. The goal is that a SBCT could be completely moved to acombat zone within 96 hours. It is an infantrybrigade of about 3,500 soldiers with the armored mobility needed to fight on a mid-intensity battlefield. Particularstrengths are an included reconnaissance andintelligence battalion and "network-centric" command, control, and communications (C3) systems. The effort beganearly in 2000 at Fort Lewis, WA, wheretwo existing brigades were converted, using temporary, borrowed equipment. In November, 2000 the Army selected the Light Armored Vehicle III (LAV III), built by General Motors Defense and General Dynamics Land Systems, as its"interim armored vehicle" under a six year contract worth $4 billion. (5) Some 2,131 LAV III's, now called Strykers, will be procured. They willinclude twovehicle variants, an infantry carrier with eight additional configurations and a mobile gun system with a 105 mmcannon. The vehicle can negotiate flatsurfaces at 62 mph, convert to 8-wheel drive off-road, and self-recover with its winch if needed. As of early 2004,the first Stryker Brigade was conductingstability operations in a sector of Iraq. Plans also include procurement of the Joint Lightweight 155 mm Howitzerfor the Brigade's included field artillery --an Army-Marine program, with an estimated cost of about $1.1 billion, aiming for Army initial operating capability(IOC) at the end of 2004. Future Force. For the long-term, the Defense Advanced Research Projects Agency and the Army beganwork on some 25 critical technologies for incorporation into R&D of new systems to be selected as early as2006, with fielding to begin by 2008 and IOC by2010. (6) A key component is expected to be a FutureCombat System (FCS) that could, as one capability, assume the role currently held by the Abrams tank. Itis intended to be as transportable and mobile as the Stryker, with lethality and crew survivability equivalent to orgreater than that of today's tanks. The FCSmay, however, bear little or no resemblance to today's tanks and could feature advanced technologies such asrobotics and electric guns and facilitate newoperational doctrines. The FCS currently encompasses some 18 subsystems and the network to tie them together. Boeing Company and Science ApplicationsInternational Corp. were selected as the lead system integrator. As of September 2002, the Army had budgeted $20billion to develop FCS. FutureForce units will also incorporate ongoing developments in information technology. They should respond to allrequirements from stability operations tohigh-intensity conflict. Current Force. Until the Future Force exists, the Army must be prepared to fight with legacy equipment,whether on low or high-intensity battlegrounds. According to Army planners, programs to replace and/or upgradeolder equipment must continue if forces otherthan or additional to 6 new Stryker Brigades are to be ready for combat. The ongoing program to replace old truckswill continue. Older models of the Abramstank and the Bradley fighting vehicles will continue to be rebuilt and upgraded. The current force will have manyM1A2 SEP (for Systems EnhancementPackage) and M1A1D tanks and M2A3 and M2A2ODS with applique Bradley's. Inserting these vehicles into theforce will aid the whole Army in convertingto a digitized force. Although modernization of the current force is important, the Army sacrificed manypreviously desired programs to free funds fortransformation priorities. Examples are a dedicated Command and Control vehicle, the Grizzly Breacher engineervehicle, and the Wolverine assault bridgevehicle. The 107th and 108th Congresses gave strong support to Army modernization and transformation initiatives. At the same time, Congress showed caution bypressing a requirement to compare the wheeled LAV III with similar tracked vehicles already in inventory. TheArmy believes its evaluation demonstrated thatbuying Stryker was more desirable than converting the M113A3 APC. (7) Whether the 108th Congress will continue to support Armytransformation as a highpriority will depend on its evaluation of issues such as those discussed below. Desirability. All Services have felt pressures to "transform," or at least adapt to current circumstances andexperiences with the post-Cold War world. These include opportunities and challenges from a rush of technologicaladvances, unexpected numbers and typesof missions (particularly peacekeeping and urban warfare requirements), new threats from potential enemies withnuclear, chemical, or biological weapons, and,for the Army, criticism that it was not "nimble" enough during 1999 allied operations in Kosovo. The broadest long-term question is whether current transformation plans will yield the military forcecapabilities the United States requires 20 years from now. Should they include a power projection Army capable of fighting equally well across the full spectrum of groundcombat; or, should other services or entitiesassume some parts of that mission? Will Army plans over-stress DoD airlift assets, or would more reliance on fastsealift yield greater flexibility andeconomies? Internally, has the Army sought the right approach to transformation with its emphasis onmedium-weight formations? Does the Army's planstrike the right balance in allocating resources between modernizing the current legacy force and developing andfielding the Future Force? For the short term, it is projected that some amount of modernization for current forces is needed to prevent further aging and degradation. The average age ofthe M1 tank fleet is now 11.9 years and an estimated 11.7 years for support vehicles. (8) Many of these vehicles may not be able to remain in service beyond2030 without some form of service life extension. Deciding the proper allocation of resources is made morecomplex by the large numbers and diverse typesof vehicles and weapons systems in the Army, which makes it difficult to gather and present desirable data, that isboth comprehensive and aggregated, onequipment age, condition, and potential combat effectiveness. The Navy, in managing a fleet of about 315 ships,may have an easier job describing the level ofinvestment needed to maintain a fleet of a given size over time. (9) Congress may consider recommending that the Army attempt to develop some aggregateportrayal of its fleet capitalization status and implications of various funding strategies. Feasibility. The Army plan for transformation is considered aggressive. But, by using largely off-the-shelfmateriel, the "interim Stryker force is fairly low risk for meeting technology objectives. After an initial slip of 16months, a contractor's protest, and initialhesitation by the incoming Bush Administration, deliveries of Strykers are now supporting the fielding of 6 SBCTs,to be completed by May 2010. (10) Plans for the Future Force involve higher risk in both technology and time. It is possible that integration of all the specific FCS technologies into a leap-aheadsystem will experience some problems. The goal of fielding the first unit of this system of 18 systems by 2010 isvery ambitious. (11) Previoussystem-development efforts of this kind have often encountered technical problems, schedule problems, or both. The need for the Comanche helicopter, forexample, was identified in 1979 and it had not yet entered production when cancelled in 2004. The original targetdate proposed for FCS, 2023, may be morerealistic but it also raised concerns regarding duration of development. Congress will likely influence the priorityand speed with which the FCS becomesreality. Affordability. Some question the Army's ability to finance its transformation plan, particularly given aninability in recent years to finance many procurement programs at desired rates. Can the Army adequately financeall three elements of its plan at once, whilealso providing adequate funds for necessary non-transformation priorities such as readiness and pay and benefits? The life-cycle cost for equipping 6 brigadeswith LAV III's has been estimated by program officials at $9 billion through FY2032. (12) This will only be part of the total cost to transform and modernize theArmy; some have estimated that the Army requires a sustained increment of $10 billion annually beyond its averagepost-Cold War expenditures for R&D andprocurement. The Army is not alone in claiming a need for more investment funds. Other Services cite even highernumbers. (13) An issue that will confront Congress is whether to fund Army transformation and modernization efforts at levels proposed by the Bush Administration, orhigher or lower. If Congress ascribes a higher priority to Army transformation, will necessary funds be providedby adding to overall DoD appropriations,subtracting from DoD programs in other services, or reducing deployments? During the FY2003 budget cycle, DoD expressed its intent to cut acquisition programs that do not meet its definition of "transformational" in favor of those thatdo. Its prime example was the Army's Crusader Howitzer program. DoD cut Crusader and allocated the savingsto several other advanced fire support systemsin development. Congress reluctantly endorsed the action with the proviso that Crusader expertise be rolled intothe FCS program. As part of its appropriationsresponsibilities, the 108th Congress may choose to enforce DoD's implied promise to supportadequately fire support throughout the FCS developmentprogram. (14) Wheels or Tracks and How Many Stryker Brigades? An early issue to confront the Army was whether theInterim Force should use tracked or wheeled armored vehicles, or some combination. (15) Traditionally, the U.S. Army has favored tracks for its combatvehicles; with their low ground pressure and greater traction, they generally perform better off roads on difficultterrain. Wheels generally perform better onroads in terms of speed, agility, and quietness. After reviewing proposals, the Army selected the wheeled LAV IIIfrom General Motors, and named it Stryker. Critics of the decision, including some current and former members of Congress, continue to argue for a reversalor curtailment of the Stryker decision. (16) TheArmy defends its case strongly and DoD has not intervened. The question of whether the FCS will be based onwheels, tracks, or a combination remains open. DoD has, however, raised questions about the ultimate number and stationing of SBCT's. In the past, it requested the Army consider stationing one of the sixunits in Europe and thhe first one is now on station in Europe. More recently it suggested that units five and sixnot be funded unless they could be "spiraldeveloped" into much more transformational formations. It appears, however, that funding for all 6 SBCT's willnow be requested. The combination of theseevents and considerations could, however, open prior decisions to station SBCT's in Hawaii and Alaska to debateand thus create political complications. (17) The 108th Congress may play an important role in resolving the ultimate disposition of the proposedSBCT Force. | The U.S. Army continues an ambitious program intended to transform itself into astrategically responsive forcedominant in all types of ground operations. As planned, its Future Force will eventually meld all ongoing initiativesinto a force based on a high-tech FutureCombat System (FCS). Its Current Force is beginning to provide a new combat capability, based oncurrent-technology armored vehicles, for the mid-intensitycombat operations that seem prevalent in today's world. Its current "legacy force" of existing systems is beingmodernized and maintained to ensure effectivelight and heavy force capabilities until the Future Force is realized. This short report briefly describes the programand discusses issues of feasibility, viability,and affordability of potential interest to Congress. It will be updated as events warrant. |
In the Anglo-American linguistic tradition, the word "charter" has been used to refer to many legal writs, including "articles of agreement," "founding legislation," "contracts," "articles of incorporation," and more. The varied uses of this term to refer to so many different legal writs may reflect the term's etymology. "Charter" is derived from the Latin "charta" or, perhaps, the ancient Greek "chartês," both of which mean "paper." As used in federal statutory law, the term "charter" usually has carried a much more specific meaning. A congressional or federal charter is a federal statute that establishes a corporation. Such a charter typically provides the following characteristics for the corporation: (1) Name; (2) Purpose(s); (3) Duration of existence; (4) Governance structure (e.g., executives, board members, etc.); (5) Powers of the corporation; and (6) Federal oversight powers. Beyond conferring the powers needed to achieve its statutorily assigned goal, a charter usually provides a corporation with a set of standard operational powers: the power to sue and be sued; to contract and be contracted with; to acquire, hold, and convey property; and so forth. Many of the original 13 colonies were established by royal charters, and both colonies and states incorporated governmental and private entities before the United States was established. However, at the Constitutional Convention in Philadelphia in 1787, the Founders disagreed over the wisdom of giving the proposed federal government the power to charter corporations. Nevertheless, Congress chartered its first corporation—the Bank of the United States—in February of 1791 (1 Stat. 192 Section 3). Any dispute over Congress's power to charter corporations was effectively put to an end by the Supreme Court's decision in McCulloch v. Maryland in 1819 (17 U.S. (4 Wheat.) 315). The Court ruled that incorporation could be a "necessary and proper" means for the federal government to achieve an end assigned to it by the U.S. Constitution. After chartering the national bank, though, for the next century, Congress issued charters mostly in its role as manager of the affairs of the District of Columbia (Article I, Section 8, clause 17). The District of Columbia, which became the seat of the federal government in 1790, had neither a general incorporation law nor a legislature that could grant charters. So it fell to Congress incorporate the District's corporations. Thus, Congress issued charters to establish the office of the mayor and the "Council of the City of Washington" in 1802 (2 Stat. 195-197) and to found the Washington City Orphan Asylum in 1828 (6 Stat. 381). Congress, however, also used charters to establish entities of national significance, such as the transcontinental Union-Pacific railroad in 1862 (12 Stat. 489). In the 20 th century, Congress began chartering a large number of corporations for diverse purposes. In part, Congress's resort to the corporate device was a response to a host of national crises, such as the two World Wars (which required the production of an enormous number of goods) and the Great Depression (which revealed the limited power the federal government had over the national economy). Corporations, it was thought, were by nature better suited than typical government agencies to handle policy areas that required commercial-type activities (for example, selling electrical power, as the Tennessee Valley Authority does). While each congressionally chartered corporation is unique insofar as it is fashioned for a very particular purpose, these entities still may be sorted into rough types. An elementary division is between those chartered as nonprofit corporations versus those that are not. Table 1 provides a further—but not exhaustive—typology of congressionally chartered corporations. Congressionally chartered corporations have raised diverse issues for Congress, including (1) Title 36 corporations' membership practices; (2) prohibitions on Title 36 corporations engaging in "political activities"; (3) confusion over which corporations are governmental and which are private; and (4) federal management of these corporations. The membership practices of some Title 36 corporations periodically have been a subject of concern. In 2011, Congress revised the membership criteria of the Blue Star Mothers of America, Inc. (36 U.S.C. 305) by enacting a statute ( P.L. 112-65 ; 125 Stat. 767). The change, which the organization had advocated, liberalized the membership requirements so as to enable the organization to admit a larger number of members. Similarly, Congress amended the charter of the Military Order of the Purple Heart of the United States of America, Incorporated, in 2007 to make its membership requirements less stringent ( P.L. 110-207 ; 122 Stat. 719). Some individuals had complained that the organization's criteria for membership were too narrow. In 2005, the congressionally chartered American Gold Star Mothers (AGSM) refused to admit to membership a non-U.S. citizen. Some individuals and members of the media called upon Congress to intervene and rectify this situation. Ultimately, the group used its own authorities to address the issue. Approximately 100 Title 36 corporations exist, thus Congress again may find itself having to consider legislation to contend with the membership issues of such organizations. More than half of the Title 36 corporations' charters include prohibitions against various "political activities." For example, the charter of the United States Submarine Veterans of World War II, states the following: "Political Activities. The corporation or a director or officer as such may not contribute to, support, or otherwise participate in any political activity or in any manner attempt to influence legislation" (36 U.S.C. 220707(b)). Other Title 36 corporations' charters forbid them from promoting the candidacy of an individual seeking office (e.g., The American Legion), or contributing to, supporting, or assisting a political party or candidate (e.g., AMVETS). Congressionally chartered organizations that are subject to political activities restrictions occasionally have asked Congress to remove these restrictions from their charters. For example, on May 21, 2008, Representative James P. Moran introduced H.R. 6118 (110 th Congress), which would have removed the political activities prohibition from the charter of Gold Star Wives. Representative Moran stated that this prohibition against attempting to influence legislation hurt the organizations "advocacy on behalf of military families." He also said that the prohibition was "punitive, not practically enforceable, and potentially an unconstitutional infringement upon the [First Amendment] freedom to petition the Government." The bill was referred to the Subcommittee on Immigration, Citizenship, Refugees, Border Security, and International Law, which took no action on it. Having political activities restrictions in congressional charters raises at least three issues: (1) Should any or all Title 36 corporations be forbidden from engaging in political activities? (2) If some or all of them should be so restricted, which activities ought to be defined as political? (3) Should Title 36 corporations only have the same restrictions on their political activities as purely private sector not-for-profit corporations? Congress is free to draft corporate charters to include whatever elements it deems appropriate. So, for example, the charter of the Securities Investor Protection Corporation (15 U.S.C. 78(ccc) et seq.) looks very different from that of the American National Red Cross (36 U.S.C. 3001 et seq.). The power to craft corporations ad hoc, however, has produced confusion when corporations are established quasi governmental entities (i.e. entities that have both governmental and private sector attributes). This distinction is not without consequence; governmental entities operate under different legal authorities and restrictions than do private sector corporations. For example, federal agencies typically must follow many or all of the federal government's general management laws. Thus, confusion arose over the National Veterans' Business Development Corporation (NVBDC; 15 U.S.C. 657(c)). The Department of Justice declared it to be a government corporation in March 2004. Some members of Congress disagreed. The 2004 Omnibus Appropriations Act ( P.L. 108-447 , Division K, Section 146) attempted to dispel the confusion by stating that the NVBDC was "a private entity" that "is not an agency, instrumentality, authority, entity, or establishment of the United States Government." In some instances, federal courts have been asked to intervene and make a determination of a corporation's status. The management of government corporations has been made difficult by a few factors. First, no single federal department or office is charged with overseeing the activities of all congressionally chartered corporations. Second, many of these corporations were established independently of any department and have few, if any, federal appointees on their boards or in their executive ranks. This separation of corporations from departments may make the federal management of corporations more difficult. Third, the Government Corporation Control Act (31 U.S.C. 9101-9110) provides many tools for managing chartered corporations' activities. However, Congress has excepted many corporations from some or all of the act's provisions. Finally, there is the matter of perpetual succession. In centuries past, states and municipalities often limited the duration of a charter; a corporation would expire unless the sovereign renewed its charter. This practice has fallen by the wayside; usually, Congress charters entities to have "perpetual succession." This means that a corporation may continue to operate, whether it is effective or not, until a law is enacted to abolish it—which seldom occurs. Long-lived chartered entities have been accused of taking business from the private sector, moving into areas of business or activities outside the bounds of their charters, and developing networks of influence to protect themselves from abolition. | A congressional or federal charter is a federal statute that establishes a corporation. Congress has issued charters since 1791, although most charters were issued after the start of the 20th century. Congress has used charters to create a variety of corporate entities, such as banks, government-sponsored enterprises, commercial corporations, venture capital funds, and quasi governmental entities. Congressionally chartered corporations have raised diverse issues for Congress, including (1) Title 36 corporations' membership practices; (2) prohibitions on Title 36 corporations engaging in "political activities"; (3) confusion over which corporations are governmental and which are private; and (4) federal management of these corporations. This report will be updated annually. Readers seeking additional information about congressionally chartered organizations may consult: CRS Report RL30365, Federal Government Corporations: An Overview, by [author name scrubbed]; CRS Report RL30533, The Quasi Government: Hybrid Organizations with Both Government and Private Sector Legal Characteristics, by [author name scrubbed]; and CRS Report RL30340, Congressionally Chartered Nonprofit Organizations ("Title 36 Corporations"): What They Are and How Congress Treats Them, by [author name scrubbed]. |
Foreign capital inflows are playing an important role in the economy. Such inflows bridge the gap between U.S. supplies and demands for credit, thereby allowing consumers and businesses to finance purchases at interest rates that are lower than they would be without overseas capital inflows. Similarly, capital inflows allow federal, state, and local governments to finance their budget deficits at rates that are lower than they would be otherwise. These foreign capital inflows allow the Nation to support expenditures exceeding its current output level and finance its trade deficit. A sharp reduction in those inflows likely would complicate domestic efforts at making and conducting economic policies. To date, the world economy has benefitted from the stimulus provided by the nation's combination of fiscal and monetary policies and a trade deficit. Foreign investors now hold slightly less than 55% of the publicly held and publicly traded U.S. Treasury securities, 26% of corporate bonds, and about 12% of U.S. corporate stocks. The large foreign accumulation of U.S. securities has spurred some observers to argue that this foreign presence in U.S. financial markets increases the risk of a financial crisis, whether as a result of the uncoordinated actions of market participants or by a coordinated withdrawal from U.S. financial markets by foreign investors for economic or political reasons. Concerns are also growing that over the long run U.S. economic policies and the accompanying large deficit in its international trade accounts could have a negative impact on global economic developments, especially for the economically less developed countries. Some observers are concerned that a foreign investor with significant holdings in the United States or a group of foreign investors could engage in an abrupt and large-scale liquidation of dollar-denominated securities, particularly a sell-off of U.S. Treasury securities. These observers argue that the vast sums of dollars held and managed by some foreign governments, termed sovereign wealth funds, raise the prospects of such a coordinated withdrawal, because the funds potentially increase the ability of foreign governments to instigate a rapid withdrawal. It is uncertain, though, what types of events could provoke a coordinated withdrawal from U.S. securities markets. Indeed, during the 2008-2009 financial crises, dollar-denominated assets were the preferred safe haven investment of foreign investors. Although unlikely, a coordinated withdrawal from U.S. financial markets potentially could be staged by foreign investors for economic or political reasons or it could arise as a result of an uncoordinated correction in market prices. Also, concerns over the ability of the federal government to service its foreign debt and a loss of confidence in the ability of national U.S. policy makers to conduct economic policies that are perceived abroad as prudent and stabilizing could spur some foreign investors to reassess their estimates of the risks involved in holding dollar-denominated assets. In other cases, international linkages that connect national capital markets could be the conduit through which events in one market are quickly spread to other markets and ignite an abrupt, seemingly uncoordinated, withdrawal of capital. A liquidation of capital could be limited to one segment of the credit markets as one foreign investor or a group of foreign investors attempted to adjust the composition of their portfolios. A withdrawal also could mark a major shift in investment strategies by foreign investors as they shifted away from dollar-denominated securities. Short of a financial crisis, events that cause some foreign investors to adjust their portfolios likely would have short-run negative effects on U.S. interest rates and on the international exchange value of the dollar. However, should a large group of foreign investors make a permanent shift in their strategies to limit or to reduce their purchases of U.S. securities, such actions likely would complicate efforts to finance budget deficits. Given the current mix of economic policies, the loss of capital inflows would affect U.S. interest rates, domestic investment, and the long-term rate of growth of the economy unless there is an accompanying shift in the national rate of saving. Such a loss of capital inflows would be especially troublesome if it occurred during a time when concerns over the rate of growth in the economy were increasing. During periods when the rate of economic growth is slowing, the Federal Reserve generally resorts to reducing interest rates to stimulate the economy. However, the loss of capital inflows would tend to push the Federal Reserve to raise interest rates to attract more capital inflows. Congress likely would find itself embroiled in any such economic or financial crisis through its direct role in conducting fiscal policy and in its indirect role in the conduct of monetary policy through its supervisory responsibility over the Federal Reserve. Some observers are also concerned that the financial crisis has damaged the international financial system and raise concerns about the U.S. leadership role. The rapid expansion of market activity through the consolidation of equity exchanges and the development of complex financial instruments and hybrid securities that are traded across national borders has raised additional concerns that financial innovations have outpaced the efforts of regulators. Some observers argue that improvements in the financial system that arise from greater market efficiencies by spreading risk across national borders may be blunted, because the underlying risks of certain widely traded financial instruments have become more difficult to assess. Some also argue that the recent financial crisis demonstrate the risks that a domestic financial crisis pose for the global economy because such crises can spread across national borders due to the rapid internationalization of financial services. Others note that by expanding into financial activities that were not part of the original core business of financial services, providers have become exposed to new and additional types of risk for which they are not well prepared. According to the IMF, "there is little empirical evidence to date to determine whether cross-border diversification of financial institutions reduces or increases firm-specific or systemic vulnerabilities." Capital flows are highly liquid, can respond abruptly to changes in economic and financial conditions, and exercise a primary influence on exchange rates and through those rates onto global flows of goods and services. As indicated in Figure 1 , these capital inflows are composed of official inflows, primarily foreign governments' purchases of U.S. Treasury securities, and private inflows composed of portfolio investment, which includes foreigners' purchases of U.S. Treasury and corporate securities, financial liabilities, and direct investment in U.S. businesses and real estate. In 2004, 2006, 2007, 2009, and 2010, net official inflows exceeded net private inflows. Recently, private capital flows by U.S. citizens shifted from a net outflow of $1.4 trillion in 2007 to a net inflow of $866 billion in 2008, reflecting the financial turmoil during that period. Net private outflows by U.S. citizens, however, resumed in the 2009 to 2011 period. During the same period, U.S. official outflows increased from $22 billion in 2007 to $530 billion in 2008. In contrast, foreign private inflows of capital dropped from $1.6 trillion in 2007 to $47 billion in 2008. During the same period, foreign official inflows increased slightly from $481 billion in 2007 to $487 billion in 2008. As a result of these changes, net official flows, or the combination of U.S. and foreign officials flows dropped from a net outflow of $458 billion 2007 to a net inflow of $47 billion in 2008. In addition, net private flows increased from a net inflow of $199 billion in 2007 to a net inflow of $581 billion in 2008. In 2009, however, net private inflows dropped to a negative $774 billion, while net official inflows rose to nearly $1 trillion, as indicated in Table 1 Economists generally attribute the rise in foreign investment in the United States to comparatively favorable returns on investments relative to risk, a surplus of saving in other areas of the world, the well-developed U.S. financial system, and the overall stability of the U.S. economy. These net capital inflows (inflows net of outflows) bridge the gap in the United States between the amount of credit demanded and the domestic supply of funds, likely keeping U.S. interest rates below the level they would have reached without the foreign capital. These capital inflows also allow the United States to support expenditures exceeding its current output level and finance its trade deficit, because foreigners are willing to "lend" to the United States in the form of exchanging goods, represented by U.S. imports, for such U.S. assets as stocks, bonds, and U.S. Treasury securities. Such inflows, however, generally tends to put upward pressure on the dollar, which tends to push up the price of U.S. exports relative to its imports and to reduce the overall level of exports. Furthermore, foreign investment in the U.S. economy drains off some of the income earned on the foreign-owned assets that otherwise would accrue to the U.S. economy as foreign investors repatriate their earnings back home. Figure 2 shows the net flow of funds in the U.S. economy. The flow of funds accounts measure financial flows across sectors of the economy, tracking funds as they move from those sectors that supply the capital through intermediaries to sectors that use the capital to acquire physical and financial assets. The net flows show the overall financial position by sector, whether that sector is a net supplier or a net user of financial capital in the economy. Because the demand for funds in the economy as a whole must equal the supply of funds, a deficit in one sector must be offset by a surplus in another sector. Generally, the household sector, or individuals, provides funds to the economy, because individuals save part of their income, while the business sector uses those funds to invest in plant and equipment that, in turn, serve as the building blocks for the production of additional goods and services. The government sector (the combination of federal, state, and local governments) can be either a net supplier of funds or a net user, depending on whether the sector is running a surplus or a deficit, respectively. The interplay within the economy between saving and investment, or the supply and uses of funds, tends to affect domestic interest rates, which move to equate the demand and supply of funds. Shifts in the interest rate also tend to attract capital from abroad, denoted by the rest of the world (ROW) in Table 2 . As Table 2 indicates, from 1996 through 1998, the household sector ran a net surplus, or provided net savings to the economy. The business sector also provided net surplus funds in 1996, or businesses earned more in profits than they invested. The government sector, primarily the federal government, experienced net deficits, which decreased until 1998, when the federal government and state and local governments experienced financial surpluses. Capital inflows from the rest of the world rose and fell during this period, depending on the combination of household saving, business sector saving and investment, and the extent of the deficit or surplus in the government sector. Starting in 1999, the household sector began dissaving, as individuals spent more than they earned. Part of this dissaving was offset by the government sector, which experienced a surplus from 1998 to 2001. As a result of the large household dissaving, however, the economy as a whole experienced a gap between domestic saving and investment that was filled with large capital inflows. Those inflows were particularly large in nominal terms from 2000 to 2006, as household dissaving continued and as government sector surpluses turned to historically large deficits in nominal terms. Such inflows likely kept interest rates below the level they would have reached without the inflows, but they added to pressures on the international exchange value of the dollar. From 2007 through 2012, households saved at rates not experienced in recent periods as the financial crisis and economic recession spurred households to save and businesses to build up their balance sheets. This saving has been offset by the large deficits experienced by state, local, and the federal governments as the economic recession and the drop in property values reduced government revenue. Similarly, capital inflows have declined, reflecting the higher level of domestic saving. As the flow of funds data indicate, foreign capital inflows augment domestic U.S. sources of capital, which in turn keep U.S. interest rates lower than they would be without the foreign capital. Indeed, economists generally argue that it is this interplay between the demand for and the supply of credit in the economy that drives the broad inflows and outflows of capital. As U.S. demands for capital outstrip domestic sources of funds, domestic interest rates rise relative to those abroad, which tends to draw capital away from other countries to the United States. The United States also has benefitted from a surplus of saving over investment in many areas of the world that has provided a supply of funds and accommodated the overall shortfall of saving in the country. This surplus of saving has been available to the United States because foreigners have remained willing to loan that saving to the United States in the form of acquiring U.S. assets, which have accommodated the growing current account deficits. Over the past decade, the United States experienced a decline in its rate of saving and an increase in the rate of domestic investment. The large increase in the nation's current account deficit would not have been possible without the accommodating inflows of foreign capital. Foreign capital inflows, while important, do not fully replace or compensate for a lack of domestic sources of capital. Capital mobility has increased sharply over the last 20 years, but economic analysis shows that a nation's rate of capital formation, or domestic investment, seems to be linked primarily to its domestic rate of saving. This phenomenon was first presented in a paper published in 1980 by Martin Feldstein and Charles Horioka. The Feldstein-Horioka paper maintained that despite the dramatic growth in capital flows between nations, international capital mobility remains somewhat limited so that a nation's rate of domestic investment is linked to its domestic rate of saving. Liberalized capital flows and floating exchange rates have greatly expanded the amount of capital flows between countries. A large part of these capital transactions are undertaken in response to commercial incentives or political considerations that are independent of the overall balance of payments or of particular accounts. As a result of these transactions, national economies have become more closely linked, the process some refer to as "globalization." The data in Table 3 provide selected indicators of the relative sizes of the various capital markets in various countries and regions and the relative importance of international foreign exchange markets. In 2011, these markets amounted to over $800 trillion, or more than 40 times the size of the U.S. economy. Worldwide, foreign exchange and interest rate derivatives, which are the most widely used hedges against movements in currencies, were valued at $567 trillion in 2011, twice the size of the combined total of all public and private bonds, equities, and bank assets. For the United States, such derivatives total three times as much as all U.S. bonds, equities, and bank assets. Another aspect of capital mobility and capital inflows is the impact such capital flows have on the international exchange value of the dollar. Demand for U.S. assets, such as financial securities, translates into demand for the dollar, because U.S. securities are denominated in dollars. As demand for the dollar rises or falls according to overall demand for dollar-denominated assets, the value of the dollar changes. These exchange rate changes, in turn, have secondary effects on the prices of U.S. and foreign goods, which tend to alter the U.S. trade balance. At times, foreign governments have moved aggressively in international capital markets to acquire the dollar directly or to acquire Treasury securities in order to strengthen the value of the dollar against particular currencies. Also, the dollar is heavily traded in financial markets around the globe and, at times, plays the role of a global currency. Disruptions in this role have important implications for the United States and for the smooth functioning of the international financial system. This prominent role means that the exchange value of the dollar often acts as a mechanism for transmitting economic and political news and events across national borders. While such a role helps facilitate a broad range of international economic and financial activities, it also means that the dollar's exchange value can vary greatly on a daily or weekly basis as it is buffeted by international events. A triennial survey of the world's leading central banks conducted by the Bank for International Settlements in April 2010 indicates that the daily trading of foreign currencies through traditional foreign exchange markets totals more than $4.0 trillion, up from the $3.3 trillion reported in the previous survey conducted in 2007. In addition to the traditional foreign exchange market, the over-the-counter (OTC) foreign exchange derivatives market reported that daily turnover of interest rate and non-traditional foreign exchange derivatives contracts reached $2.5 trillion in April 2010. The combined amount of $6.5 trillion for daily foreign exchange trading in the traditional and OTC markets is more than three times the annual amount of U.S. exports of goods and services. The data also indicate that 85% of the global foreign exchange turnover is in U.S. dollars, slightly lower than the 86.3% share reported in a similar survey conducted in 2007. In the U.S. foreign exchange market, the value of the dollar is followed closely by multinational firms, international banks, and investors who are attempting to offset some of the inherent risks involved with foreign exchange trading. On a daily basis, turnover in the U.S. foreign exchange market averages $817 billion; similar transactions in the U.S. foreign exchange derivative markets average $659 billion, slightly above the amount reported in a similar survey conducted in 2007. Foreigners also buy and sell U.S. corporate bonds and stocks and U.S. Treasury securities. Foreigners now own slightly less than 50% of the total amount of outstanding U.S. Treasury securities that are publicly held and traded. This section analyzes four possible strategies a single large foreign investor or a group of foreign investors could employ to reduce or withdraw entirely their holdings of financial assets in the United States. These strategies include a rapid liquidation of U.S. Treasury securities, a shift in the makeup of foreign investors' portfolios among various dollar-denominated assets, a rapid shift from dollar-denominated assets to assets denominated in other currencies, and a slow shift in the makeup of future accumulations of assets away from dollar-denominated assets to assets denominated in currencies other than the dollar. The large holdings of U.S. Treasury securities by foreign governments have led some observers to consider the prospect of a withdrawal from the U.S. Treasury securities market by a single foreign government. At the first hint that a foreign government was attempting to liquidate all or even a large part of its holdings of U.S. Treasury securities, the price of such Treasury securities likely would plummet in U.S. securities markets and the market rate of interest would rise, perhaps appreciably, in the first few hours or days. For instance, on November 7, 2007, a report, which was later repudiated, asserted that Chinese officials were considering shifting some of China's foreign currency reserves, reportedly worth $1.4 trillion, in dollars and in such dollar-denominated assets as Treasury securities, out of dollar-denominated securities. Acting on the report, investors sold securities and the dollar. As a result, the broad Dow Jones industrial average plunged 360 points in one day and the dollar sank against other major currencies. In response to the fall in the exchange value of the dollar, indexes of equities markets in Europe and Japan also fell. Such cross-border spillover effects are not new, but potentially have become more pervasive as a result of the broad linkages that have been forged among the once-disparate national financial systems. As an example, concerns in U.S. capital markets in early June 2006 over prospects that a rise in consumer prices and in the core inflation rate would push the Federal Reserve to raise key U.S. interest rates sparked a drop in prices in U.S. capital and equity markets where inflation concerns quickly spread to markets in Europe and Asia as equity prices fell in those markets as well. If a foreign investor with large U.S. holdings or a group of foreign investors attempted to launch a withdrawal from U.S. Treasury securities, investors and other market participants would calculate quickly the expected effects of those intended actions on market prices, interest rates, and the exchange value of the dollar and would then act swiftly on those anticipated effects. As a result, the prices of Treasury securities likely would drop sharply, while interest rates would rise, because the price of such securities is inversely related to the interest rate. In addition, the dollar likely would fall in value relative to other currencies, because the shift away from dollar-denominated assets would increase demand for and the prices of other currencies relative to the dollar. Consequently, the drop in the price of Treasury securities and the drop in the exchange value of the dollar would significantly discount the value of any Treasury securities that would be sold and sharply reduce the proceeds for any investor participating in such a sell-off. As a result, the potentially large financial losses that would attend an attempt to liquidate assets rapidly are likely to dissuade most investors from employing such a strategy. The drop in the prices of Treasury securities and the decline in the exchange value of the dollar, however, probably would be short-lived. Foreign investors selling Treasury Securities presumably would do so in order to acquire non-dollar-denominated assets. Such a shift in demand from U.S. Treasury securities to other foreign securities would drive up the prices of those securities and the exchange value of foreign currencies. As a result, the lower prices for Treasury securities and for the dollar would offer other investors arbitrage and investment opportunities to acquire assets that investors likely would deem to be temporarily undervalued. As a result, investors likely would move to acquire Treasury securities and the dollar, which means that demand would increase for both the low-priced Treasury securities and the lower-valued dollar, which would drive up the prices of both assets. Such a response could significantly blunt, or even entirely reverse, the initial drop in prices of the securities and of the dollar. Given the dynamic nature of finance and credit markets and the instantaneous communication of information, such actions likely would occur within a very short time frame. For instance, fears spread rapidly after the terrorist attacks on New York and Washington on September 11, 2001, that foreigners would curtail their purchases of U.S. financial assets and reduce the total inflow of capital into the U.S. economy. Following the attacks, foreign governments and private investors did reduce their purchases of Treasury securities from pre-attack levels and the value of the dollar fell relative to other major currencies. These effects were fully reversed within 30 days, however, as currency traders forged a short-lived agreement not to profit from the attacks and the Federal Reserve undertook actions on its own and in concert with central bankers and financial ministers around the globe to ensure the smooth operation of the international financial markets. Similarly, the Federal Reserve likely would not be expected to sit by idly while foreign investors attempted a coordinated withdrawal from U.S. equity markets, if those actions threatened to undermine the stability of the markets. The overall performance of the U.S. economy at the time of any attempted withdrawal would also influence the economic effect of the withdrawal. For instance, if the U.S. economy were experiencing a robust rate of economic growth, the impact of a withdrawal by foreign investors likely would be minimal, both in the short run and in the long run. However, if such a withdrawal were to occur at a time when the U.S. economy were not experiencing a robust rate of economic growth, or if the U.S. credit and financial markets were under duress, such a withdrawal may well have a more pervasive effect by undermining investors' confidence in the stability and performance of the markets and could result in higher interest rates and a lower exchange value of the dollar over the short run and prolong the adjustment process. In addition, actions that change foreign investors' assessment of the underlying risks of the financial system or that undermine foreign investors' confidence in the stability of the financial system could prod some foreign investors to reassess the composition of their portfolios. For instance, at the time of the rumored Chinese withdrawal from U.S. securities, U.S. financial markets already were strained by concerns over the impact of record oil prices and potentially large losses associated with sub-prime mortgaged-backed securities. As a result, the Dow Jones industrial average of U.S. stocks moved erratically through the end of November 2007. By the end of November 2007, the Dow was down nearly 290 points from where it had been following the loss of 360 points on November 7, 2007. Another possible course of action some foreign investors could pursue would be to diversify abruptly the composition of their portfolios by replacing a sizeable portion of their holdings of U.S. Treasury securities with other dollar-denominated assets. As foreign investors traded Treasury securities for other assets, the price of Treasury securities would decline and the prices of other assets would rise as demand shifted away from Treasury securities and toward other dollar-denominated assets. Because total demand for dollar-denominated assets would remain constant, there likely would be little movement in the exchange value of the dollar, but the shift of demand would alter the relative prices of various domestic assets. Such shifts in demand are not a rare occurrence, but happen frequently as investors change their evaluations of the relative value of corporate equities, corporate bonds, and Treasury securities and in response to changes in economic policies and actions by the Federal Reserve. If foreign investors attempt to alter abruptly the composition of their portfolios away from Treasury securities, the prices of such securities would fall and the prices of corporate bonds and equities would rise, reflecting the shift in demand. If investors perceived this shift in demand and, therefore, the shift in prices, as a one-time adjustment in the composition of foreign investors' portfolios, some investors likely would take advantage of the rise in prices in equities and bonds to sell their holdings and take their profits at what likely would be perceived to be overvalued prices and, conversely, buy Treasury securities at what they would view as temporarily undervalued prices. After these adjustments, market prices likely would settle at prices that would be close to or equal to those that had existed prior to the original shift in demand by foreign investors. Another course of action some foreign investors could pursue would be to pare down their holdings of dollar-denominated assets through a relatively swift liquidation of part of their holdings of dollar-denominated assets. In this case, a single foreign investor or a group of foreign investors would sell off part of their holdings of such dollar-denominated assets as corporate stocks and bonds or Treasury securities and possibly even direct investments (investments in U.S. businesses and real estate), although selling direct investments in this manner seems less likely given the generally long-run strategies investors use in acquiring them. If some foreign investors attempted to accomplish such a readjustment in their portfolios quickly by liquidating a portion of their holdings of corporate stocks and bonds and of Treasury securities, the prices of those assets would fall, given the current pervasive role foreign investors play in most U.S. financial markets. In addition, because foreign investors would be liquidating their dollar-denominated assets in order to acquire assets denominated in other currencies, the exchange value of the dollar would fall relative to the price of foreign currencies. The drop in the prices of dollar-denominated equities and bonds combined with the lower exchange value of the dollar would erode the expected profits of any investor selling such securities and likely would attract the interest of other foreign investors, who presumably could liquidate their now higher-priced foreign securities and leverage their now higher-valued foreign currency to acquire dollar-denominated assets. Furthermore, U.S. multinational firms may well take advantage of the higher-valued foreign currency to repatriate part of the profits of their foreign affiliates, which would boost the balance sheet of their U.S. parent company, possibly even using the repatriated profits to acquire their own stock. Such repatriated profits likely would put upward pressure on the exchange value of the dollar, because foreign earnings would have to be converted into dollars before they were repatriated. Similarly, foreign firms operating in the United States likely would retain their profits rather than suffering a loss in value by translating those profits into higher priced foreign currencies in order to repatriate their profits back to their foreign parent company. Presumably, such profits could be used to augment investments within the United States. Finally, some foreign investors could decide to shift away from dollar-denominated assets by engaging in a long-term shift in the rate at which they accumulate such assets. Such a strategy would have the benefit of avoiding the large short-run shifts in the prices of financial assets and in the exchange value of the dollar that would attend any attempt by a group of foreign investors to make a rapid adjustment in the composition of their portfolios. A decrease in the inflow of capital from abroad would reduce the domestic availability of capital and place upward pressure on credit and financial assets as interest rates would rise to equate the demand and supply of credit. For the U.S. economy as a whole, a long-term shift away from dollar-denominated assets by foreign investors could have a slightly negative impact on the economy over the long run given the current mix of economic policies. A reduction in the inflow of foreign investment would tend to push down the prices of stocks and bonds and push up interest rates since those wanting credit would be competing for a smaller pool of funds. The price of Treasury securities would fall as the Federal government would be required to raise interest rates in order to attract domestic and foreign investors to acquire Treasury securities, which would raise the cost of financing the Federal government's budget deficit. In addition, the shift from dollar-denominated assets would tend to push up the exchange value of foreign currencies relative to that of the dollar because an increase in demand for foreign assets would also raise demand for foreign currencies. The lower-valued dollar would raise the price of U.S. imports, particularly of raw materials and manufactured goods, which would put upward pressure on consumer and wholesale prices and tend to affect most negatively those sectors of the economy that are especially sensitive to movements in interest rates: the housing and automobile sectors. The decline in the international exchange value of the dollar also would tend to favor those industries and sectors of the economy that export. As long as the international exchange value of the dollar remained relatively low compared with other currencies, the exported goods sectors of the economy likely would expand by attracting more capital and labor and the imported goods sector of the economy would decline, assuming that all other things in the economy remained constant. It is not uncommon for investors to adjust the composition of their portfolios as economic and financial conditions change. Given the recent surge in foreign investors' accumulation of dollars and dollar-denominated assets, it is not unreasonable to expect that from time to time they will also attempt to adjust the composition of their portfolios between corporate stocks and bonds, U.S. Treasury securities, and direct investments in U.S. businesses and real estate. A long-term shift away from dollar-denominated assets, however, could have a negative effect on the long-term rate of investment, productively, and the rate of growth in the U.S. economy. Such a shift in the value of the dollar would tend over the long run to benefit the exported goods sector of the economy, but it could also complicate efforts to conduct domestic economic policies. Although there are numerous other currencies that might attract investors, the dollar continues to be the most widely traded currency around the globe, which means it likely will retain its desirability as an investment asset and as a medium of exchange for some time to come. Also, the vast and deep capital markets in the United States combined with the highly developed banking and legal systems continue to make investments in U.S. financial assets attractive to foreign investors, despite short-run changes in perceptions of risk or economic performance. Should a foreign investor with large financial holdings in the United States or a group of investors attempt to liquidate abruptly their holdings of assets such as Treasury securities, they would experience a severe loss in the value of those assets first as they attempted to sell their large holds in the market and then as they attempted to convert their dollar holdings into other currencies. As a result of these losses, it seems unlikely that a foreign investor with large holdings or a group of foreign investors would attempt to liquidate their securities quickly. A more likely course of action would be for foreign investors to adjust the composition of their portfolios slowly over time. If only one or a few foreign investors engaged in a strategy to liquidate part of their U.S. financial holdings, their actions alone are likely to have a limited impact on the economy over the short run, because market forces would be expected to adjust to attract other foreign investors to replace those who had withdrawn. However, if a broad range of foreign investors, for whatever reason, decided to reduce their holdings of dollar-denominated assets, interest rates in the United States likely would rise in response to market forces that would place them above the level where they would have been if the foreign capital inflows had remained at their higher levels. A higher level of interest rates would lead some firms to reduce their level of borrowing and investing and spur some households to curtail their consumption, especially of such interest sensitive products as housing and automobiles, which usually are financed over long periods of time. Over the long run, the lower level of investment by firms could be expected to result in a lower rate of growth in productivity and, therefore, in a lower rate of growth in the economy. In addition, if foreign investors were to attempt an abrupt adjustment to the composition of their portfolios that disrupted the financial markets or the broader economy, the Federal Reserve would not be expected to stand idly by on the sidelines. In such circumstances, the Federal Reserve has shown some agility in intervening on its own to stabilize credit markets and to move in coordination with other central banks. On December 11, 2007, for instance, the Federal Reserve decreased the federal funds rate and the discount rate on loans between banks by a quarter of a percentage point to ease credit conditions. Then, on December 12, 2007, the Federal Reserve announced that it would make $40 billion and perhaps more available to commercial banks in short-term loans to ease domestic liquidity issues and another $24 billion available to European central banks that had become so concerned about potential losses from U.S. mortgage-backed securities that they had begun to hoard cash and were unwilling to make loans to each other except at unusually high interest rate premiums. Such willingness on the part of the Federal Reserve to intervene in the financial markets to ensure stability likely makes a prolonged financial crisis arising from a liquidation of financial assets by one foreign investor or a group of foreign investors unlikely, even if those investors are foreign governments. | This report provides an overview of the role foreign investment plays in the U.S. economy and an assessment of possible actions a foreign investor or a group of foreign investors might choose to take to liquidate their investments in the United States. Concerns over the potential impact of disinvestment have grown as national governments have become more active investors in the U.S. economy and as innovation in creating financial instruments has increased volatility in financial markets. Such concerns seem out of step with the experience of the 2008-2009 financial crisis, during which the dollar became the preferred safe haven investment for foreign investors. If some foreign investors were to liquidate their holdings, these actions could affect the U.S. economy in a number of ways due to the role foreign investment plays in the United States and due to the current mix of economic policies the United States has chosen. The impact of any such action on the economy would also depend on the overall condition and performance of the economy and the financial markets. If the economy were experiencing a strong rate of economic growth, the impact of a foreign withdrawal likely would be minimal, especially given the dynamic nature of credit markets. If a withdrawal occurred when the economy was not experiencing a robust rate of growth or if credit financial markets were under duress, the withdrawal could have a stronger effect on economic activity. The particular course of action foreign investors might choose to take and the overall strength and performance of the economy at the time of their actions could affect the economy in different ways. Congress likely would become involved as a result of its direct role in making economic policy and its oversight role over the Federal Reserve. In addition, the actions of foreign investors could complicate domestic economic policymaking. Foreign investors who decide to liquidate their holdings of one particular type of investment would normally need to look for other types of assets to acquire. While there are a multitude of possible strategies foreign investors could pursue, this analysis assesses the impact of four of the most likely strategies a single large foreign investor or a group of foreign investors could choose to employ to reduce or withdraw entirely their holdings of U.S. financial assets: A rapid liquidation of U.S. Treasury securities. A shift in the makeup of foreign investors' portfolios among various dollar-denominated assets. A rapid shift from dollar-denominated assets to assets denominated in other currencies. A slow shift in the makeup of future accumulations of assets away from dollar-denominated assets to assets denominated in currencies other than the dollar. |
This report provides an overview of farm safety net proposals for the next farm bill, as advocated by the Administration, Members of Congress, and various interest groups. The Senate Agriculture Committee approved its version of the 2012 omnibus farm bill on April 26, 2012 (Agriculture Reform, Food, and Jobs Act of 2012), and officially filed the measure, S. 3240 , on May 24, 2012. A brief summary of the bill's farm safety net provisions is shown in Figure 1 . For details, see CRS Report R42552, The Senate Agriculture Committee's 2012 Farm Bill (S. 3240): A Side-by-Side Comparison with Current Law . In advance of the expiration of the 2008 farm bill ( P.L. 110-246 ), numerous proposals have been offered to revise the "farm safety net" for producers of crops covered by farm commodity support programs. Farm safety net proposals surfaced mostly during fall 2011, when budget deliberations by the Joint Select Committee on Deficit Reduction generated concerns that a new farm bill might be "written" or severely constrained from a budgetary perspective by budget negotiators, rather than by the House and Senate Agriculture Committees. Prior to the joint committee's deadline of November 23, 2011, the Administration, Members of Congress, and several prominent commodity and agricultural interest groups released proposals for U.S. farm policy in general, and for commodity programs in particular. The proposals ranged from simply extending current farm programs at reduced funding levels to program elimination and wholesale replacement. In October 2011, leadership of the House and Senate Agriculture Committees, drawing on various proposals that had emerged, sought to develop new farm policy that would fit within proposed budgetary guidelines. The leadership's proposal was not publically released, and ultimately the joint committee failed to reach a bipartisan consensus on deficit reduction. As a result, development of the farm bill is now following a more traditional legislative process, beginning with committee deliberations. Both the House and the Senate held hearings in early 2012 to solicit views from producers and others in advance of developing committee bills. This report provides a context for understanding and comparing the farm safety net proposals against current farm programs. The first section briefly describes the current farm safety net programs designed to support farm income and manage risk. The second section identifies issues and tradeoffs that might affect various policy approaches in the development of a new farm safety net. The third section compares each of the major safety net proposals with respect to the following criteria: program type, commodity coverage, type of losses covered, program mechanics, payment limits, conservation compliance, cost to producers and taxpayers, and proposal sponsor's rationale. Finally, Appendix A compares current farm safety net programs to the same set of criteria (and reporting status for the World Trade Organization), while Appendix B contains a description of the so-called "super-committee" process which occurred in the fall of 2011 and which precipitated the public presentation of many of the farm safety net proposals. Funding to write the next farm bill will be based on the Congressional Budget Office's (CBO's) March 2012 baseline projection of the cost of mandatory farm bill programs, and on varying budgetary assumptions about whether programs will continue. Total budget authority for all mandatory farm bill programs under current law is $995 billion during FY2013-FY2022 ( Table 1 ). Of this amount, budget authority for farm safety net programs is $153 billion over the 10-year period, including $63 billion for Title I (including commodity programs) and $90 billion for Title XII (crop insurance). Disaster programs do not have baseline funding. The CBO baseline projection is an estimate at a particular point in time of what federal spending on mandatory programs likely would be under current law. The March 2012 CBO baseline projection is the "scoring baseline" against which farm bill proposals would be measured for the remainder of the second session of the 112 th Congress. From a budget perspective, programs with a continuing baseline are assumed to go on under current law. These amounts can be used to reauthorize the same programs, reallocated among these and other programs, used as savings for deficit reduction, or used as offsets to help pay for other provisions. The federal government supports farm income and helps farmers manage risks associated with variability in crop yields and prices through a collection of programs. The broader farming community often refers to the "farm safety net" as: 1. farm commodity price and income support programs under Title I of the 2008 farm bill, 2. federal crop insurance (permanently authorized) under the Federal Crop Insurance Act of 1980, and 3. disaster assistance programs under Title XII of the 2008 farm bill, which expired on September 30, 2011. Each of these three components is covered in the sections below and summarized in Table 2 . The Congressional Budget Office (CBO) currently estimates the total cost of farm safety net programs for FY2011 at $13.8 billion. Projected budget authority for farm safety net programs averages $15.3 billion per year over FY2013-FY2022, including $6.3 billion per year for Title I (including commodity programs) and $9 billion per year for Title XII (crop insurance). Disaster programs do not have baseline funding. The mandatory commodity provisions of Title I of the 2008 farm bill provide support for 26 farm commodities—food grains, feed grains, oilseeds, upland cotton, peanuts, and pulse crops. The major farm programs under which payments can be received include direct payments (DP), counter-cyclical payments (CCP), Average Crop Revenue Election (ACRE) payments, and special benefits (including loan deficiency payments, marketing loan gains, and certificate exchanges) under the Marketing Assistance Loan program, as described in Table 2 . Producers of other so-called "loan commodities" (including extra long staple, or ELS, cotton, wool, mohair, and honey) are eligible only for nonrecourse marketing assistance loans and marketing loan benefits. In the 2008 farm bill, benefits for producers of dry peas, lentils, and chickpeas were expanded to include CCP but not fixed direct payments. Current farm law also mandates that raw cane and refined beet sugar prices be supported through a combination of limits on domestic output that can be sold and nonrecourse loans for domestic refined sugar, backed up by quotas that limit imports. Dairy product prices are supported by guaranteed government purchases of nonfat dry milk, cheese, and butter at set prices, and quotas that limit imports. Additionally for dairy, Milk Income Loss Contract (MILC) payments are made directly to farmers when farm-level milk prices fall below specified levels. In contrast to producers of traditional program commodities, producers of specialty crops (e.g., fruits, vegetables, horticulture crops) and livestock generally have received little or no direct government support through commodity programs. Instead, these farms may manage risks through business diversification, purchase of federal crop insurance, and participation in federal disaster assistance programs. The federal crop insurance program provides risk management tools to address losses in revenue or crop yield. Revenue-based policies account for about 75% of total policy premiums, and yield-based policies account for 25%. Federally subsidized policies protect producers against losses during a particular season, with price guarantee levels established immediately prior to the planting season. This is in contrast to commodity programs, where protection levels are specified in statute (e.g., counter-cyclical payments) or use average farm prices from previous years (e.g., ACRE). Federal crop insurance has grown in importance as a risk management tool since the early 1990s, due in large part to substantial federal support. The federal government pays about 60%, on average, of the farmer's crop insurance premium, plus the administrative costs of delivering the products. Thus, as participation in crop insurance programs has grown over time, so too has the absolute level of federal premium subsidies. CBO projects that the crop insurance program in its current form would cost, on average, $9.0 billion per year ( Table 2 ) through 2022. In 2011, crop insurance policies covered 264 million acres. Major crops such as corn, soybeans, wheat, and cotton are covered in most counties where they are grown, and policies cover at least 80% of planted acreage of each crop. Crop insurance is also available for over 80 specialty crops. In 2009, specialty crop policies covered more than 7 million acres, or up to 75% of specialty crop area. In total, policies are available for more than 100 crops, including coverage on fruit trees, nursery crops, and dairy and livestock margins, as well as pasture, rangeland, and forage. In an attempt to avoid ad hoc disaster programs that had become almost routine, and to cover additional commodities, the 2008 farm bill included funding for five new disaster programs. However, these programs were authorized only for losses for disaster events that occur on or before September 30, 2011, and not through the entire life of the 2008 farm bill (which generally ends on September 30, 2012). As a result of this early expiration, CBO does not include program funding in future baseline estimates. The largest of the disaster programs is the Supplemental Revenue Assistance Payments Program (SURE), which is designed to compensate eligible producers for a portion of crop losses not eligible for an indemnity payment under the crop insurance program. Unlike traditional disaster assistance and crop yield insurance, losses are calculated using total crop revenue for the entire farm (i.e., summing revenue from all crops for an individual farmer). The whole-farm feature and the use of 12-month season-average prices—while perhaps fiscally responsible—have made SURE complicated, data-dependent, and slow to respond to disasters. The 2008 farm bill also authorized three new livestock assistance programs and a tree assistance program. The current tight federal budget situation and the global economic difficulties since 2008 contrast sharply with the financial success experienced by the U.S. farm sector in recent years. The U.S. agricultural sector has been thriving financially since the mid-2000s as rising commodity prices and land values have pushed farm incomes to record levels and reduced debt-to-asset ratios to historically low levels. Over the past decade, farm household incomes have surged ahead of average U.S. household incomes. With this economic backdrop, several general policy issues have emerged in recent years that are likely to play a role in shaping the next farm bill. A major driver in developing the next farm bill is the current federal budget situation. Deficit reduction is likely to continue, as evidenced by the mandate given to the Joint Select Committee on Deficit Reduction, and agriculture is frequently mentioned as a target for cutting government spending. From an agricultural policy perspective, many supporters as well as some critics of farm subsidies have become increasingly interested in developing a safety net that reflects, at least to some degree, the following goal as expressed by one advocate: [M]aking the farm program safety net more effective, efficient, and defensible by reallocating baseline funding to improve risk management and complement crop insurance. Currently, marketing loan rates and target prices are too low to provide effective price and income support. The ACRE program has too many disincentives to participation. The SURE disaster program has not made timely payments and is expiring, and there is concern about how to protect against shallow losses. Direct Payments are increasingly difficult to defend as farm prices remain at historically high levels. Some producers have criticized farm safety net programs for being too slow to respond to disasters, not being well integrated, or not providing adequate risk protection. In contrast, long-time farm program critics question the need for any farm subsidies, contending that government funding could be better spent advancing environmental goals or improving productivity. Others cite economic arguments against the programs—that they distort production, capitalize benefits to the owners of the resources, encourage concentration of production, harm smaller domestic producers and farmers in lower-income foreign nations, and pay benefits when there are no losses or to high-income recipients. Farm policy observers have identified apparent overlap among farm safety net programs. For example, the ACRE program and crop insurance both address revenue variability. Also, the current farm program mix has several variations of "counter-cyclical-style" payments, including marketing loan benefits, traditional (price) counter-cyclical payments, ACRE (revenue) payments, revenue-type crop insurance, and whole-farm insurance. Some believe that a simplified approach might be more effective and less expensive. The number and type of commodities currently covered by farm programs are primarily the result of the historical and evolving nature of farm policy. Producers of staple commodities have benefited the most from farm programs because farmers and policymakers representing those commodities shaped the programs from their inception. Since then, other commodity advocates have not had the interest or sufficient political power to add their commodities to the mix. Commodity coverage in farm programs could be increased beyond current levels by developing a whole-farm program, or by revising the current whole farm insurance product so that it would be more widely accepted by producers. Payment limits for the farm commodity programs, with the exception of the marketing assistance loan program, either set the maximum amount of farm program payments that a person can receive per year or set the maximum amount of income that an individual can earn and still remain eligible for program benefits (a means test). The payment limits issue is controversial because it directly addresses questions about the size of farms that should be supported, whether payments should be proportional to production or limited per individual, and who should receive payments. Some policymakers want limits to be tightened to save money, to respond to general public concerns over payments to large farms, and to reduce the possibility of encouraging expansion of large farms at the expense of small farms. Others say larger farms should not be penalized for the economies of size and efficiencies they have achieved. Crop insurance has no payment limits, a feature that to some policymakers makes crop insurance an attractive centerpiece of farm policy because it helps small and large farms alike, but to others makes it a target for payment limit application. As a World Trade Organization (WTO) member, the United States has committed to operate its domestic support programs within the parameters established by the Agreement on Agriculture as part of the Uruguay Round Agreement. The United States also faces pressure to modify certain "trade-distorting" elements of its upland cotton programs due to an unfavorable WTO dispute settlement ruling. Several broad policy issues affect potential tradeoffs for revising the farm safety net. These include 1. how price (or revenue) protection is established, 2. the geographic level at which program benefits are triggered, and 3. whether or not a proposal addresses "shallow losses" (i.e., losses not covered by federally subsidized crop insurance because of the policy deductible). Each of these issues is discussed below and summarized in Table 3 . Farm safety net proposals offered to date by Members of Congress and interest groups can be analyzed using these same three issues as points of comparison. A matrix in Table 4 arranges each proposal accordingly. The left column is price (revenue) protection determination; the top row is the geographic trigger; and shallow loss programs are italicized within the table. A brief description of each of the proposals is provided in the section on " Safety Net Proposal Descriptions " and summarized in Table 5 . Given current relatively high price levels and agricultural market volatility, many ask how the government might best protect producers against lower prices and/or revenue. Crop insurance covers only intra-season price risk, and current program parameters for most farm programs are at levels that generally do not provide much protection at current price levels. Many producer groups are interested in protecting against multi-year price declines. However, using recent high prices as fixed references, without adjusting them downward, could increase program outlays and lead to potential World Trade Organization (WTO) disputes. In general, fixed price guarantees, if set at a relatively high level, can provide the most market protection for farmers but at a relatively high potential cost for taxpayers, as well as at increased risk for WTO trade disputes. In contrast, more market-oriented program parameters can reduce potential for overproduction and high taxpayer costs, but may provide less support to farmers when prices decline rapidly, particularly if the guarantee is based on current prices. Price protection based on historical average prices may be more attractive for producers following a high price period because it would establish a higher protection than current prices. A program's geographic trigger determines at what level a loss must occur before producers receive a benefit: farm, county, state, or national, or a combination. Farm-level compensation is usually preferred by producers because it is specific to their loss, but it can be more expensive for taxpayers. Also, a farm-specific program would need provisions (e.g., an insurance deductible) to avoid moral hazard problems—farmers deliberately taking actions that might increase their indemnities—or adverse selection, whereby only farms with high risk of loss participate. For an area-based program (such as county or district), farms might suffer a loss but not receive payment if the program payment trigger also requires a loss at the area level. Also, some say the lack of county data might make program administration difficult. National-level programs can be easier to administer (e.g., less data and fewer calculations required) but benefits might not match individual needs if national-level payments do not correspond to local farm losses. By design, a trigger based on individual farm loss would provide better farm-level yield protection than an area trigger. However, a lower payment rate (or limiting factor on payments) might be needed for budgetary purposes, since farm yield variability is greater than for a larger geographic area and hence the program could trigger payments more often. In contrast, an area-wide plan would provide less protection against individual yield risk while perhaps offering more price protection, depending on how the program is constructed. In any case, payment adjustment factors can be used to reduce eligible acreage so that a program fits under a predetermined cost constraint when scored by CBO. The issue of "shallow losses" (i.e., losses not covered by federally subsidized crop insurance but absorbed by the producer via the policy deductible) has received considerable attention in policy discussions. While shallow losses vary widely from year to year based on what can be minor deviations from normal weather or modest market price changes, some producers contend that the insurance deductible leaves them with too much out-of-pocket cost. Others say such losses do not necessarily threaten the commercial viability of a business and are part of the cost of doing business. Some policymakers and producers are concerned about the level of deductible and the cost of purchasing additional coverage to protect against shallow losses. Several entities have proposed alternatives to address shallow losses through a new revenue program (similar to ACRE). In contrast, others advocate that federal farm programs should focus only on "deep losses" that would otherwise drive a producer out of business and let individual operators use existing risk management tools to deal with year-to-year shallow losses. They argue that a shallow loss program would remove too much risk for producers and would encourage overproduction, which could reduce crop prices and drive up federal outlays. Yet others have commented that offering inexpensive deep loss coverage might encourage production of certain crops in more risky production areas if policies are made available in those areas or the coverage level is too high. Another choice when designing a farm program is whether to tie the benefits to current plantings or to historical plantings. Under the 1996 farm bill, payments were "de-coupled," meaning producers were no longer required to plant a specific crop in order to receive a payment (counter-cyclical program payments were added in 2002). Congress chose this method to encourage farmers to plant according to market signals and not for potential government payments. If under the next farm bill, payments are made on planted acres instead of historical base acres ("recoupling"), benefits would be more closely tied to producer loss. The tradeoff is that it could create the potential for market-distorting behavior by encouraging producers to plant for the program rather than the market, which could lead to overproduction, lower crop prices, and higher federal outlays. Also, programs using current plantings are less WTO-compliant. The recent surge in U.S. farm income has brought into question the need for nearly $5 billion in direct payments that are paid to agricultural land owners whether or not a loss was incurred. Besides the general issues described above, several specific policy directions, issues, and questions have emerged in recent months. 1. Apparent consensus for the elimination of direct payments would leave crop insurance to serve as the primary safety net policy. 2. Multiple commodity programs (i.e., different programs for different commodities) raise the issues of fairness and equity for payment distribution. 3. Using pre-determined target/reference prices might alter producer behavior, with implications for potential shifts in planted area and WTO obligations. 4. Should restrictions on growing fruits, vegetables, and wild rice be removed as a condition for receiving program benefits, to give producers increased planting flexibility? 5. Federal programs need to address the potential for losses following successive years of downward trending prices (multi-year price protection). 6. Should conservation compliance be maintained if direct payments are eliminated, and if so, how? Would it be attached to crop insurance or some other program? 7. The level and applicability of payment limits remain contentious. 8. Under sequestration, cuts of approximately $15 billion might be required for mandatory farm programs. Will committee leadership retain the $23 billion reduction goal previously announced? 9. How will sequestration be incorporated into the budget scoring of any new farm bill? In fall 2011, the Administration, Members of Congress, and a number of farm groups put forward a variety of proposals to reduce government expenditures on farm subsidies and revise farm programs. Selected proposals are summarized in the sections that follow and are listed in Table 5 . The proposals are grouped into four categories: (1) proposals that modify current policy, (2) new revenue programs, (3) crop insurance proposals, and (4) other. The order of proposals is based on these groupings. Most proposals either reduce or eliminate direct and counter-cyclical payments to generate savings and provide funding to change the farm safety net so it addresses concerns pertaining to farm revenue risk for producers. Also, most either leave the marketing loan program unchanged or retain it with modest modifications. Several proposals would reduce or eliminate direct payments and other commodity payments, and create a new crop revenue program by borrowing concepts from current programs such as ACRE or SURE. Several other proposals focus on changes to crop insurance, such as providing an area-wide, revenue-based crop insurance program that would supplement existing crop insurance products to cover shallow losses. Proposals offering the least amount of policy change include those by the Administration and others, which would essentially extend farm programs at reduced funding levels. Program type: Modify current policy so as to reduce budget costs. Programs eliminated: DP. Commodity coverage: Current program crops: wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, minor oilseeds, peanuts, and pulse crops (dry peas, lentils, chickpeas). Loss coverage: No change from current programs. Program description: Reauthorize CCP, ACRE, marketing loan program, and the suite of disaster programs, including SURE, that expired September 30, 2011; reduce crop insurance expenditures by reducing producer subsidies (by 2 percentage points) on those policies in which premiums are subsidized at above a 50% rate, reduce company average return on investments (ROI) to a 12% average, and reduce payments to companies for expenses and risk-sharing. Price/r evenue protection: No change from current farm and crop insurance programs (NC). Geographic loss trigger: NC. Eligible acres: NC. Payment calculation: NC. Payment limit: NC. Conservation compliance: NC. Cost to producer: Higher crop insurance premiums. Budget cost estimate: Administration estimates net savings of $33 billion over 10 years, including $2 billion in savings from better targeting of conservation programs; $30 billion from DP; and $8 billion from changes to the crop insurance program. Reauthorization of the suite of disaster programs, including SURE, would cost roughly $7 billion over five years. Rationale: The Administration is concerned that both the level of federal support directed to the crop insurance industry, as well as the crop insurance industry's return on investment (ROI), are artificially inflated by the high market-price setting of recent years rather than by a change in risk. This is because both premiums and subsequent federal support levels rise with market prices. To support its argument, the Administration points to a study that found that average ROI was 14% for crop insurance companies compared to an average of 12% for other types of insurance companies. As a result, the Administration proposes lower federal support so as to help bring the ROI more into line with the insurance industry average ROI. To achieve this, the Administration proposes capping administrative expense reimbursements based on 2006 premiums rather than the recent high-priced 2010 premiums. Also, the Administration proposes to more accurately price the premium for catastrophic (CAT) coverage policies, which will slightly lower the reimbursement to crop insurance companies. Farmers would not be impacted by the change to CAT since the farmer portion of the CAT premium remains fully subsidized. For many crop insurance policies, over half of the premium is paid by the federal government. The original rationale for high federal premium subsidies was to encourage greater producer participation. Today participation rates average near 83%. As a result, the Administration argues that the rationale for such high premium subsidy rates has weakened. The Administration proposes cutting federal premium subsidy rates by two percentage points on those policies that are subsidized in excess of 50%. Program type: Part of broad plan to reduce government spending by eliminating most farm programs, but maintaining crop insurance programs and guaranteed farm loans. Programs eliminated: All farm programs including DP, CCP, ACRE, and SURE. It also would end direct ownership and operating loans and not reauthorize disaster programs that expired September 30, 2011. Commodity coverage: No change from current crop insurance program (NC). Loss coverage: NC. Program description: Among its many government-wide provisions, the plan would maintain crop insurance and guaranteed loans. Price/ revenue protection: NC. Geographic loss trigger: NC. Eligible acres: NC. Payment calculation: NC. Payment limit: NC. Conservation compliance: None. Cost to producer: NC. Budget cost estimate: Total safety net savings would be more than $80 billion over 10 years (sponsor estimate). Rationale: Senator Coburn's proposal states that the farm safety net should be reformed to serve solely as a risk management tool intended to promote the capitalization of farmers; income support programs, such as direct payments, ACRE, and marketing assistance loans should be ended. Program type: Expand current CCP program. Programs eliminated: DP, ACRE, and SURE. Commodity coverage: Current program crops: wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, minor oilseeds, peanuts, and pulse crops (dry peas, lentils, chickpeas). Loss coverage: No change from current CCP and crop insurance programs. Program description: Modify CCP program two ways. First , make payments on planted acreage (rather than base acres) when the national average farm price during first several months (TBD) of marketing year drops below a reference (target) price. Second , increase target prices to more closely align with current market prices (formula TBD). Price/ revenue protection: Increases under CCP modifications relative to current CCP program. Geographic loss trigger: National. Eligible acres: All planted acres. Payment calculation: Same as under current CCP program. Payment limit: Unspecified. Conservation compliance: Unspecified. Cost to producer: None. Budget cost estimate: No estimate available. Rationale: Producer groups supporting these CCP modifications say current program parameters are no longer relevant and do not provide meaningful price protection. Switching from base acres to planted acres would align the CCP payment more closely with price risk associated with a producer's production (as provided under the current ACRE program but not the current CCP program). Using only partial-year data rather than the entire year for determining the payment would speed up payment delivery. The portion of the marketing year to be used has yet to be determined. Program type: Shallow-loss crop revenue program. Programs eliminated: DP, CCP, ACRE, and SURE. Commodity coverage: Current program crops: wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, minor oilseeds, peanuts, and pulse crops (dry peas, lentils, chickpeas). Loss coverage: Covers losses from 10% to 25% of crop-reporting-district (CRD) revenue guarantee. The first 10% of losses are not covered. Losses greater than 25% are expected to be covered by crop insurance polices. Program description: Makes crop-specific payments when two triggers are met: (1) actual farm revenue < farm guarantee, and (2) actual CRD revenue < CRD revenue guarantee. Both loss triggers use crop insurance harvest prices. Price/ revenue protection: Multi-year: both revenue guarantees (farm and CRD) are based on five-year Olympic average of yield (APH and CRD) times crop insurance harvest price. Geographic loss trigger: Two triggers must be met—farm level and CRD level. Eligible acres: Planted or intended to be planted acres. ARRM eliminates restrictions on planting fruits and vegetables on program acres. Payment calculation: Payment on 85% of planted acres with adjustment for farm yield relative to CRD yield. Per-acre payment rate equals 100% of difference between 90% of CRD revenue guarantee and actual CRD revenue (CRD yield x RMA harvest price). Payment rates capped at 15% of CRD guarantee. Payment limit: Subject to adjusted gross income (AGI) limitation of $500,000 non-farm average income and a payment limit of $65,000. Conservation compliance : Eligibility subject to conservation compliance rules. Cost to producer: None. Budget cost estimate: The elimination of several existing programs would score substantial savings, which are partially offset by the cost of the ARRM program (estimated at $28 billion over 10 years). CBO has scored $20 billion in net savings over 10 years for ARRM. Rationale: ARRM was designed to address several criticisms that emerged regarding the 2008 farm bill's Average Crop Revenue Election (ACRE) program. ACRE was intended to help farmers manage their revenue risks (not just price risk as under other farm programs) and protect against losses from multi-year price declines. Under ACRE, payments for an eligible crop required meeting two separate revenue triggers at both the state and farm levels. While the revenue aspect has been conceptually attractive for many, some have criticized ACRE's use of state crop yields to determine guarantee and payment levels. They point out that a crop loss problem in one part of a state might be offset by better yields in another part, resulting in minimal or no risk protection at a more local level. Another criticism is that, because ACRE payments are determined with season-average prices calculated by USDA at the conclusion of the marketing year, payments arrive at least a year after harvest. ARRM addresses these issues by using a five-year Olympic average revenue trigger based on yields in crop reporting districts (CRDs), which are multi-county areas, rather than statewide yields. This change is designed to shift the program's risk protection closer to the farm. In addition, the program uses harvest prices from the crop insurance program (which are based on current futures market prices for harvest-time contracts) for calculating actual and guarantee levels of revenue. This would speed up the payment delivery because crop insurance prices are available many months before season-average farm prices can be calculated. Like ACRE, the program has revenue triggers at both the CRD and farm levels. Program type: Shallow-loss crop revenue program. Programs eliminated: DP, ACRE, and SURE. Commodity coverage: Current program crops: wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, minor oilseeds, peanuts, and pulse crops (dry peas, lentils, chickpeas). Loss coverage: At the farm level, covers commodity-specific revenue losses greater than 12% but not to exceed 25% on planted/prevented planted program crop acreage. Program description: Makes payment when actual farm revenue for one or more program crops is less than the adjusted historic revenue guarantee for each crop (defined as 88% of historic revenue for each crop). CCP continues with 2012 target prices and payments made on 75% of base acres (down from current level of 85%). Target prices are no longer reduced by direct payment rates as under the 2008 farm bill. Price/ revenue protection: Multi-year; for each crop, the per-acre revenue guarantee is 88% times historic revenue; historic revenue equals the higher of the five-year Olympic average farm price or 2012 target price times producer yield (higher of the farm (1) APH, (2) five-year Olympic average APH, or (3) CCP or DP yield). Losses below 75% of historic revenue are not covered. Geographic loss trigger: Farm level. Eligible acres: Planted or intended-to-be-planted acres. A payment factor of 65% is used for planted acreage and 45% for prevented planted acres. Total eligible acres cannot exceed historical program crop base acres. Farmers must comply with requirements for planting flexibility. Payment calculation: Per-acre payment rate equals the difference between the revenue guarantee and the actual crop revenue per acre for the current year. For each crop, actual revenue is actual yield times national average farm price for the first four months of the marketing year plus net crop insurance indemnities and noninsured crop disaster assistance payments. (The national price could be adjusted for quality losses.) Payment limit: Subject to a payment limit of $105,000 for payments under the Revenue Loss Assistance Program and CCP. A person is ineligible for any benefits if average adjusted gross income (AGI) exceeds $999,000. Conservation compliance : Eligibility subject to conservation compliance rules. Cost to producer: None. Budget cost estimate: CBO score has been requested. Rationale: The proposal is designed to address shallow losses by combining the ACRE and SURE programs into a single program. It would not require a disaster designation to trigger producer eligibility. The primary program is limited to current program crops. In the payment calculation, using the national farm price for the first four months of the market season would speed up payment delivery compared to the SURE, ACRE, and CCP programs, which requires using full marketing-year average prices. Inclusion of net crop insurance indemnities in the actual revenue calculation helps prevent overlap of RLAP and crop insurance payments. Among other provisions, the proposal would reauthorize for FY2012 to FY2021 the expired livestock and fruit tree disaster programs, with slightly lower payment amounts to reduce overall costs. SURE would be authorized for FY2012 only. Additional provisions would make available a supplemental crop insurance policy based on area-wide losses. Program type: Shallow-loss crop revenue program. Programs eliminated: DP, CCP, ACRE, and SURE. Commodity coverage: Current program crops. Loss coverage: Covers losses from 10% to 25% of farm revenue guarantee (5% to 20% for irrigated crops). The first 10% (5% for irrigated crops) of losses are not covered. Losses greater than 25% are expected to be covered by crop insurance polices. Program description: Makes crop-specific payments when one trigger is met: actual farm revenue < farm guarantee. Price/ revenue protection: Multi-year; farm revenue guarantee is 5-yr. Olympic average farm price times higher of: producer's APH, producer's 5-yr. Olympic average APH, or 80% of the county yield. Geographic loss trigger: Farm level. Eligible acres: Planted or intended-to-be-planted acres. Payment calculation: Per-acre payment rate equals 85% of difference between the farm guarantee and actual farm revenue (actual yield times national farm price for the first four month of year only plus net crop insurance indemnities). Payment rates capped at 25% of guarantee. Payment limit: Subject to adjusted gross income (AGI) limitation of $500,000 non-farm AGI and $750,000 farm AGI. Conservation compliance : Eligibility subject to conservation compliance rules. Cost to producer: None. Budget cost estimate: Not available. Rationale: The American Soybean Association (ASA) has proposed a revenue-based program that they say improves farm risk management as a complement to crop insurance and serves as a replacement for current commodity programs. It features a single, farm-level loss trigger. Program type: Shallow-loss, area-wide revenue insurance (described below) and a modified marketing loan program. Programs eliminated: DP, CCP, ACRE, and SURE as applied to cotton. Commodity coverage: STAX is described for cotton producers only. Loss coverage: Loss coverage to be determined but likely in the range of 10% to 20% of revenue guarantee such that the first 10% of losses are not covered, and losses greater than 20% would be covered by crop insurance polices. Program description: Voluntary program whereby farmers could supplement existing revenue insurance with an area-wide insurance product subsidized at 80%. Price/ r evenue protection: The revenue guarantee has "floor protection" since the standard RMA projected harvest-time price (i.e., pre-planting time price for harvest-time futures contracts) is "cupped" by a minimum fixed reference price of $0.65 per pound that acts as a floor price guarantee when the projected harvest price falls below the fixed reference price. Producer prices have floor protection from the modified marketing loan—the upland cotton marketing loan rate is determined in the fall prior to planting the crop and would be set equal to the average of the Adjusted World Price for the two most recently completed marketing years within a bounded range of $0.47 and $0.52 per pound. Geographic loss trigger: Area-wide insurance policies are determined at the county level. Eligible acres: No change from current crop insurance programs (NC). Payment calculation: NC. Payment limit: NC. Conservation compliance: NC. Cost to producer: Producer premiums for the supplementary shallow-loss coverage would be offset to the maximum extent possible by using the available upland cotton program spending authority under the eliminated DP, CCP, ACRE, and SURE programs. Budget cost estimate: National Cotton Council (NCC) reports an annual cost of $400 to $500 million. Rationale: The "stacked" feature of the program is that it would provide shallow-loss coverage that would sit on top of the producer's individual crop insurance deep-loss product. It involves using an area-wide revenue product such as a modified group risk income protection (GRIP) program where losses are determined at the county level rather than the farm level. The product would be delivered through crop insurance, providing protection against shallow losses—for example, 10% to 20% loss of average revenue—by riding on top of existing crop insurance policies. GRIP is an insurance product designed to protect farms against revenue losses that occur at the county level rather than at the individual farm level. Area-wide policies such as GRIP are generally cheaper than farm-level policies since the risk of loss is pooled at a more aggregate level. The NCC claims that adjustments to the upland cotton marketing loan program would make the program compatible with World Trade Organization (WTO) domestic support commitments and address the long-running WTO dispute settlement case by Brazil against specific provisions of the U.S. cotton program. Program type: Shallow loss, area-wide yield insurance. Programs eliminated: None. Commodity coverage: Potentially all crops covered by yield insurance. Loss coverage: Shallow losses greater than 10%. Program description: Producers can supplement their individual farm-level yield policy with a new policy that pays an indemnity when area (e.g., county) yield is below 90% of expected level. Payment is designed to cover some or all of the deductible under an individual policy. Price protection: Guarantee is based on current prices (pre-planting time). Geographic loss trigger: Area level (e.g., county). Eligible acres: Planted acreage. Payment calculation: TCO payment made on eligible acres. Per-acre payment rate equals RMA price times the difference between area yield guarantee—90% times normal (historic) area yield—and actual area yield. Payment limit: None. Compliance issues: Unspecified. Cost to producer: Crop insurance premium (subsidized at not less than 60%). Budget cost estimate: Not available. Rationale: A producer would purchase an individual policy under the current crop insurance program and receive an indemnity when actual production or revenue is less than the policy's guarantee. A producer who also purchases a TCO policy would receive a second indemnity that covers all or part of the deductible, depending upon the level of loss for the entire area (e.g., county). Under the TCO, the farmer would receive the full value of the individual policy deductible when the actual area yield as a percent of normal is the same or less than the individual policy guarantee coverage selected by the producer. For example, if a producer purchases 75% yield coverage for individual yield policy, the policy's entire deductible is covered by TCO if the actual area average yield is no more than 75% of normal. The TCO coverage would be triggered only if the losses in the area exceed 10% of normal levels. The federal subsidy for TCO would be not less than 60% of the premium, which is similar to average subsidy level for the current crop insurance program. Program type: Deep-loss yield insurance. Programs eliminated: DP, CCP, ACRE, Marketing Loan Program, and SURE. Commodity coverage: Potentially all crops covered by yield insurance. Loss coverage: Deep yield losses of more than 30%. Program description: Replace current farm commodity programs and all crop insurance subsidies with a free crop insurance policy that covers yield losses of more than 30%. Price protection: Guarantee is based on current prices (planting time). Geographic loss trigger: Farm level. Eligible acres: Planted acreage. Payment calculation: Payment made on eligible acres. Per-acre payment rate equals crop insurance price times the difference between a farm's yield guarantee (e.g., 70% times APH yield) and actual farm yield. Payment limit: None. Conservation compliance : Require producers to meet a basic standard of conservation practices. Cost to producer: Basic policy is free. Producer could purchase additional coverage including revenue policies at full market price (i.e., no subsidies). Budget cost estimate: The Environmental Working Group (EWG) expects a total net savings of $80 billion over 10 years. Rationale: EWG advocates that taxpayers should not guarantee business income for anyone and the government should provide agricultural assistance only when losses are incurred due to a natural phenomenon such as bad weather, which is unique to agriculture. Program type: Deep-loss revenue insurance. Programs eliminated: DP, CCP, ACRE, SURE, and catastrophic crop insurance. Commodity coverage: Current program crops (with potential extension to other crops also covered by crop insurance at later date). Loss coverage: Deep losses (e.g., in excess of 20% or 30%). Program description: Program makes a payment when crop revenue for a county (or some geographic area) is below a guarantee based on county yields and historical prices. Protects against multi-year price declines but not shallow losses (i.e., losses stemming from producer's crop insurance deductible). To protect against shallow losses or to cover individual farm yield risk, producers could purchase individual policies that would "wrap around" the core coverage. Price protection: Guarantee based on three-year average or five-year Olympic average of crop insurance harvest prices. Geographic loss trigger: County (if data not available, use crop reporting district or other region). Eligible acres: Planted acreage. Payment calculation: Payment made on eligible acres. Per-acre payment rate equals difference between area revenue guarantee (e.g., 70% or 80% times county yield x crop insurance historical average price) and actual revenue (e.g., county yield x crop insurance harvest price). Payment limit: None. Conservation compliance : Unspecified. Cost to producer: Minimal fee. As currently available, producer could purchase individual (subsidized) policies for additional coverage. Budget cost estimate: Not available. The American Farm Bureau Federation (AFBF) expects that crop insurance premiums (i.e., the cost to both producers and the government) would decline because individual polices would "wrap around" the core coverage, and hence have less liability and potential for indemnities. The level of the insurance deductible on the core policy as well as the premium subsidy rates for buy-up coverage would be determined by budget cost implications. Rationale: AFBF argues that the federal government should provide more protection from larger downside risks while allowing producers to manage shallow losses on their own by purchasing additional (subsidized) insurance. According to the organization, the farm bill should provide strong safety net programs "that do not guarantee a profit and minimize the potential for farm programs affecting production decision." AFBF also says the proposal, unlike others, can be applied to a broader range of commodities, like fruits and vegetables. Program type: Establishes a new FOR for each of the major program crops with increased loan rates, and acreage set-asides. Programs eliminated: DP, CCP, and marketing loan benefits (i.e., loan deficiency payments and marketing loan gains). Commodity coverage: Current program crops: wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, minor oilseeds, peanuts, and pulse crops (dry peas, lentils, chickpeas). Loss coverage: Not applicable. Program description: Producers may place their crop in a crop-specific FOR whenever the market price falls below that crop's loan rate. Each FOR is capped, e.g., corn at 3 million bus., wheat at 800 million bus., soybeans at 400 million bus., etc. A crop placed in the FOR must remain there until its market price exceeds 160% of its loan rate (i.e., FOR release trigger), when it is released to the market. All crops placed in the FOR receive an annual storage payment of $0.40 per unit (e.g., bushel, cwt, lb.). When a crop's FOR reaches its cap and its market price remains between the loan rate and the FOR release trigger, then no further FOR placements may occur and no FOR release is triggered. When a crop's FOR reaches its cap and the market price falls below the loan rate, then a voluntary paid set-aside is triggered. The farm-level set-aside is based on whole-farm acreage, not crop-by-crop as in the past. Set-asides would be allocated at the county level. Participation in the set-aside is voluntary, but all farmers could bid on acreage they would be willing to put in the set-aside. Price/ revenue protection: Producer prices are protected by higher loan rates. Geographic loss trigger: Not applicable. Eligibility: Commodity payments would only be made for quantities actually placed in the FOR, in contrast to the current marketing loan program which makes payments on every bushel produced. As a result, the level of government payments could be significantly lower. Payment calculation: Producers are paid $0.40 per unit (e.g., bushel, cwt, lb.) per year as a storage payment for all crops placed in the FOR. Payment limit: None. Conservation compliance: Unspecified. Cost to producer: None. Budget cost estimate: No official score available. Rationale: According to a study funded by the National Farmers Union, the proposed farmer-owned reserves program would address the lack of timely market self-correction when crop prices plummet, while permitting farmers to receive the bulk of their revenue from market receipts. The study estimates that the FOR proposal would have saved an estimated $56.4 billion over a historical 13-year period from 1998 to 2010 if it had been in place in lieu of existing programs, while the value of production for affected crops would have been $33 billion higher. In the 112 th Congress, several Members have introduced legislation for alternatives to current federal dairy programs, which expire in 2012. Proposed dairy legislation has the potential to eliminate some dairy programs, modify others, or replace them with a new approach to dairy farm support. For example, the Dairy Security Act of 2011 ( H.R. 3062 ) was introduced in September 2011 by Representative Peterson and others. The bill parallels a concept developed by the National Milk Producers Federation as an alternative to current dairy programs that critics say have not provided an adequate safety net for dairy producers. Alternative proposals were subsequently introduced, including S. 1714 , S. 1715 , S. 1682 , and S. 1640 . These bills are described in CRS Report R42065, Dairy Farm Support: Legislative Proposals in the 112 th Congress . Several proposals advocate the use of whole farm insurance, which protects against declines in a farm's entire revenue and not individual crop revenues. For example, an expansion of whole-farm insurance is included in S. 1658 / H.R. 3111 , the Rural Economic Farm and Ranch Sustainability and Hunger Act of 2011. Currently, USDA offers whole farm revenue insurance in selected states through the Adjusted Gross Revenue (AGR) and AGR-Lite policies. A loss payment is triggered when the gross income for an entire farm (all crop and livestock revenue) is less than the approved income (based on the five-year average and the current year farm plan). Coverage is available for up to 80% of guaranteed income. The Chicago Council on Global Affairs, an independent international affairs organization, recommends merging all farm commodity support programs and crop insurance subsidies into a single whole-farm revenue insurance program. The council states that whole-farm revenue plans are less expensive to taxpayers than traditional support programs. Researchers, however, have pointed out the difficulty in developing whole-farm insurance products, including complexity in measuring and classifying risks that underlie the insurance contracts. The data needs can also be substantial, which can hamper farmer participation. According to the organization, the proposed changes to the safety net would save $2.5 billion per year. The Local Farms, Food, and Jobs Act of 2011 ( H.R. 3286 / S. 1773 ) was introduced in early November 2011 by Representative Pingree and Senator Brown. The bill would require the Federal Crop Insurance Corporation to offer nationwide a whole farm revenue risk plan that allows a producer to qualify for an indemnity if actual gross farm revenue is below 85% of the average gross farm revenue of the producer. Producers of any type of agricultural commodity would be eligible. In addition, coverage is to include the value of any packing, packaging, labeling, washing or other on-farm activities needed to facilitate sale of the commodity. The bill also would eliminate premium surcharges on insurance policies for organic crops and offer insurance at actual price levels received by growers for all organic crops produced in compliance with standards issued by USDA. On October 26, 2011, Representative Blumenauer, supported by environmental, taxpayer, and free-enterprise advocacy groups, introduced a proposal for new farm policy entitled "Growing Opportunities: Family Farm Values for Reforming the Farm Bill." The report outlines policy changes in six specific areas: commodity programs, conservation, research and development, beginning farmer programs, crop insurance, and nutrition. With respect to commodity programs, the proposal would eliminate direct payments and peanut and cotton storage payments. It would also place two limits on combined payments under the counter-cyclical payment, marketing assistance loan benefits, and ACRE programs—first, combined payments would be limited to entities with an adjusted gross income of under $250,000 per year, and second, total payment receipts would be limited to $250,000 per entity per year. Concerning crop insurance, it would link conservation compliance to participation in federally supported crop insurance, and would cut "administrative burden" and eliminate "perverse incentives." Funding increases are proposed for conservation (which would be reoriented to a performance-based program), nutrition, and research. Several measures intended to aid beginning farmers are also recommended. Specific legislative language has not yet been produced for this proposal. In terms of value of production, California is the largest, most diversified agricultural state. As a result, California agricultural interests wanted to formally express their concern that a new farm bill should better reflect that diversity. This request for a more diversified farm bill was formally promulgated by the October 14, 2011, submission of a California farm policy proposal to the joint committee. The California proposal includes over 70 specific recommendations involving funding and new program development in the areas of (1) plant and animal health and safety, (2) specialty crop promotion, (3) environment and natural resource protection, (4) improving public health and nutrition, (5) rural development, (6) research and education, (7) international market development, (8) farm and ranch safety net, (9) organic agriculture, and (10) ensuring that all farmers and ranchers have access to farm bill programs. Appendix A. Current Farm Safety Net Programs Evaluated by Key Criteria Current Program: Direct Payments (DP) Program Program type: Fixed, decoupled income support based on historic program acreage and yields. Commodity coverage: Historic program crops: wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, other oilseeds (sunflowers, canola, flaxseed, rapeseed, mustard seed, safflower, crambe), and peanuts. Loss coverage: No loss needed to trigger payment. Program description: Per-acre payments made to participating owners of historical base acres irrespective of current planting behavior. Revenue protection: Decoupled income support. Geographic loss trigger: No loss needed to trigger payment. Eligible acres: Historic base acres, no planting required to receive payment. Payment calculation: DP payment rate times 85% of historic base acres times the direct payment yield. Payment limit: $40,000 per person; $80,000 with spouse. Conservation compliance: Yes, conservation compliance linked explicitly to DP. Cost to producer: None. Budget cost estimate: Projected cost of DP during FY2013-FY2022 is $49.6 billion or $4.96 billion per year. WTO status: Notified as green box (i.e., exempt from inclusion under the United States' AMS limit of $19.1 billion). Current Program: Counter-Cyclical Payments (CCP) Program Program type: Variable, partially decoupled, commodity-specific income support. Commodity coverage: Current "covered commodities": wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, other oilseeds (sunflowers, canola, flaxseed, rapeseed, mustard seed, safflower, crambe), peanuts, and pulse crops (dry peas, lentils, chickpeas). Loss coverage: No individual farm loss required. Partially offsets crop-specific revenue losses due to price declines that occur when the national season-average farm price falls below a national price trigger (i.e., the crop's target price less its DP rate). Program description: Payments are coupled with current-year farm prices—a payment is triggered when the national season-average farm price for a specific crop falls below its national price trigger (i.e., the crop's target price adjusted downward by its DP rate). Payments are partially decoupled since they are made on historic base acreage and program yields. Price/ revenue protection: Provides revenue protection when national farm price falls below a national price trigger. Geographic loss trigger: National price trigger. Eligible acres: Historic base acres, no planting required to receive payment. Payment calculation: Total CCP payment = CCP payment rate times 85% of historic base acres times CCP program yield. CCP payment rate equals difference between the target price and the sum of the direct payment rate and the higher of the (1) national season-average farm price or (2) national loan rate. Payment limit: $65,000 per person; $130,000 with spouse. Conservation compliance: Yes. Cost to producer: None. Budget cost estimate: Projected cost of CCP during FY2013-FY2022 is $1 billion or $0.1 billion per year. WTO status: Notified as non-product-specific AMS (i.e., amber box) but eligible for non-product-specific de minimi s exemption. Current Program: Marketing Loan Benefits (MLB) Program Program type: Voluntary coupled, commodity-specific price support. Commodity coverage: Current "covered commodities": wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, other oilseeds (sunflowers, canola, flaxseed, rapeseed, mustard seed, safflower, crambe), and pulse crops (dry peas, lentils, chickpeas); peanuts; plus other "loan-eligible commodities": extra long staple cotton, wool, mohair, and honey. Loss coverage: Farmer receives benefit on production when market prices fall below loan rates; no yield protection. Program description: Voluntary price support program based on commodity-specific loan rates. Producer may claim a benefit (as either a marketing loan gain for crops already placed under a nonrecourse marketing loan, or as a loan deficiency payment for eligible crops not yet placed under loan) when the local county price for a specific commodity (or adjusted world price for cotton or rice) falls below its national loan rate. Also includes certificate exchanges. Price protection: Each crop's statutorily fixed marketing loan rate acts as a per-unit revenue floor for producers with the government making up any difference between the loan rate and the market price. (Market price is unaffected by the program.) Geographic loss trigger: Payment triggered at the county level when posted county prices fall below the national loan rate. Eligible acres: All production from harvested acres is eligible for the MLB. Payment calculation: The producer receives the difference between the national loan rate and the posted country price or adjusted world price (for cotton and rice). For crops under loan, the farmer may repay the loan at the posted county price if it is lower than the loan rate. Payment limit: None. Conservation compliance: Yes. Cost to producer: None. Budget cost estimate: Projected cost of MLB during FY2013-FY2022 is $776 million or $78 million per year. WTO status: Notified as product-specific AMS (i.e., amber box) where payments may be eligible on a commodity-by-commodity basis for product-specific de minim i s exemption. Current Program: Acreage Crop Revenue Election (ACRE) Program type: Voluntary coupled, commodity-specific income support. Commodity coverage: Current "covered commodities": wheat, feed grains (corn, grain sorghum, barley, oats), rice, soybeans, upland cotton, other oilseeds (sunflowers, canola, flaxseed, rapeseed, mustard seed, safflower, crambe), peanuts, and pulse crops (dry peas, lentils, chickpeas). Loss coverage: Covers a portion of commodity-specific revenue losses relative to historic average revenue. Program description: Voluntary program; however, selection is permanent for life of 2008 farm bill. ACRE protects producers against crop-specific revenue losses regardless of the cause—price decline, yield loss, or both. ACRE payments require that two revenue triggers (farm and state) be met. ACRE applies to all eligible crops on a farm, but payments for each crop are calculated separately. Price/ revenue protection: Multi-year: both revenue guarantees (farm and state) are based on five-year Olympic averages of yields and the two-year simple average of the national farm price. Geographic loss trigger: Two triggers must be met—farm-level and state-level; however, the payment is based on a state-level loss formula. Eligible acres: 85% of planted acres. Payment calculation: Total payment = state payment rate per acre times 85% of planted acres times ratio of five-year Olympic average farm yield over the five-year Olympic average state yield (state benchmark yield). State payment rate per acre equals the lower of (1) 25% of the state guarantee or (2) difference between the state guarantee (90% of the simple average of the national average farm price times the state benchmark yield) and the product of actual state yield times the higher of (i) the national average farm price or (ii) 70% times loan rate. Payment limit: ACRE does not have a separate payment limit. Instead, ACRE payments count toward the counter-cyclical program payment limit of $65,000 per person. The limits for both direct payments and counter-cyclical/ACRE payments are adjusted to account for the 20% reduction in direct payments under ACRE. Conservation compliance: Yes. Cost to producer: Participants must forgo 100% of CCP and 20% of DP for all eligible crops on a farm; marketing loan rates reduced by 30%. Budget cost estimate: Projected cost of ACRE during FY2013-FY2022 is $5 billion or $0.5 billion per year. WTO status: Notified as product-specific AMS (i.e., amber box) where payments may be eligible for product-specific de minim i s exemption on a crop-by-crop basis. Expired Program: Supplemental Revenue Assistance Payments (SURE) Program type: Coupled, whole-farm income support. Commodity coverage: All crops. Loss coverage: Covers a portion of whole-farm revenue losses relative to historic average revenue. Program description: Designed to replace ad hoc disaster assistance payments with a permanent program. SURE partially compensates producers for losses (due to natural disaster or adverse weather) in whole-farm crop revenue (a producer's revenue from all crops in all counties, i.e., the entire enterprise and not just the crops affected by loss). The whole-farm revenue, including farm program payments and net insurance indemnities, is compared with a guaranteed revenue level. If the actual whole-farm revenue is less than the farm's guaranteed level, then the producer receives a payment. Revenue protection: The SURE revenue guarantee is essentially the sum of a farm's crop insurance guarantees increased by 15%, and NAP guarantees increased by 20%. For insurable crops, the guarantee is 1.15 times higher of (APH or CCP yield) times insurance coverage level times planted acreage times price election. For non-insurable crops, the guarantee is 1.20 times 50% of higher of (adjusted NAP or CCP yield) times planted acreage times NAP price. Geographic loss trigger: Eligible farms must be located in a secretarial-disaster-declared county (or contiguous county) or have an overall yield loss greater than 50% with at least one crop having at least a 10% yield loss due to disaster-related conditions. Eligible acres: All planted or prevented planted acreage. Payment calculation: 60% of (program guarantee minus total farm revenue) where total farm revenue is sum for all crops of (harvested production times national average farm price) plus government payments plus crop salvage value. Payment limit: Payments are limited such that the guaranteed level cannot exceed 90% of expected farm income. Total payments per person may not exceed $100,000 for SURE plus the three livestock-related disaster programs of the 2008 farm bill. Since 2009, SURE payments are not available to producers if their three-year average adjusted gross income (AGI) is $500,000. Conservation compliance: Yes. Cost to producer: Participants must purchase crop insurance (or NAP if crop insurance is not available) on all crops in their farming operation such that SURE is supplemental, not primary, insurance. Budget cost estimate: Due to its expiration on September 30, 2011, SURE has no baseline funding in future years. WTO status: Notified as non-product-specific AMS (i.e., amber box) but eligible for non-product-specific de minim i s exemption. Appendix B. Joint Select Committee on Deficit Reduction and Agriculture Policy The Joint Select Committee on Deficit Reduction (or joint committee) established in the 112 th Congress was instructed to develop a bill to reduce the federal deficit by at least $1.2 trillion over the 10-year period ending in FY2021. The committee was established under the Budget Control Act of 2011 (BCA; P.L. 112-25 ). Because of its authority, the joint committee's budget recommendations had potential to significantly affect the development of the next farm bill. Legislative Process and Timeline of Joint Committee Any legislation resulting from the joint committee recommendations was to proceed under special "fast track" procedures that would prevent amendments and limit debate. The BCA allowed both chambers of Congress to pass the original legislation reported by the joint committee with no amendments on a simple majority vote. For the proposal to be considered under the special, expedited procedures, however, it had to be approved by the joint committee by November 23, 2011. Leaders of the joint committee declared an impasse on November 21, 2011, and ended their efforts without passing a bill. A simple majority of the 12 members would have sufficed to move the bill to both chambers for an up or down vote. Ultimately, to become law, the joint committee's bill was required to be passed by both chambers of Congress by December 23, 2011. If a joint committee proposal cutting the deficit by at least $1.2 trillion was not enacted by January 15, 2012, then an automatic spending reduction process that includes sequestration (the cancellation of budgetary resources) would ensue. Congressional committees whose jurisdiction was likely to be impacted by a joint committee proposal—for example, the House and Senate Agriculture Committees—were free to submit their own recommendations to the joint committee. However, no specific policy restrictions or requirements were placed on the joint committee. Hence, it was under no formal obligation to incorporate any recommended actions. House and Senate Agriculture Committees' Letter to the Joint Committee On October 17, 2011, the leadership of the House and Senate Agriculture Committees offered a letter to the joint committee recommending $23 billion in net deficit reduction from mandatory programs in the agriculture committees' jurisdiction. The unofficial consensus of those claiming to have knowledge of committee intentions was that the $23 billion would be allocated by cutting $13 billion from commodity support, $6 billion from conservation, and $4 billion from nutrition programs. The letter by the leadership of the agriculture committees also said that they were finalizing the specific farm policies that would achieve the $23 billion in deficit reduction and that a complete legislative package would be provided by November 1, 2011. However, no legislative package was forwarded by the agriculture committee leadership to the joint committee. According to news sources, regional differences over the potential "farm safety net" design appeared to be the most prominent obstacle to an agreement among agricultural policymakers. On November 21, 2011, the chairs of the House and Senate Agricultural Committees announced that they had developed a package to save $23 billion, but because the joint committee failed to reach an overall agreement, their effort on the package had ended. The agriculture committee leadership is expected to continue the process of reauthorizing the farm bill through the agriculture committees. Concerns with the Joint Committee Fast-Track Process Given the 10-year time frame of the joint committee's budget recommendations, many within the broader U.S. agricultural community were concerned that the joint committee's budget recommendations (whether influenced by the agriculture committee leadership's proposal or not) would have provided the framework for the next farm bill, thus precluding the full congressional debate that traditionally underlies the development of U.S. farm policy. As a result, certain agriculture-related interest groups—such as nutrition, agricultural research, renewable energy, rural development, and conservation—feared that they would be shut out of the process. After the House and Senate Agriculture Committee leadership issued its October 17 letter to the joint committee, Members of Congress, the news media, and several issue-specific advocacy groups spoke out against the "secret nature" of the leadership's policy recommendations and the joint committee's fast-track process, which they said circumvented the traditional open debate of farm policy legislation. On November 3, 2011, Congressman Kind delivered a letter to the joint committee—co-signed by 26 other Members of Congress and endorsed by several advocacy groups—urging it to "resist any attempt to use the expedited deficit reduction process to create new farm bill programs and entitlements that have not been reviewed by the Congress." Draft Proposal On November 18, 2011, the press reported on a draft proposal of farm bill recommendations. The document was subsequently described in the press as a preliminary draft under discussion by some but not all members of the agriculture committees' leadership. In the absence of action by the joint committee, proposals in the draft reportedly have been considered as a starting point for farm bill deliberations in 2012. The draft borrowed heavily from proposals by Members of Congress and others. The draft contained multiple titles, including a proposal for the farm safety net. Legislative language was not released, which precludes a detailed description of the plan. In broad terms, the proposal would have eliminated most of the current farm programs (except marketing loans) and replaced them with the Ag Risk Coverage (ARC) program as a free supplement to subsidized crop insurance coverage. Producers of most program crops (except cotton) would select one of the following two options. The revenue option is designed to protect against both yield and price declines at the farm level (compared with the state level under the current ACRE program). A payment would be made on 60% of planted acreage when a producer's farm revenue (yield times price) drops below 87% of the farm's five-year average (excluding the high and low years). Losses below 75% of farm revenue would not be covered (crop insurance, if purchased by producers, would cover these losses). Reportedly, the revenue option would be attractive to producers in the Midwest and Plains because it would build on what many consider favorable benefits from the crop insurance program for corn, soybeans, and wheat. The price option would make payments on planted acreage to producers when the national average price during the first five months of the marketing year drops below a reference (target) price. This option is similar to counter-cyclical payments under the 2008 farm bill, except that price protection would be higher than current levels. Reportedly, the price option is designed to be attractive to rice, peanut, and sorghum producers because crop insurance has been viewed as less attractive for these crops. Cotton would be handled separately in an attempt to resolved a long-standing trade conflict with Brazil under the World Trade Organization. The draft described the new cotton program as a stand-alone revenue protection program. Cotton producers have been advocating a separate county-based insurance program (see " Stacked Income Protection Plan (STAX) (Sponsor: National Cotton Council) ." For specialty crops, crop insurance coverage would be expanded. For dairy, current programs would be replaced with a new margin-based payment program, combined with provisions to reduce farm output when margins (milk price minus feed costs) decline. | In advance of the expiration of the 2008 farm bill (P.L. 110-246), numerous proposals have been offered to revise the "farm safety net" for producers of crops covered by farm commodity support programs. Farm safety net proposals by Members of Congress, the Administration, and a number of farm and interest groups surfaced mostly during fall 2011, when budget deliberations by the Joint Select Committee on Deficit Reduction generated concerns that a new farm bill might be "written" or severely constrained from a budgetary perspective by budget negotiators, rather than by the House and Senate Agriculture Committees. Ultimately, the joint committee failed to reach a bipartisan consensus on deficit reduction. Nevertheless, the joint committee process generated substantial movement toward reshaping the policy framework underlying the farm safety net and other major farm bill issue areas, such as conservation and nutrition. Since early 2012, legislation for the next farm bill has followed a more traditional process, starting with committee hearings prior to expiration of the 2008 farm bill (generally September 2012, but for commodity program crops, prior to the 2013 harvest). Many proposals with policy changes and proposed cuts have been directed at commodity programs and crop insurance, because these programs account for the bulk of agricultural funding (excluding conservation and nutrition programs, which are also considered part of the agricultural budget). Commodity programs, crop insurance, and the recently expired farm disaster programs comprise the so-called "farm safety net"—the federal government's suite of programs designed to support farm income and help farmers manage risks associated with variability in crop yields and prices. To generate budget savings and provide funding for proposed changes to the farm safety net, many of the proposals either reduce or eliminate direct and counter-cyclical payments. Most proposals either leave the marketing loan program unchanged or retain it with modest modifications. Several proposals would make changes in crop insurance, including cuts in producer subsidies. Three major issues are embedded in nearly all farm safety net proposals: (1) how price (or revenue) protection is established (i.e., within-year versus averaging across multiple years or fixed in statute); (2) at what geographic level—the farm level or a more aggregated regional level—program benefits are triggered; and (3) whether the proposal addresses "shallow losses," those not covered by federally subsidized crop insurance but paid by the producer via the policy deductible. Additional issues include whether program benefits should be based on current plantings ("re-coupled") rather than tied to historical plantings (as done since 1996 under direct payments), and to what extent a revised farm safety net program is applicable to crops outside of the traditional farm program mix. The Senate Agriculture Committee approved its version of the 2012 omnibus farm bill on April 26, 2012 (Agriculture Reform, Food, and Jobs Act of 2012), and officially filed the measure, S. 3240, on May 24, 2012. It overhauls the farm safety net by eliminating direct and counter-cyclical payments and establishing a new shallow loss revenue program. For the revenue guarantee, farmers are offered a choice of basing the guarantee on either historical farm or county yields. A separate insurance program is made available for cotton, and other changes are made to the crop insurance program that are designed to provide additional options to all crop producers, not just traditional farm program crops. |
T he Office of the Architect of the Capitol (AOC) is responsible "for the operations and care of more than 18.4 million square feet of facilities, 570 acres of grounds and thousands of works of art." This includes the House and Senate office buildings, the Capitol, the Capitol Visitor Center, the Library of Congress buildings, the Supreme Court building, the U.S. Botanic Garden, the Capitol Power Plant, and other facilities. The AOC carries out its bicameral, nonpartisan responsibilities using both its own staff and contracting authority for architectural, engineering, and other professional services. Since 1989, the Architect has been filled through appointment by the President, with the advice and consent of the Senate, following the forwarding of recommendations to the President from a bicameral commission consisting of Members of Congress. The Architect is appointed for a 10-year term and may be reappointed. The position was vacant for more than three years following the retirement of Alan Hantman on February 4, 2007. On February 24, 2010, President Barack Obama nominated Stephen T. Ayers, who had been serving in an acting capacity during the vacancy, to a 10-year term. The nomination was referred to the Senate Committee on Rules and Administration, which held a hearing on April 15, 2010. The Senators in attendance at the hearing praised Mr. Ayers and congratulated him on the nomination. Mr. Ayers was confirmed by voice vote in the Senate on May 12, 2010. Mr. Ayers announced his intention to retire on November 23, 2018. Upon his retirement, Christine Merdon, the Deputy Architect of the Capitol/Chief Operating Officer, became the Acting Architect of the Capitol. The appointment of the Architect has been a subject of periodic consideration for at least 60 years. It is a topic that has received increased attention during periods in which there has been a vacancy in the position and periods of congressional dissatisfaction with either the work of the incumbent or the involvement of the President in what some Members view as an internal legislative branch matter. This report discusses the history of the selection of the Architect and recent legislation. For additional information and a comparison of appointments in the legislative branch, see CRS Report R42072, Legislative Branch Agency Appointments: History, Processes, and Recent Actions , by Ida A. Brudnick. The Architect is "appointed by the President by and with the advice and consent of the Senate for a term of 10 years." This procedure was established by the Legislative Branch Appropriations Act, 1990, which also created a congressional commission responsible for recommending at least three individuals to the President for the position of Architect of the Capitol. The commission originally consisted of 10 Members (including the Speaker of the House of Representatives, the President pro tempore of the Senate, the majority and minority leaders o f the House of Representatives and the Senate, and the chairs and the ranking minority members of the Committee on House Administration of the House of Representatives and the Committee on Rules and Administration of the Senate). In considering the FY1990 Legislative Branch Appropriations Act, the Senate Appropriations Committee proposed revising the process by having the President nominate the Architect for a 10-year term, subject to the advice and consent of the Senate. Previously, the position did not require Senate confirmation. In the report accompanying H.R. 3014 , the Senate Appropriations Committee stated the following: These changes will conform the process of the appointment of the Architect more closely to the appointment procedure followed for other officers of similar stature. The Committee believes this will accord proper recognition to the importance of the functions of this office and help to promote greater accountability in their performance. During the brief Senate debate on the provision, Senator Harry Reid, then-chairman of the Legislative Branch Appropriations Subcommittee, declared that the committee's amendment "better reflects the institutional status of the Architect as an officer of the legislative branch and should make the lines of accountability in the performance of his duties much less ambiguous." Senator Don Nickles, then-ranking member of the subcommittee, noted the fixed term of the Architect would be similar to that of the Comptroller General, who is appointed for a single 15-year term. The legislative history does not appear to indicate why the shorter term was chosen for the Architect. In conference, House and Senate negotiators agreed to a compromise that reflected the absence in the Senate proposal of any formal role for the House in the selection of a future Architect. The compromise expanded the Senate's language by providing for a bicameral congressional advisory commission. The conference report does not provide additional information on this decision or any other options considered. The compromise was accepted in both houses without debate and the measure was signed into law on November 21, 1989. The commission was expanded in 1995 to include the chairs and ranking minority members of the House and Senate Appropriations Committees. A commission process is also used for filling vacancies in the position of Comptroller General, who leads the Government Accountability Office (GAO). The commission procedure for GAO, which also calls for a recommendation to the President of at least three individuals, was established in 1980. Prior to 1989, the Architect was selected by the President for an unlimited term without any formal involvement of Congress. Paul Rundquist, congressional scholar and former specialist at the Congressional Research Service, noted in testimony before the Senate Rules and Administration Committee in 1996 that "the fact that the Architect of the Capitol was a congressional agent nominated by the President without confirmation by the Senate does not seem to have troubled Congress until recent years." Bills related to the qualifications and appointment of the Architect have been periodically introduced since at least the 1950s; however, little action was taken on these proposals until the 1980s. Appendix A provides information on these bills. Bills proposing a new appointment process have taken various approaches. Two changes ultimately enacted include requiring the advice and consent of the Senate and establishing a commission to recommend names to the President. Other bills proposed making the Architect a congressional appointee. These included proposals to make the Architect subject to a joint appointment by the Speaker and President pro tempore; alternating appointment between the Speaker and President pro tempore; and a commission of Members recommending candidates to the Speaker and President pro tempore, with ratification by the chambers. The introduced bills also varyingly addressed the term of office, eligibility for reappointment, procedure for removal, and procedures following early vacancies. Whereas some of these bills focused only on the Architect, many of the bills introduced from the early 1970s forward also addressed the appointment of the other presidential appointees in the legislative branch, including the Librarian of Congress, the Comptroller General and the Deputy Comptroller, and the Public Printer. Questions have previously been raised about the authority of Congress to vest itself, or more specifically congressional leadership, with the power to appoint the Architect. These questions generally relate to whether the AOC's nonlegislative functions—including facility responsibilities for the Supreme Court and the Thurgood Marshall Federal Judiciary Building and membership on several nonlegislative governing or advisory bodies —make the Architect an "Officer of the United States" such that his or her appointment cannot be made by Congress consistent with the requirements of the Appointments Clause (Clause) of the Constitution. Under the Clause, "officers of the United States," defined primarily as officials that exercise "significant authority" in a "continuing" office, must either be appointed by the President with the advice and consent of the Senate, or, in the case of "inferior officers," by the "President alone, [] the Courts of Law, or [] the Heads of Departments." Whether the functions and responsibilities exercised by a government official rise to the level of "significant authority" is not easily determined. Consistent with this ambiguity, it does not appear that Congress has adopted a uniform interpretation of the Clause's applicability to the Architect. Nonetheless, the executive branch has previously concluded that "functions simply involving the management of governmental property" are generally not considered significant for purposes of the Clause. Thus, to the extent that concerns over congressional appointment of the Architect relate to his management of nonlegislative property, it would appear that such functions may not, on their own, prevent Congress from choosing to retain the power of appointment for itself. Since the enactment of the new procedure in 1989, a few bills have been introduced to change the process of appointing the Architect. These proposals would shift the Architect appointment responsibility from the President to specified Members of Congress. As with earlier bills, statements in the Congressional Record by bill sponsors have cited an interest in using the appointment process to protect the prerogatives of, and ensure accountability to, the legislative branch. Some discussions also have addressed the appropriate role of the House of Representatives, which does not play a formal role in the confirmation of presidential nominees. The only change enacted since 1989, as stated above, occurred in 1995, when the commission charged with recommending names to the President expanded to include the chairs and ranking minority members of the House and Senate Appropriations Committees. Table 1 compares the Members involved in appointment under current law and bills introduced since the 1989 act. During the 109 th Congress, one bill ( H.R. 4446 ) was introduced to establish a uniform appointment process and 10-year term of service for the Architect, the Comptroller General, and the Librarian of Congress. This proposal provided for joint appointment by four Members, including the Speaker, the majority leader of the Senate, and the minority leaders of the House of Representatives and Senate. No further action was taken. A bill ( H.R. 6656 ), which would provide for a 12-member congressional appointing panel, was introduced in the 110 th Congress and referred to two committees, although no further action was taken. In the 111 th Congress, two measures ( H.R. 2185 and H.R. 2843 ) were introduced to remove the President from the Architect appointment process and shift it to the congressional leaders and chairs and ranking members of specific congressional committees. Under both measures, the Architect would still be appointed for a 10-year term. Under H.R. 2185 , which was introduced on April 30, 2009, and referred to the Committee on House Administration and Committee on Transportation and Infrastructure, the Architect would be appointed by a 12-member congressional appointing panel. No further action was taken during the 111 th Congress. Under H.R. 2843 , as reported, the Architect would be appointed jointly by the same 14-member panel that currently is responsible for recommending candidates to the President. This bill was reported by the Committee on House Administration ( H.Rept. 111-372 ), and the Committee on Transportation and Infrastructure was discharged from further consideration of the bill. The House agreed to the bill, as amended to include 18 rather than 14 Members of Congress (see Table 1 ), by voice vote. It was received in the Senate and referred to the Committee on Rules and Administration, and no further action was taken during the 111 th Congress. The Legislative Branch Appropriations Act, 1990, which established the current appointment procedure, did not address the possibility of the removal of an Architect. The Architect, then, presumably serves at the pleasure of the President. A few of the bills introduced over the last 50 years providing for appointment by Members of Congress have contained provisions specifically addressing removal. H.R. 8616 (94 th Congress) proposed that the Architect could be removed by concurrent resolution. S. 2205 (94 th Congress) provided for removal by resolution in either the House or Senate. Statutes related to the selection of two legislative branch agency heads also address removal. Like the Architect of the Capitol, the Comptroller General (CG) is appointed by the President for a fixed term of office (for the CG, this term is 15 years) with the advice and consent of the Senate. The CG may be removed only by "(A) impeachment; or (B) joint resolution of Congress, after notice and an opportunity for a hearing" and only by reason of permanent disability; inefficiency; neglect of duty; malfeasance; or a felony or conduct involving moral turpitude. The Director of the Congressional Budget Office, who is appointed by the Speaker of the House of Representatives and the President pro tempore of the Senate after considering recommendations received from the Committees on the Budget of the House and the Senate, "may be removed by either House by resolution." Following the decision of George White, who served as Architect from January 27, 1971, until November 21, 1995, not to seek reappointment under the new process, Alan Hantman was nominated under the new procedure to a 10-year term by President Clinton on January 6, 1997. Following a hearing on January 28, 1997, the Senate Committee on Rules and Administration favorably reported his nomination. Mr. Hantman was confirmed by the Senate by voice vote on January 30, 1997. Declining to seek reappointment, Mr. Hantman retired on February 4, 2007, and Stephen T. Ayers, then-Deputy Architect, began service as the Acting Architect of the Capitol. As discussed above, Mr. Ayers was confirmed and appointed as Architect three years later, in 2010. Between the announcement that Mr. Hantman would retire and the nomination and confirmation of Mr. Ayers, few congressional announcements were made regarding the status of the Architect vacancy and the submission of the recommendations to the President. During a hearing on the FY2008 appropriations request on April 24, 2007, before the House Legislative Branch Appropriations Subcommittee, Acting Architect Stephen Ayers responded to a question about the status from ranking member Representative Zach Wamp: I did speak to the [Senate] Rules Committee about the selection process…. They have told me that their executive recruiter is currently interviewing potential candidates, and I surmise that they would give them that list of potential candidates in a month or two. So that is about the extent of my knowledge of that. Although the list of names was reportedly transmitted to President George W. Bush in summer 2007, the identity of the candidates was not publicly released by the commission. In its activities report on the 110 th Congress (2007-2008), the Committee on House Administration summarized congressional actions and indicated concern about the current process: Although the commission forwarded three candidates [to the President], complex circumstances prevented final selection and confirmation of the Architect. The Committee anticipates completion of the appointment process in the 111 th Congress, but in the meantime is reviewing whether the process is simply broken and requires new legislation. The three-year period following the retirement of the former Architect was also noted in the February 3, 2010, debate in the House on passage of the H.R. 2843 (111 th Congress), the Architect of the Capitol Appointment Act . Mr. Ayers was confirmed by the Senate on May 12, 2010. The initial selection process, as well as the recent search for a successor, have raised a number of potential issues for consideration. These issues, which are discussed below, include the length of the commission's work and the potential for extended vacancies in the position; the operation of the commission; and what would happen in the event an incumbent seeks reappointment as Architect. Although the commission may transmit names whenever there is a vacancy, it is not clear from either the statute or the legislative history exactly when the commission proceeds. The act does not address the possibility of the bicameral congressional commission beginning its work before an incumbent's departure. In addition, the statute is silent on any time frame for the commission's forwarding of recommendations following a retirement, presidential action on the commission's recommendation, or congressional action once a nomination has been received. From the retirement of George White until the Senate confirmation of Alan Hantman, 436 days elapsed. Some 1,193 days elapsed from the retirement of Alan Hantman until the Senate confirmation of his successor, Stephen T. Ayers. This period included a change in presidential Administration. The statute provides no guidance on how the commission should operate. If the commission has rules of procedure or criteria for choosing potential nominees, they have not been made public nor would they be binding for a future selection. In comparison, the statute establishing a commission to recommend individuals to serve as Comptroller General similarly does not address commission procedure. Questions about the commission remain regarding who presides over its meetings; where and how meetings are called; how many members of the commission constitute a quorum; what constitutes agreement by Members of the commission regarding nominees, including whether nominees need approval of a majority or all of the Members; and how the commission receives administrative or financial support (i.e., any staffing expenses, travel expenses, or other expenses related to the search and evaluation of candidates). When former Architect Alan Hantman was chosen, press reports were the only source of information that he was among the candidates whose names were forwarded to President Clinton for consideration. One press account indicated that "Hantman is the 'primary choice' of the 14-Members of Congress appointed to find the Capitol's tenth Architect." This same press account reported the following: "According to a letter from the chairman of the Senate Rules and Administration Committee Chairman John Warner (R-VA), Hantman was the first choice of the Members 'by a substantial margin.'" The account quotes an aide as reporting that "all 14 commission members voted either by ballot or proxy for the nominees," although the votes were not published. As stated above, following Mr. Hantman's term of office, the commission reportedly forwarded a list of names to President George W. Bush in August 2007. President Bush did not forward a nomination to the Senate prior to the end of his term. This period also encompassed the end of the 110 th Congress, with resultant changes in membership of the commission at the start of the 111 th Congress. The 1989 act does not address a change in the membership of the commission while there is a vacancy in the position. There are also unresolved questions should an incumbent Architect decide to seek reappointment under the current process established in 1989. It is not clear if or when the commission would form under this circumstance or if the incumbent Architect would need to be chosen again among at least two other potential candidates. Should the President choose not to reappoint the incumbent, it is unclear if formal notification would be required before the commission could begin its work or how this would be accomplished. Many of the introduced bills and congressional hearings related to appointment have addressed the fact that not all of those who have held the position of Architect of the Capitol have been trained architects. Some proposed legislation in the 1950s and 1960s would have required all future nominees to be trained architects. Alternatively, at least one bill—introduced in 1968 during a period of congressional concern over plans for the expansion of the west front of the Capitol—sought to change the title of the office to "Superintendent of the Capitol Buildings and Grounds" to reflect the fact the then-Architect did not have this training. When Architect White announced his retirement in 1995, concerns were voiced within Congress, the media, and professional groups about the necessary qualifications for any successor. There was considerable discussion about the necessity of the new Architect being a licensed architect and the type of professional management training and experience needed for the position. The American Institute of Architects (AIA) expressed its preference for a licensed architect with experience in management, procurement, and historic restoration. In 1995, the AIA sent congressional leaders a list of nine potential Architect nominees for consideration. The following year, Raj Barr-Kumar, the president-elect and a fellow of the American Institute of Architects, described the process by which the AIA arrived at these names and qualifications and responsibilities it identified in a February 29, 1996, hearing of the Senate Rules and Administration Committee. To fill the most recent Architect vacancy, the AIA again urged the selection of a licensed architect. Others, including some Members of Congress, emphasized a background in management because the job responsibilities, particularly with the opening of the Capitol Visitor Center, are broader than building design and construction and include some duties not necessarily associated with typical architectural practice. Appendix A. Legislation to Alter the Architect of the Capitol Appointment Process Appendix B. Architects of the Capitol Since 1793 Since 1793, 11 persons have held the position currently known as the Architect of the Capitol. Of these, two served for more than three decades and two others served for more than two decades. As stated above, pursuant to the 1989 act, any subsequent appointments would be for a term of 10 years, with the possibility of reappointment. Table B-1 lists the individuals who have served as Architect, including names, dates of service, and links to biographical information. | According to its website, the Architect of the Capitol (AOC) is responsible "for the operations and care of more than 18.4 million square feet of facilities, 570 acres of grounds and thousands of works of art." Pursuant to the Legislative Branch Appropriations Act, 1990, the Architect is appointed by the President with the advice and consent of the Senate. Prior to the enactment of this law, the President appointed the Architect for an unlimited term with no formal role for Congress. The act also established a 10-year term for the Architect as well as a bicameral, bipartisan congressional commission to recommend candidates to the President. As subsequently amended in 1995, this law provides for a commission consisting of 14 Members of Congress, including the Speaker of the House, the President pro tempore of the Senate, the House and Senate majority and minority leaders, and the chair and ranking minority members of the Committee on House Administration, the Senate Committee on Rules and Administration, and the House and Senate Committees on Appropriations. An Architect may be reappointed. Alan M. Hantman was the first Architect appointed under the revised appointment procedure. He declined to seek reappointment and served from January 30, 1997, to February 4, 2007. Stephen T. Ayers, who served as Acting Architect of the Capitol following Mr. Hantman's retirement, was nominated by President Obama on February 24, 2010, for a 10-year term. The nomination was referred to the Senate Committee on Rules and Administration. The committee held a hearing on April 15, 2010, during which the chair and ranking member praised Mr. Ayers for his work as acting Architect and congratulated him on the nomination. Mr. Ayers was confirmed by voice vote in the Senate on May 12, 2010. Upon the retirement of Mr. Ayers on November 23, 2018, Christine Merdon, the Deputy Architect of the Capitol/Chief Operating Officer, became the Acting Architect of the Capitol. Since at least the 1950s, multiple bills have been introduced that would alter the AOC appointment process and require the appointment to be made by the leadership of Congress rather than the President. Some of the Architect's current duties, however, may potentially raise a question as to whether the Architect is an "Officer of the United States" such that his or her appointment must comply with the requirements of the Appointments Clause of the Constitution. For additional information and a comparison of appointments in the legislative branch, see CRS Report R42072, Legislative Branch Agency Appointments: History, Processes, and Recent Actions, by Ida A. Brudnick. |
This report explains the Clean Air Act requirement that federal departments and agencies demonstrate that their activities—including projects that they fund—"conform" to state plans for achieving air quality standards. The report explains the statutory requirements, reviews the recent history of their implementation, and examines how conformity requirements might affect areas designated "nonattainment" for a revised ozone air quality standard. The Environmental Protection Agency (EPA) proposed such a revision in December 2014, and is under court order to finalize its review by October 1, 2015. Transportation conformity, which is required by Section 176(c) of the Clean Air Act (CAA), was established by Congress as a means of insuring that federal actions, including the provision of federal funds for transportation projects, not undermine air quality in areas that have not attained national ambient air quality standards (NAAQS) and in areas that were nonattainment, but have been redesignated as maintenance areas under CAA Section 175A. By potentially withholding federal funds for non-conforming projects, conformity serves as an important stimulus for state and local governments to assess potential air quality impacts of projects and, if necessary, modify them to assure that they not interfere with progress toward or maintenance of clean air. Under Section 176(c), departments and agencies of the federal government are prohibited from engaging in, supporting or providing financial assistance for, licensing, permitting, or approving any activity that does not conform to a State Implementation Plan (SIP) after such a plan has been submitted and approved. SIPs are a key element in achieving CAA standards. Under the act, depending on the NAAQS and the classification of the nonattainment area, states are required to develop SIPs within 18 months to four years of EPA's designation of an area as nonattainment. In general, in areas that have not attained one or more of the six NAAQS established by EPA (currently more than 100 areas with a combined population of 143 million ) the state must develop a SIP providing for implementation, maintenance, and enforcement of the NAAQS. In most cases, a SIP contains an inventory of existing emissions, projections of future emissions (generally including a motor vehicle emissions budget), and an identification of measures that will be taken to reduce the emissions in order to reach attainment by the statutory deadline. Deadlines vary, depending on the severity of the pollution, but generally a nonattainment area must demonstrate that it is making annual emission reductions sufficient to reach attainment. (For a more extended discussion of the requirements for nonattainment areas, see CRS Report RL30853, Clean Air Act: A Summary of the Act and Its Major Requirements .) Once an area has attained the NAAQS, it can be redesignated as a "maintenance" area if it revises its SIP to demonstrate how it will maintain compliance over a 20-year period. Conformity requirements apply to both nonattainment and maintenance areas. The act contains seven pages of detail regarding what constitutes a conforming project, and the requirements are further elaborated in the Code of Federal Regulations at 40 C.F.R. Part 93. In general, conformity to a SIP means that a proposed project or program "will not produce new air quality violations, worsen existing violations, or delay timely attainment of the national ambient air quality standards or delay interim milestones." Although a wide range of federal funding and programs is subject to conformity, it is transportation planning (and ultimately highway funding) that is most commonly affected. Transportation makes a substantial contribution to ambient concentrations of four of the six NAAQS pollutants: ozone, carbon monoxide, nitrogen dioxide, and particulate matter. Before a new transportation plan or transportation improvement program (TIP) can be approved by the Federal Highway Administration or Federal Transit Administration or a new non-exempt project can receive federal funding, a regional emissions analysis must generally demonstrate that the emissions of these pollutants or their precursors projected from the entire transportation system, including the new projects, are consistent with the emissions ceilings established in the SIP. Conformity must be demonstrated for the period ending on either the final year of the area's long range transportation plan, or at the election of the metropolitan planning organization (MPO), after consultation with the air pollution control agency, the longest of: the first 10 years of the transportation plan; the latest year in the SIP that contains a motor vehicle emissions budget; or the year after completion of a regionally significant project. Conducting this analysis can involve federal, state, regional, and local transportation and environmental planners. Ultimately, the Federal Highway Administration and Federal Transit Administration make conformity determinations for the transportation plan, TIP, and/or project. The conformity determinations are based on the most recent estimates of emissions, population, employment, travel, and traffic congestion provided by a variety of agencies. Combining these data, the MPO or state DOT must estimate vehicle miles traveled and emissions, generally by using an approved EPA mobile source emissions model. These models are periodically updated to reflect the current mix of vehicles and their emission characteristics. To reflect the changing nature of both economic and environmental inputs, both the statute and the regulations require that a nonattainment area's long-range Transportation Plan and its TIP demonstrate conformity at least every four years. The statute and regulations also require that MPOs re-determine conformity of transportation plans and programs not later than two years after approval of a new State Implementation Plan or motor vehicle emissions budget. In practice, many urban areas obtain a new determination that their TIP conforms on an annual basis. In the absence of conformity, the regulations provide that a limited set of exempt projects can go forward. The list includes 20 categories of highway safety projects, rehabilitation and reconstruction of transit facilities, purchase of replacement buses and rail cars, noise attenuation projects, and pedestrian and bicycle facilities. It does not include most new transit or highway projects, however. EPA's Office of Transportation and Air Quality (OTAQ) defined the exempt projects as those that are "air quality neutral"—that is, they neither improve nor degrade air quality. In addition to projects that are exempt by regulation, projects that were already approved and funded in the previous TIP may continue to be funded during a conformity lapse, provided that approval is not sought for a new phase of the project. Phases of a project include, among others, determination of environmental impacts under the National Environmental Policy Act, right-of-way acquisition, final design, and construction. Activities within each of those phases can continue for projects that were found to conform in the previous TIP. Transportation Control Measures (TCMs) listed in an approved State Implementation Plan are also allowed to proceed during a conformity lapse. These projects can include programs for improved public transit, construction of HOV (high occupancy vehicle) lanes, traffic flow improvement programs, fringe parking, idling reduction programs, and pedestrian facilities. In general, the statute and regulations assume that projects requiring a conformity determination will be located in urban or suburban areas, because most nonattainment areas have an urban or suburban core. But there are some nonattainment areas that are not urban or suburban. These areas would only need to demonstrate conformity if they had a non-exempt project that required federal funding or approval—a rare occurrence. Unlike areas with MPOs, they are not required to demonstrate conformity every four years. For the few rural areas that may have a federally funded project, EPA has developed separate procedures in 40 C.F.R. 93.109(f) that may deal with conformity. The section, which addresses "areas with insignificant motor vehicle emissions," states: ... an area is not required to satisfy a regional emissions analysis ... for a given pollutant/precursor and NAAQS, if EPA finds through the adequacy or approval process that a SIP demonstrates that regional motor vehicle emissions are an insignificant contributor to the air quality problem for that pollutant/precursor and NAAQS. The SIP would have to demonstrate that it would be unreasonable to expect that such an area would experience enough motor vehicle emissions growth in that pollutant/precursor for a NAAQS violation to occur. Such a finding would be based on a number of factors, including the percentage of motor vehicle emissions in the context of the total SIP inventory, the current state of air quality as determined by monitoring data for that NAAQS, the absence of SIP motor vehicle control measures, and historical trends and future projections of the growth of motor vehicle emissions. Most rural areas are unlikely to need to demonstrate conformity: the absence of monitoring data will mean that EPA cannot designate a rural area nonattainment in most cases. A nonattainment designation is based on the availability of three years of quality-controlled data from EPA-certified monitors. Approximately 814 U.S. counties (26% of the total) had ozone monitors reporting data to EPA in 2013; 2330 counties (74%), generally in less-populated areas, had no ozone monitoring. As a result, the majority of the nation's counties are termed "unclassifiable" by EPA, and are not subject to conformity. Nonattainment areas that have not demonstrated conformity by the applicable deadline fall into one of two groups: those in a grace period, and those in a conformity lapse. In the 2005 surface transportation law, Congress amended Section 176(c) of the Clean Air Act to provide that areas that do not make a conformity determination for a transportation plan or TIP by the applicable deadline are given a 12-month grace period to demonstrate compliance before conformity will lapse. As shown in Table 1 , since 2007, 34 areas in 18 states have used this grace period. As a result of this, as well as cooperation between air quality and transportation planners, all but seven areas in six states ( Table 2 ) have been able to demonstrate conformity without incurring a lapse. The experience of areas in the last decade was a marked change from the experience of areas prior to the 2005 amendments. From 1997 to 2003, 63 areas in 29 states and Puerto Rico had experienced a lapse, according to EPA. With a few notable exceptions, these areas were either medium-size cities or they were suburban areas near some of the nation's largest cities. Both before and after the addition of grace periods, most of the lapsed areas have returned to conformity quickly. Since 2007, only two areas (Huntington-Ashland, KY, and Beaumont, TX) have been in a lapse for more than six months. In the 1997-2003 period, of the 63 areas that experienced a lapse, 40 conformed within six months. Of the areas that lapsed for more than a year, few were major urban areas. The Government Accountability Office (GAO), citing EPA conformity program managers, reported that "most of these areas did not have pending new projects and, therefore, were not under time pressures to resolve their lapse." None of the lapsed areas actually lost transportation funding. DOT does not reduce the amount of funding a state receives, but without a conforming TIP, only exempt projects, TCMs, and project phases approved and begun in an earlier conforming TIP may be funded. Ultimately, when an area develops a new conforming TIP, the projects in that TIP will become eligible to receive funds. Aside from the observations noted above, it is difficult to generalize about the experiences of these areas. Each has, or had, its own special set of circumstances leading to the conformity lapse, and the transportation agencies and EPA responded in numerous, often unique ways. Many of the areas were allowed to demonstrate conformity by adopting additional emission reduction measures, by using a newer approved emissions model, by updating data used in the models, or by modifying the list of projects included in their TIP. In a 2003 survey, GAO found that, over the previous six years, only five metropolitan areas had to change transportation plans in order to resolve a conformity lapse. In general, until a March 1999 court decision, state and federal transportation agencies followed a less stringent interpretation of the act's requirements that allowed numerous projects to be funded and to continue through design and construction on the grounds that they had been approved and thus "grandfathered" prior to the lapse. In March 1999, however, the U.S. Court of Appeals for the D.C. Circuit struck down the grandfather clause. Since then, EPA and DOT have implemented more stringent requirements, through revised regulations. Atlanta is generally considered the "poster-child" for the most extreme effects of a lapse in conformity. Atlanta was classified as a Serious ozone nonattainment area under the one-hour ozone standard that EPA promulgated in 1979. While it had implemented numerous controls to reduce emissions and improve air quality, it continued to exceed the 1979 ozone standard as of the late 1990s. The Atlanta area is considered a prime example of sprawl development. In a 2001 report, the Atlanta Regional Commission (ARC), the federally designated MPO, found that, among 66 urban areas with populations greater than 500,000, Atlanta ranked 4 th in land area, but 56 th in population density. In large measure because of this sprawl, the Atlanta area also ranked 4 th in the nation in vehicle miles traveled per capita. Vehicle emissions were, therefore, major contributors to the area's ozone nonattainment. At the time of the D.C. Circuit's March 1999 conformity decision, the Atlanta metropolitan area was already in the second year of a conformity lapse. (The lapse began January 17, 1998, and lasted until July 26, 2000.) Initially, U.S. DOT had allowed the continued funding of numerous highway projects in Atlanta, despite the lapse in conformity, on the grounds that they were grandfathered. In January 1999, the Sierra Club and two local environmental groups filed suit, however, challenging 61 of the grandfathered projects, contending that they should not have been allowed to proceed except as part of a conforming TIP. In light of the D.C. Circuit opinion, the parties reached a settlement agreement in June 1999, under which many of the grandfathered projects were halted, but 17 were allowed to go forward. The heart of the Atlanta settlement was a new Interim Transportation Improvement Program (or ITIP). When conformity lapsed in January 1998, ARC had developed and received approval for an ITIP, which included the various grandfathered projects. In light of the litigation and D.C. Circuit decision, ARC developed a second (and ultimately a third) ITIP that the state and federal transportation departments, and EPA, as well as the environmental groups that had filed suit agreed could go forward during the lapse of conformity. Because they followed the D.C. Circuit decision and were themselves the product of settlement negotiations in a separate suit, the second and third Atlanta ITIPs are the best examples of what is allowed during a conformity lapse. These ITIPs, according to ARC, included only three kinds of projects: projects that were exempt under 40 CFR 93.126 (discussed above, on page 3); Transportation Control Measures; and a small group of projects that had received necessary approvals or funding and were allowed to continue to the completion of the phase that they were in. In all, about $700 million in projects that would have expanded highway capacity were stopped. Ultimately, in July 2000, ARC received approval for a new Transportation Improvement Program. The new program de-emphasized new highway capacity. Instead, 40% of its funds were dedicated to transit, 10% to bicycle and pedestrian facilities, 21% to safety measures and bridge and intersection improvements, and 26% to highway capacity. Besides the new TIP, an important result of Atlanta's conformity lapse was the development of the Georgia Regional Transportation Authority, whose Board included the heads of six state agencies as well as nine members appointed by the Governor. The authority was widely credited with improving coordination among transportation, planning, and environmental officials. Thus, although conformity requirements disrupted Atlanta's transportation planning, they appear to have served their intended function, forcing transportation and environmental officials to confer regarding the environmental impacts of transportation programs before and during major planning, design, and construction decision points and reorienting the area's transportation planning to a more multi-modal approach than the previous one, which relied heavily on new highway capacity. Not all parties were happy with these results, of course, but it would be hard to argue that the revisions violated the intent of the conformity requirements. When CRS wrote on transportation conformity in 2004, the report stated that the impact of conformity requirements might be expected to grow in the next few years for several reasons. First, the growth of emissions from sport utility vehicles and other light trucks and greater than expected increases in vehicle miles traveled appeared to be making it more difficult to demonstrate conformity. Second, recent court decisions (noted above) had tightened the conformity rules, making it more difficult to grandfather new projects. And third, the implementation of more stringent air quality standards for ozone and particulate matter (PM) in 2004 would mean that additional areas would be subject to conformity, many for the first time. Thus, the report concluded, numerous metropolitan areas would face a temporary suspension of highway and transit funds unless they imposed sharp reductions in vehicle, industrial, or other emissions. CRS was not alone in this expectation: about one-third of local transportation planners responding to a GAO survey expected to have difficulty demonstrating conformity in the future. Instead, in the time period since then, for a variety of reasons, conformity appears to have been a routine matter in most areas. What happened? A combination of higher fuel cost and the economic recession led to a reduction in vehicle miles traveled and a smaller share of new vehicle sales in the SUV and light truck categories. New emission control requirements for motor vehicles, power plants, and other sources also kicked in, substantially reducing emissions of ozone-forming compounds. Air quality data from before and after the promulgation of EPA's 2008 ozone NAAQS show the effect of these factors (see Table 3 ). In July 2007, when EPA proposed lowering the ozone NAAQS from what was effectively 84 parts per billion (ppb) to 75 ppb, the agency identified 398 counties with monitoring data exceeding the proposed standard, based on the most recent three years of data (2003-2005). The Regulatory Impact Analysis that accompanied the final standard in March 2008, using data for 2004-2006, identified 345 counties exceeding the 75 ppb NAAQS. By May 2012, when the nonattainment areas were actually designated, the number of counties in nonattainment had fallen to 232, based mostly on data for 2008-2010. As EPA stated in 2012, in the materials accompanying the formal designations: Air quality continues to improve across the nation as a result of successful federal, state and local pollution reduction efforts. EPA designated 113 areas as not meeting the 1997 ozone standards set at 84 parts per billion. Less than half that number are not meeting the 2008 standards. In addition, many of the areas designated today cover a smaller geographic area than the previous standards.... Only three areas in two states (California and Wyoming) have not been nonattainment for previous ozone standards. Wyoming is the only state that has not previously had an area designated nonattainment for ozone. EPA is currently considering a more stringent NAAQS for ozone again: a revised NAAQS was proposed in December 2014, and EPA is under court order to make a final decision by October 1, 2015. During the public comment period on the proposed rule, concerns regarding the extent of ozone nonattainment and thus the burden of demonstrating conformity have been raised, much as they were when EPA proposed previous NAAQS revisions. In the support documents that accompanied the December 2014 proposal, EPA identified 358 counties currently exceeding a proposed 70 ppb standard, using data for 2011-2013—or 558 counties if the NAAQS is set at 65 ppb. Because of continuing air quality improvements, the number of counties with monitors exceeding the standard is almost certain to decline before the nonattainment areas are formally designated. At the earliest, designation of nonattainment areas will occur in late 2017. By that time, new (Tier 3) standards for motor vehicles and their fuels will have taken effect. In promulgating Tier 3 last year, EPA estimated that Tier 3 alone would reduce ozone-forming emissions of NOx from motor vehicles by 10% in 2018. Beginning in 2015, power plants are required to reduce ozone-forming NOx emissions, as a result of implementation of the Cross-State Air Pollution Rule (CSAPR). The oil and gas industry, whose emissions of NOx doubled and whose VOC emissions increased fivefold between 2005 and 2013, are now subject to New Source Performance Standards that will reduce their emissions of ozone-forming volatile organic compounds (VOCs). Standards for stationary engines used for irrigation pumps and backup power supplies, which went into effect in 2013, will reduce emissions of both VOCs and NOx. These and other emission standards are likely to reduce the number of counties with ambient concentrations above the proposed new ozone standard (as compared to the list based on 2011-2013 monitoring data that was included in the support documents for EPA's proposed rule). In areas that will be formally designated nonattainment, the emission standards cited above will facilitate the demonstration of conformity. EPA's analysis projects the effects of these standards on ozone nonattainment areas. The agency's modeling shows only nine counties outside of California exceeding a 70 ppb ozone NAAQS in 2025, without any emission control measures additional to those already promulgated. A 65 ppb standard imposes a somewhat greater burden, but in that case, too, the modeling shows most areas reaching attainment without additional controls. This would seem to imply that EPA expects most areas would not have difficulty demonstrating conformity despite a more stringent ozone standard. If Congress were to consider legislation to amend the transportation conformity requirements, the most likely vehicle for doing so would be legislation reauthorizing the surface transportation program. Funding expires at the end of May 2015. As of this writing (mid-May), reauthorization legislation had not begun to move, although there has been much talk of a temporary extension of funding. It is generally thought that any short-term extension would not include policy provisions. It is unclear, at this time, when Congress may consider broader reauthorization legislation. The following bills have been introduced that would have indirect effects on conformity determinations for ozone nonattainment areas by modifying the dimensions of nonattainment areas or preventing or delaying EPA's proposed strengthening of the ozone NAAQS: H.R. 1044 would require each state to revise the boundaries of ozone and carbon monoxide nonattainment areas that include entire metropolitan or consolidated metropolitan statistical areas, to exclude counties that are not in violation of the NAAQS, as determined by air quality monitoring; H.R. 1327 / S. 640 would delay the review and revision of the ozone NAAQS for three years and require future reviews at 10-year rather than 5-year intervals; H.R. 1388 / S. 751 would prohibit a more stringent standard until at least 85% of the counties in nonattainment areas as of July 2, 2014, attained the current standard, and would require EPA to consider feasibility and cost in setting an ozone NAAQS, among other provisions; and H.R. 2111 would provide that no funds made available under any act may be used by EPA to implement any ozone standard promulgated after its date of enactment. | Under the Clean Air Act, areas that have not attained one or more of the six National Ambient Air Quality Standards (currently more than 100 areas with a combined population of 143 million) must develop State Implementation Plans (SIPs) providing for implementation, maintenance, and enforcement of the NAAQS. The act requires that, in these areas, federal agencies not engage in, approve, permit, or provide financial support for activities that do not "conform" to the area's SIP. Although a wide range of federal funding and programs is subject to conformity, it is transportation planning (and ultimately highway funding) that is most commonly affected. Before a new transportation plan or transportation improvement program (TIP) can be approved by the Federal Highway Administration or Federal Transit Administration or a new non-exempt project can receive federal funding in a nonattainment area, a regional emissions analysis must generally demonstrate that the projected emissions from the entire transportation system, including the new projects, are consistent with the emissions ceilings established in the SIP. While some express concern at the potential impact of these conformity determinations in delaying or altering new highway projects, others note that the process simply obligates the federal government to support rather than undermine the legally adopted state plans for achieving air quality. In the late 1990s and early 2000s, there were numerous lapses of conformity: 63 areas, in 29 states and Puerto Rico, had lapses between 1997 and 2003. In 2005, however, Congress amended the Clean Air Act to provide a 12-month grace period to demonstrate compliance following an area's designation as nonattainment before conformity will lapse. Since 2007, only seven areas have experienced a conformity lapse, despite the imposition of more stringent ambient air quality standards for both ozone and particulate matter. All but one of the lapses since 2007 were resolved within a year. As Congress considers reauthorization of surface transportation programs this year, questions have again been raised regarding the impact of conformity requirements, and whether the Environmental Protection Agency's (EPA's) current proposal to strengthen the ambient air quality standard for ozone will affect the number of areas required to make conformity determinations. Particular concern has been expressed for rural areas that may never have been classified nonattainment for an air quality standard before. The number of areas ultimately affected will depend on numerous factors, including the level at which EPA sets the final ozone standard and trends in emissions and weather in the period before EPA designates any new nonattainment areas. Although these factors introduce elements of uncertainty in future projections, most rural areas are unlikely to be designated nonattainment for the ozone standard, because they do not have ozone monitors in place. In the few rural areas that have been designated nonattainment, conformity needs only to be determined if there is a non-exempt transportation project that depends on federal funding or approval—a rare occurrence. In addition, EPA's conformity regulations provide exceptions for areas with insignificant motor vehicle emissions, which may facilitate the demonstration of conformity in any rural areas that will be designated nonattainment. This report explains the statutory conformity requirements, reviews the recent history of their implementation, and examines how conformity requirements might affect areas designated nonattainment for a revised ozone air quality standard. |
Most recently, the farm bill nutrition programs were reauthorized by the Agricultural Act of 2014 ("2014 farm bill"; P.L. 113-79 ; enacted on February 7, 2014) after related action in the 112 th Congress and the 113 th Congress. The "farm bill" is an omnibus bill which reauthorizes dozens of agriculture and agriculture-related statutes and their programs approximately every five years. Since 1973, the farm bill has included the Supplemental Nutrition Assistance Program (SNAP) (formerly, Food Stamp Program) and has come to include certain other (new and existing) nutrition programs administered by the U.S. Department of Agriculture's Food and Nutrition Service (USDA-FNS). Many programs reauthorized by the Food, Conservation and Energy Act of 2008 (or "2008 farm bill"; P.L. 110-246 ) expired after the end of FY2012 (September 30, 2012). The American Taxpayer Relief Act of 2012 ( P.L. 112-240 , enacted on January 2, 2013) included an extension of the 2008 farm bill through September 30, 2013, after which, most nutrition programs operated under the authority and funding of FY2014 appropriations ( P.L. 113-76 ). This report discusses the Nutrition Title (Title IV) of the enacted 2014 farm bill. As Congress formulated the Nutrition provisions of the 2014 farm bill, policy makers grappled with the following questions: Should the reauthorization of SNAP continue to be a part of the omnibus farm bill? Should provisions be enacted that would reduce spending for SNAP and if so, by how much? Should the recent expiration of a temporary SNAP benefit increase be considered in deliberations on SNAP spending levels under the farm bill? Should spending reductions be achieved by changes in households' eligibility and benefit amounts? Specifically, Congress has considered amendments to categorical eligibility rules; treatment of LIHEAP payments in SNAP benefit calculation. Should certain populations (e.g., students, ex-offenders, lottery winners) be disqualified from receiving food assistance? How might changes to retailer and benefit redemption policy have an impact on program integrity and participants' consumption of healthy foods? Should more SNAP participants be required to work? Should more SNAP participants be time-limited off assistance? Should SNAP and the farm bill nutrition programs further promote the purchase of fruits and vegetables, including from local sources? Should the farm bill include provisions to increase the funding and capacity of emergency feeding organizations (e.g., food banks and food pantries)? This report summarizes key SNAP and other nutrition provisions in the new law and in the 113 th Congress's Senate and House farm bills. For more general background on nutrition programs, more detail on certain SNAP issues, or reports that discuss the entire farm bill (not only nutrition programs), please reference other CRS products listed in the text box below. The law's conference report, H.Rept. 113-333 , is also a resource. First, this report summarizes the enacted law's 113 th Congress legislative history. Next, it presents the Congressional Budget Office (CBO) cost estimates of the new law's Nutrition Title as compared to those of the Senate and House bills. Finally, the report summarizes the new law and Senate and House proposals related to SNAP (specifically, length of authorization, eligibility rules [including work-related], benefit calculation, retailers, and benefit redemption); Programs in Lieu of SNAP (that some territories and tribes operate); Commodity Distribution Programs (TEFAP, CSFP, and USDA Commodities in School Meals); as well as certain other nutrition-related programs. Appendix A provides a more detailed CBO estimate comparison table, and Appendix B includes a side-by-side table of every provision in the Nutrition Title conference proposals and enacted law. Throughout this report, the portion of the farm bill that includes SNAP and the other nutrition programs is referred to interchangeably as "Title IV" and the "Nutrition Title." On May 14, 2013, the Senate Committee on Agriculture, Nutrition, and Forestry marked up the Agriculture Reform, Food, and Jobs Act of 2013 and reported an original bill, S. 954 , to the Senate. On May 20, 2013, the Senate proceeded to floor action on this bill. During floor consideration, two Nutrition Title amendments were added. Floor action on S. 954 concluded on June 10, 2013, when the full Senate approved the measure by a vote of 66-27. On May 15, 2013, the House Agriculture Committee completed markup of its version of the farm bill ( H.R. 1947 , the Federal Agriculture Reform and Risk Management Act of 2013) and approved the amended measure by a 36-10 vote. The House Rules Committee considered the bill on June 17 and June 18, 2013, followed by House floor consideration which began the week of June 18. During floor consideration, over a dozen Nutrition Title amendments were added. On June 20, the House considered H.R. 1947 , and the amended bill was defeated (195-234). Three weeks after H.R. 1947 failed, the full House debated a variation of the defeated bill that dropped all of the Nutrition Title but included all of the earlier adopted floor amendments to the other titles. This revised bill ( H.R. 2642 ) was approved by the House by a 216-208 vote on July 11. In order to initiate conference committee negotiations with the House, the Senate on July 18 substituted the text of H.R. 2642 with the text of S. 954 . After House passage of H.R. 2642 , Republican leadership convened and formulated a nutrition-only proposal. This nutrition proposal, though based mostly on the earlier version that was voted out of committee, had several key differences, namely a reauthorization for three years as well as new and revised policies related to work rules for SNAP participants. On September 19, the House passed a stand-alone nutrition bill ( H.R. 3102 ) by a vote of 217-210. The House adopted a resolution ( H.Res. 361 ) on September 28 that combined the texts of H.R. 2642 and H.R. 3102 into one bill ( H.R. 2642 ) for purposes of resolving differences with the Senate. H.R. 3102 was inserted into H.R. 2642 as "Title IV. Nutrition," with section numbers changed accordingly. The Senate appointed conferees on October 1, 2013; the House appointed conferees on October 13, 2013. October 30, 2013, was the first (and only) public meeting of the 40-member conference committee. On January 27, 2014, a conference agreement reconciling the differences between the two measures was reported as the Agricultural Act of 2014 ( H.R. 2642 , H.Rept. 113-333 ). Within eight days, both chambers approved the conference agreement, the House on January 29 by a vote of 251-166 and the Senate on February 4 by a vote of 68-32. On February 7, 2014, the President signed the bill, enacting P.L. 113-79 . The Congressional Budget Office (CBO) estimates that over 10 years (FY2014-FY2023), the enacted 2014 farm bill will reduce spending by approximately $8.0 billion. During deliberations on the farm bill, CBO prepared estimates of the impact of proposed changes on program spending levels. Table 1 compares CBO cost-estimates (either increases or decreases in spending from the prior law baseline) of provisions in the Senate proposal, House proposal, and Conference Report (now, current law). SNAP is an open-ended, appropriated mandatory program. This means that the statute does not specify a particular amount to be appropriated. Instead, the amount required to be spent is determined by various provisions of the law, most notably those pertaining to eligibility rules and benefit calculations, coupled with economic conditions. The Administration estimates the amount needed to be spent each year, and these estimated amounts are then appropriated. Thus, in order to change spending levels for SNAP (either increase or decrease), Congress generally must amend the statutory provisions that affect the program's costs, primarily eligibility and benefit calculation rules. As Table 1 shows, CBO estimated that the 2014 farm bill's Nutrition Title—which contains SNAP and non-SNAP provisions—will result in a net reduction in spending of approximately $8.0 billion over 10 years. The SNAP provisions alone are estimated to reduce spending by slightly more than $8.6 billion over 10 years; certain non-SNAP provisions are estimated to result in spending increases. This is compared to the Senate bill's $4 billion reduction and the House bill's $39 billion reduction. The law's Nutrition Title cost estimate is largely the result of three SNAP policy decisions: the House's more stringent LIHEAP Standard Utility Allowance language, creating certain work-related pilot projects and related funding, and declining to make changes on SNAP categorical eligibility. Subsequent sections of this report discuss the changes in policy, including some changes that CBO did not find to have a budgetary impact. For a more detailed look at the CBO cost estimates, see Table A-1 , which breaks down the cost estimates of the 2014 law and proposals into further detail. Of the programs in Title IV, SNAP accounts for the largest amount of federal funding and also serves the largest number of households. In fact, like the farm bills before it, the vast majority of the spending authorized by the 2014 farm bill is for SNAP and related nutrition programs. According to CBO's baseline, direct spending projections authorized by the Nutrition Title represent approximately 79% of the 2014 farm bill's direct spending. SNAP is an open-ended appropriated entitlement and program benefits are 100% federally funded. In FY2013, SNAP benefits were provided to (a monthly average of) 47.6 million individuals at a cost of $79.6 billion (96% of which was the cost of the benefits themselves). SNAP participation ebbs and flows in relation to the nation's economy. Over the period of the 2008 farm bill (FY2008-FY2012), SNAP participation and spending rose sharply, a trend widely understood to be both a result of the recession and recovery as well as the American Recovery and Reinvestment Act of 2009's SNAP response to the recession. Effective November 1, 2013 the ARRA's SNAP benefit boost has ended; for this and other economic reasons, CBO forecasts reductions in SNAP participation and spending beginning in FY2014. This statistical backdrop has affected the congressional debate over reauthorization of SNAP. This section of the report highlights SNAP issues in the new law (and Senate and House proposals to a lesser extent). SNAP topics are organized into five categories: length of program authorization, eligibility (categorical, work-related, certain disqualifications), benefit calculation, retailers, and other policies. These are only a portion of the provisions which would affect SNAP. For a summary of every SNAP provision in the new law and the conference proposals, please see Table B-1 through Table B-7 in Appendix B . Section 18(a) of the Food and Nutrition Act (codified at 7 U.S.C. 2027(a)) had authorized appropriations for SNAP through September 30, 2012, and P.L. 112-240 extended this authorization through September 30, 2013. Between October 1, 2013, and the enactment of P.L. 113-79 on February 7, 2014, Congress provided for FY2014 appropriations or other authority that allowed SNAP operations to continue. The 2014 farm bill authorized appropriations for SNAP and the other programs that are funded through the SNAP account through September 30, 2018, the end of FY2018. In most farm bills in the past, SNAP was authorized for five years. The House bill would have reauthorized the nutrition programs for three years (FY2014-FY2016), and the Senate's would have reauthorized the programs for five years (FY2014-FY2018). Throughout the farm bill formulation, some policy makers expressed interest in separating the nutrition programs from the omnibus farm bill. The House-passed proposal to shorten the authorization compared to other farm bill programs was a step in that direction. Table B-1 summarizes these differences. Federal law provides the basic eligibility rules for SNAP, including limits for income and assets. There are two basic pathways to gain financial eligibility for SNAP: (1) having income and assets below specified levels set out in federal SNAP law; and (2) being "categorically," or automatically, eligible based on eligibility and receipt of benefits from other specified low-income assistance programs. A categorically eligible household still undergoes benefit calculation, so being categorically eligible does not mean that the household will necessarily receive benefits. Under traditional categorical eligibility, a SNAP applicant household is eligible for SNAP when every member receives Temporary Assistance for Needy Families (TANF) cash assistance, Supplemental Security Income (SSI), or state-funded general assistance cash benefits. Under current law, states must—at minimum—administer traditional categorical eligibility. As of July 2013, five states make this minimum choice. However, states also have the option to adopt so called "broad-based" categorical eligibility. Under this option, in addition to the programs listed above as "traditional," households that receive any TANF-funded benefit may be deemed eligible for SNAP benefits, if certain income conditions are met. A TANF-funded benefit can, and often does, include a nominal service like an educational brochure. Per USDA regulation, the TANF-funded benefit (cash or non-cash) that conveys categorical eligibility must be for households at or below 200% of the federal poverty line. As of July 2013, 43 states had chosen to implement broad-based categorical eligibility in addition to traditional eligibility. Since few of the non-cash TANF-funded benefits require a test of assets, this option often means that applicants' assets are not checked. For further explanation of SNAP eligibility, categorical eligibility, and the details of states' choices on this topic, please see CRS Report R42054, The Supplemental Nutrition Assistance Program (SNAP): Categorical Eligibility , by [author name scrubbed] and [author name scrubbed]. Although the 113 th Congress debated this policy, ultimately the new law did not include any changes to categorical eligibility. The Senate proposal would have made no changes to categorical eligibility. Related amendments were defeated during committee markup and on the Senate floor. Section 4005 of the House proposal would have repealed "broad-based categorical eligibility," and limited categorical eligibility to SNAP applicants that receive TANF cash assistance, SSI, or state-funded general assistance cash benefits. As shown in Table 1 , CBO estimated that this change would have reduced spending by approximately $11.6 billion over 10 years. CBO estimated that about 1.8 million people per year, on average, would lose benefits if they were subject to SNAP's income and asset tests. These provisions are summarized in Table B-2 . SNAP law has rules on employment or work-related activities for able-bodied, non-elderly adult participants. Some rules apply in all states that operate SNAP. However, because each state designs its own SNAP Employment and Training Program (E&T), certain requirements can vary by state. In addition to the nationwide and state-specific work eligibility rules, SNAP law creates a time limit for able-bodied adults without dependents ("ABAWDs") who are not working a minimum of 20 hours per week. If these individuals do not work the required number of hours, they can receive no more than three months of benefits over a 36-month period. A state does have limited flexibilities with regard to enforcing this time limit, and so an ABAWD's eligibility is further affected by whether (1) the individual lives in an area that has waived the time limit due to local labor market conditions or (2) whether the state agency chooses to use its available exemptions to serve the individual beyond the time limit. In the formulation of the 2014 farm bill, policy makers debated whether to require more SNAP participants to be working in addition to or instead of receiving food assistance. Policy makers have also debated the potential paths to such an outcome, and the challenges of accomplishing the outcome during a still fragile economic recovery. Before discussing the work-related policies enacted by the 2014 farm bill, this section discusses the aspects and relevant background for work requirements in SNAP. Ultimately, the farm bill made little change to these rules, but this background can assist in following ongoing debate and implementation of new policies. To gain or retain eligibility, most able-bodied adults (with or without dependents) must register for work (typically with the SNAP state agency or a state employment service office); accept a suitable job if offered one; fulfill any work, job search, or training requirements established by administering SNAP agencies (see " Varies By State: SNAP Employment and Training (E&T) " in next section); provide the administering public assistance 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. Individuals are disqualified from SNAP for failure to comply with work requirements for periods of time that differ based upon whether the violation is the first, second, or third. Minimum periods of disqualification, which may be increased by the state SNAP agency, range from one to six months. In addition, states have the option to disqualify the entire household for up to 180 days, if the household head fails to comply with work requirements. The law exempts certain individuals from the above requirements. In FY2011, nearly 64% of SNAP participants were not expected to work because of age or disability. Specifically, 45% of participants were children; 9% were elderly; and 10% were disabled. In FY2013, states reported that 13.3 million participants were subject to SNAP work requirements and registered for work. As noted above, those not exempted must register for work and accept suitable job offers; in addition, state SNAP agencies may require work registrants to fulfill some type of work, job search, or training obligation. SNAP agencies must operate an Employment and Training (E&T) program of their own design for work registrants. SNAP agencies may require all work registrants to participate in one or more components of their program, or limit participation by further exempting additional categories and individuals for whom participation is judged impracticable or not cost effective. States may also make E&T activities open only to those who volunteer to participate. Program components can include any or all of the following: supervised job search or training for job search; workfare (work-for-benefits); work experience or training programs; education programs to improve basic skills; or any other employment or training activity approved by USDA-FNS. In FY2013, states placed nearly 640,000 participants in E&T services. Aside from these measures of participation, there has been little national data available on E&T programs. Ultimately, the enacted farm bill expands the capacity, reporting, and evaluation of states' E&T programs (more information under " 2014 Farm Bill: Maintains Current Law, Adds and Funds Work-Related Pilot Program, Requires E&T Reporting "). In addition to SNAP's work registration and Employment and Training program requirements, there is a special time limit for able-bodied adults, aged 18 to 49 who are without dependents (ABAWDs) . This requirement—often referred to as the "ABAWD Rule"—was added by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA, P.L. 104-193 ). SNAP law limits benefits for ABAWDs to 3 months out of a 36-month period, unless the participant: works at least 20 hours per week; participates in an employment and training program for at least 20 hours per week; or participates in a state's "workfare" program. States have the option, but are not required, to offer ABAWDs a slot in an employment and training program or a workfare program. Some states "pledge" to serve all ABAWDs in such programs, others do not. States that "pledge" to serve all ABAWDs in these programs receive extra federal funding for that purpose. If a state does not offer an ABAWD a slot in an employment and training or workfare program, benefits can be terminated for those without at least a half-time job once the 3-month limit is reached, unless the individual is covered by an exemption or a "waiver" of the ABAWD requirement. (Further detail on the available waivers and exemptions from the ABAWD time limit is available in CRS Report R42505, Supplemental Nutrition Assistance Program (SNAP): A Primer on Eligibility and Benefits , by [author name scrubbed].) Those who lose benefits under this rule are able to reenter the program if, during a 30-day period, they work 80 hours or more or participate in a work/training activity. ABAWDs who become employed, but then again lose their jobs can, under some circumstances, earn an additional 3 months of eligibility, bringing their maximum months of SNAP receipt without working at least 20 hours per week or being in an approved work or training program to 6 months in a 36-month period. Although the House proposal included changes to this rule, ultimately, the enacted law did not include those policies (more under " House Proposal—Proposed Four Approaches to Changing Work Rules ." Since the 2002 farm bill ( P.L. 107-171 ), SNAP E&T has been financed using several streams of mandatory federal funding. The federal government funds SNAP E&T in four ways: 1. $90 million in annual mandatory funds that are allocated and reallocated to states based on a formula, 2. $20 million in annual mandatory funding allocated to states that pledge to provide E&T services to all able-bodied adults without dependents (ABAWDs), 3. open-ended matching funds for states' administrative costs for E&T, and 4. open-ended matching funds for states' reimbursement of E&T participants' dependent care and transportation costs. Program requirements, activities, and uptake of these funds vary by state. Since December 2005, certain appropriations laws have reduced the mandatory $90 million in E&T funding through changes in mandatory program spending (CHIMPs). The 2014 farm bill maintains the $90 million per year in mandatory funding for E&T, including reversing the reduction to $79 million made by the FY2014 Agriculture Appropriations law ( P.L. 113-76 ). It makes no changes to the existing funding discussed above in the " SNAP E&T Financing " and no changes to the " "ABAWD" Time Limit ." For the most part, work registration and state E&T requirements remain the same, but Section 4022 does include an opportunity for some states to expand and test their SNAP E&T programs; the provision also requires reporting on outcomes and other performance indicators. Section 4022 of the Agriculture Act of 2014 ( P.L. 113-79 , the "Farm Bill") requires USDA to conduct pilot projects to test work and job readiness strategies for SNAP participants. This provision was a compromise conference agreement, between (1) no changes to work rules in the Senate-passed bill and (2) House-passed changes that would have required additional monitoring and reporting, a repeal of USDA's authority to grant areas waivers from the ABAWD time limit, and a work-related pilot that would have offered fiscal incentives for states to reduce their SNAP caseloads. (See the following sections and Table B-3 for more detail on the Senate and House bills.) USDA is to select up to 10 pilot projects and provide grants to the states administering the chosen projects. Taken together, the projects must represent geographic diversity, target different subpopulations (e.g. participants subject to the ABAWD time limit, participants with limited work experience, or participants already working), test mandatory and voluntary E&T participation models, as well as meet other criteria. While the pilots could test some features comparable to TANF work programs, regular SNAP work rules regarding maximum hours of participation and limits to household sanctions still apply. Each project may run for no longer than three years. USDA is to conduct an independent, longitudinal evaluation of the projects' impact on participants' employment and earnings outcomes. To fund the projects and their evaluation, the law provides mandatory funding of $10 million in FY2014 and $190 million in FY2015. The funding is available until the end of FY2018. In addition to pilot projects, the law also requires all states to set performance goals for their existing SNAP Employment & Training (E&T) programs and to report annually. This policy was also included in the House bill. The Senate's proposal would have made no change to work-related policies. By continuing to fund the SNAP E&T funding at $90 million, the proposal incurred a cost from CBO, since the rescissions described earlier have reduced this amount in prior years. The House's conference proposal took four approaches to work rules. Section 4021 would have required additional monitoring of the reporting on SNAP E&T programs. Section 4023 would have provided $10 million in mandatory funding each year in FY2014, FY2015, and FY2016 for an evaluation of pilot projects to identify best practices in SNAP E&T programs. Section 4009 would have repealed the authority for states and portions of states to apply for labor-market-based waivers of the ABAWD time limit. Section 4039 would have created a new pilot/state option where states would require a minimum of 20 hours of work for able-bodied individuals; this proposal would have reduced available E&T funding, but to the extent that an evaluation shows that such a pilot resulted in reduced federal spending, states would have been able to share half of those savings. Table B-3 compares the House, Senate, and enacted work-related proposals. In addition to work-related disqualifications, like the ABAWD time limit, SNAP law provides various causes for temporary or permanent disqualification from the SNAP program. The 2014 farm bill added some additional disqualifications and amended some existing disqualifications. In addition to the discussion below, these disqualification provisions are summarized in Table B-4 . The new law did not include the House's proposal to allow states to drug test SNAP applicants and recipients. Already prior to the 2014 farm bill, college students (attending higher education courses half-time or more) between ages 18 and 49 were—for the most part—ineligible for SNAP. A student enrolled in an institution of higher education more than half-time was only eligible for SNAP benefits if the individual meets at least one of the following criteria: (1) under 18 years old or age 50 or older; (2) disabled; (3) employed at least 20 hours per week or participating in a work-study program during the school year; (4) a parent (in some circumstances); (5) receiving TANF cash assistance benefits; or (6) enrolled in school because of participation in certain programs (including SNAP E&T). Also under prior law, there was no provision that specifically addresses lottery or gambling winners ; however, the SNAP program's eligibility tests would appear to limit the increase in income or wealth that would be associated with significant winnings. In several high-profile instances in recent years, SNAP participants won large sums in the lottery, and the state agency learned of their windfall from media reports. As proposed in the House and Senate bills, P.L. 113-79 made some additions regarding post-secondary students and gambling winnings: For post-secondary students, the law—retaining the existing rules for college students—adds the requirement that those students enrolled in post-secondary institutions as a requirement of participation in "SNAP Employment and Training" must be enrolled in certain employment-oriented training to qualify for SNAP; specifically, this includes certain career and technical education, remedial courses, basic adult education, literacy, or English as a second language. The law creates more specific rules that make households that receive "substantial lottery or gambling winnings" (as determined by USDA) ineligible for SNAP until the household meets the SNAP resources (assets) and income eligibility limits. State SNAP agencies would be required to establish agreements with the state gaming agency in order to make determinations of winnings. Under current law, SNAP applicants and participants can only be subjected to testing for controlled substances under certain state options. For example, a state may require a SNAP applicant to pass a drug test, if such a test is part of the state's modification to the drug felony disqualification (see next section). The conference agreement did not include the House bill's provision that would have allowed states to enact legislation authorizing drug testing for SNAP applicants at full cost to the state. Under prior law, the only criminal convictions that could impact eligibility for SNAP benefits were drug felony offenses (with some states opting out of or modifying the drug felony disqualification). The drug felony disqualification was added by the 1996 welfare reform law (PRWORA, P.L. 104-193 ). The 2014 farm bill disqualifies individuals convicted of specified federal crimes (including murder, rape, and certain crimes against children) and state offenses determined by the Attorney General to be substantially similar from receiving SNAP; however, only when such individuals are not compliant with the terms of their sentence or are " fleeing felons ." The law still allows the disqualified ex-offender's household members to apply for and potentially receive benefits, but the household's benefit amount will likely be smaller than if the ex-offender is included. The amendments require the state agency that administers SNAP benefits to collect, in writing, information on SNAP applicants' convictions. The law also specifies that this disqualification is not to apply to convictions that occurred before the new law's enactment (February 7, 2014); this specification had been included in the House bill but not the Senate bill. The new law is expected to affect fewer people than the broader disqualifications included in both the House and Senate conference bills. Both Section 4020 of the Senate bill and Section 4037 of the House proposal would have barred from receiving benefits individuals convicted of those same crimes listed in the final law (specified federal crimes, including murder, rape, and certain crimes against children, and state offenses determined by the Attorney General to be substantially similar.) The Senate and House proposals were identical in their language, except that the House includes an additional provision to assure that the policy would affect only those with convictions after the date of the provision's enactment. Becoming eligible for SNAP is only one part of the application process. Once deemed eligible, a household's benefit amount is calculated based on the household's size, income, and SNAP-deductible expenses. A household's net income is determined by subtracting from the household's gross income certain specified expenses and figures. In addition to a standard deduction (available to all households), there are deductions to account for the specific circumstances of a household. Examples of SNAP deductions are the excess shelter deduction (a figure intended to account for variations in the cost of living) and—for households that include the elderly and disabled—an excess medical expenses deduction (a figure intended to account for variations in a household's health costs). Once eligible, 30% of the household's net income is subtracted from USDA's monthly maximum benefit (for household size) to determine the monthly benefit. The 2014 farm bill, for the most part, maintains current federal law on SNAP benefit calculation; however, the 2014 bill changes the way the excess shelter deduction is calculated (specifically, the treatment of energy assistance payments). This is discussed in more detail in the next section. The law also included a restriction for medical marijuana in calculating an excess medical expenses deduction. Table B-5 provides a side-by-side summary of SNAP benefit calculation provisions. The SNAP statute allows for certain deductions from income when calculating a household's monthly benefit amount; one of these deductions is the "excess shelter deduction," which incorporates utility costs. If a family incurs heating and/or cooling expenses, this deduction from income can be higher than for households not incurring these expenses, allowing for a higher SNAP benefit for the household. One way households can document heating and cooling expenses is by showing receipt of LIHEAP assistance. The documentation of LIHEAP receipt triggers a standard utility allowance (SUA), a state-specific figure based on the state's average utility costs that then enters into the SNAP benefit calculation equation. (Proof of heating or cooling expenses will trigger a higher SUA than proof of only telephone or water expenses.) Unless the household is already receiving the maximum SNAP benefit, a household's monthly benefit can increase if the SUA calculation results in an excess shelter deduction or if the SUA calculation results in a higher excess shelter deduction. Under prior law, any amount of LIHEAP assistance could increase benefit amounts; under the 2014 farm bill change (described below), LIHEAP assistance will have to be greater than $20 per year in order to be included in a household's benefit calculation. While virtually all SNAP states use LIHEAP in their benefit calculations, approximately 16 states had provided nominal LIHEAP benefits through a "Heat and Eat" practice. "Heat and Eat" is a phrase that the low-income and anti-hunger advocacy community has used to describe state and program policies that leverage nominal (as little as 10 cents) LIHEAP payments into an increase in households' SNAP benefits that is larger than the initial LIHEAP payment. Also, a 17 th state allowed SNAP applicants to benefit from an SUA if the household applied for LIHEAP. Thus, the farm bill is expected to change 17 states' administration of SNAP and is expected to reduce some households' benefit amounts. The 2014 farm bill's change in the law requires more than $20 a year in LIHEAP assistance in order to trigger this potential increase in benefits. This change is expected to affect some households' SNAP benefit amounts, but it will not affect households' eligibility for SNAP benefits. This change is expected to particularly affect states that had implemented "Heat and Eat" policies. Within the provisions of the new law, however, states and households may have some options to reduce the impact of this change. For instance, the law gives states the option to delay implementation or reduce its impact for as long as five months after the law takes effect. In addition to the option to delay implementation, a state continues to have the option to issue LIHEAP payments greater than $20 to maintain benefit levels that had been based on more nominal LIHEAP payments. Following enactment, some states have already chosen to provide $20 of energy assistance, at least in the short-term. USDA has issued two implementing memos to guide state planning. Because SNAP benefits are 100% federally funded and because SNAP is an open-ended entitlement, policy changes to benefit amounts or eligibility can generate substantial changes in spending. As shown in Table 1 , the Congressional Budget Office (CBO) estimated that this LIHEAP-related change included in the 2014 farm bill will reduce SNAP spending by approximately $8.6 billion over the 10-year budget window of FY2014-FY2023. (Although this change is similar to the House-passed proposal, it is estimated to impact spending slightly less due to the timing of implementation.) CBO last published an estimate of households affected with their cost estimate for the House bill; at that time, CBO estimated that 850,000 SNAP-recipient households each year, on average, would have their benefits reduced by an average of $90 per household per month. Congress's final decision to change the law came after the passage of related proposals in both the House and the Senate. The 113 th Congress's Senate-passed farm bill ( S. 954 ) would have set a $10 threshold for LIHEAP payments to confer this potential advantage. The House-passed farm bill ( H.R. 2642 combined with H.R. 3102 ) included the $20 threshold. Section 5(e) of the Food and Nutrition Act, 7 U.S.C. 2014(e)(5), specifies the parameters for an excess medical expense deduction. Households that contain an elderly or disabled member are eligible to have this deduction included in their net income (where applicable) and benefit calculation processes. It was reported that certain states were including a household's medical marijuana expenses to determine a household's excess shelter deduction. In a July 10, 2012, memorandum to regional directors, FNS "reaffirmed its longstanding policy that a household may not use the SNAP medical deduction for the cost of any substance considered illegal under Federal law," and went on to say that, "States that currently allow for the deduction of medical marijuana must cease this practice immediately and make any necessary corrections to their State policy manuals and instructions. Cases that cannot be readily identified must be corrected at the time of recertification or periodic report, whichever is sooner. States that are not in compliance may face penalties for any overissuance of SNAP benefits." The law requires USDA to promulgate regulations to ensure that medical marijuana is not treated as a medical expense in the calculation of the excess medical expenses deduction. The House bill had included this provision, but the Senate bill did not. SNAP does not provide households with cash benefits. Instead, participating households are provided benefits on an electronic benefit transfer (EBT) card which participants may only redeem for SNAP-eligible foods at authorized retailers . During the formulation of the 2014 farm bill, proposals that relate to eligibility and benefit amounts have garnered the most attention, but arguably it is the law's retailer-related provisions that present the biggest changes to how SNAP will operate. The 2014 farm bill makes changes to (1) the requirements for becoming a SNAP retailer (" Definition of Retail Food Store: Store Inventory and EBT Service "), (2) using technology for EBT transactions (" New Technology for EBT Redemption "), and (3) specific types of retailers that may accept SNAP (" Specific Retailers "). The law also includes resources and policies intended to further prevent the illegal use of benefits (" Trafficking "). In addition to those discussed below, Table B-6 includes a summary of all of the related provisions. SNAP benefits can be accepted only by authorized retailers. Among other application requirements, USDA authorization of a retailer is based on the retailer's inventory and sales. The Food and Nutrition Act defines a retail food store, and included—before the 2014 farm bill—within that definition an establishment that either (1) offers, on a continuous basis, a variety of foods in each of four staple food categories, including perishable foods in at least two of the categories, or (2) has over 50% of its sales in staple foods. While the authority existed to consider the nature and extent of the food business conducted, there was no statutory provision tying a retailer's sales of non-food items (e.g., alcohol and tobacco) to its authorization. The 2014 farm bill amended SNAP's definition of retail food store. The law requires SNAP retailers that are authorized based on their inventory of staple foods to carry perishable foods in at least three (rather than two) of the staple food categories. Also, stores must offer at least seven foods in each of the four staple food categories. The law gives USDA the authority "to consider whether the applicant is located in an area with significantly limited access to food" in its authorization of stores. The law also adds requirements about the adequacy of the store's EBT service. The House and Senate bills would have required stores to carry perishable foods in at least three of the staple food categories. The Senate bill during the 112 th Congress would have required SNAP-authorized retailers to have limited sales of alcohol and tobacco. Prior to the 2014 farm bill, an electronic benefit transfer (EBT) point-of-sale machine could be provided by the state agency to the retailer at no cost to the retailer. At their own cost, many retailers choose to purchase credit card machines that also accept EBT. Although SNAP has transitioned to being fully EBT, and paper coupons ("food stamps") are no longer offered, the authority still exists to accept manual SNAP vouchers. Some small retailers use these rather than acquire an EBT machine. Prior to the 2014 law, there were no statutory requirements regarding unique terminal identification numbers for EBT machines. The 2014 law changed the policy around EBT equipment and the related topic of manual vouchers. The law shifts the costs of EBT machinery to retailers. CBO estimated that this change would save $77 million over 10 years (see Table A-1 ). The law also bars states from issuing manual SNAP vouchers or allowing retailers to accept manual vouchers unless USDA makes a determination that circumstances or categories of retailers warrant use of manual vouchers. It requires EBT service providers to provide for and maintain "unique terminal identification number information"; this is intended to assist USDA in tracking and preventing fraudulent transactions. The law includes further details for the "unique terminal identification number information" provision: requiring USDA to "consider existing commercial practices for other point-of-sale debit transactions" and prohibiting USDA from issuing a regulation earlier than two years from the bill's enactment. For the most part, these proposals about EBT machinery and manual vouchers were included in both the House and Senate bills. Prior to the new farm bill, government funding typically provided for only wired EBT machines. No provisions of the authorizing statute explicitly authorized redemption of SNAP benefits via wireless EBT machinery or online SNAP transactions. Advocates had asked for technological accommodations for farmers' markets and other direct-to-consumer venues. From FY2012 appropriated resources, USDA used $4 million to expand EBT point of sale devices at farmers' markets. Also, prior to the new law, using a SNAP EBT card to make purchase over the Internet was neither allowed nor technologically feasible. The enacted law requires USDA, depending on results of an authorized demonstration project, to authorize retailers that conduct EBT transactions using mobile technologies (defined as "electronic means other than wired point of sale devices") if retailers meet certain requirements. Similar to the mobile technologies provision, the bill includes a statutory authorization for USDA to authorize retailers to accept benefits over the Internet, contingent upon results of a demonstration project and a report to Congress. The Senate bill also contained demonstration projects for mobile and online redemption, whereas the House proposal only contained the mobile demonstration project. Prior to the 2014 farm bill, shares in a Community Supported Agriculture (CSA) establishment were not a SNAP-eligible purchase. In a CSA, a farmer or community garden grows food for a group of local residents—members, shareholders, or subscribers—who pledge support to a farm at the beginning of each year by agreeing to cover a portion of the farm's expected costs and risks. In return, the members receive shares of the farm's production during the growing season. Also prior to the 2014 law, non profit grocery delivery services for the elderly and disabled were not included as a "retail food store" that can accept SNAP benefits. Such establishments would have to negotiate waivers with USDA in order to accept SNAP benefits. Under various authorities and waivers other retailers may conduct deliveries to SNAP participants, but fees may not be paid with SNAP benefits. For the most part, SNAP benefits are not redeemable at restaurants, as the benefits are not redeemable for hot, prepared foods. However, states had been able to choose to operate restaurant meals programs , allowing homeless, disabled, or elderly households to redeem SNAP benefits at restaurants that offer concessional prices. States contract with restaurants, and USDA authorizes them as SNAP retailers. FY2012 redemption data indicate that approximately $44.3 million (or less than 0.1% of SNAP benefits) were redeemed at "meal delivery/private restaurants." The 2014 farm bill makes SNAP benefits redeemable for shares of Community-Supported Agriculture (CSA). This was included in the Senate and House bills. The law adds "governmental or private nonprofit food purchasing and delivery service" that serve the elderly and disabled to the definition of a retail food store, emphasizing that delivery fees are not to be paid with SNAP. The law requires USDA regulations to include certain protections and limitations, and, until the regulations have been issued, the USDA may not approve more than 20 such purchasing and delivery services. This change is substantially similar to the Senate and House proposals. Also, the law added responsibilities for state agencies, private establishments, and USDA before restaurants would be able to participate in a restaurant meals program. For restaurants that had contracted with the state to accept SNAP benefits before this provision was enacted, the restaurant would be able to continue to accept SNAP without meeting the additional requirements for no more than 180 days. This had been included in the Senate and House bills as well. Trafficking is the sale of SNAP benefits for cash or for ineligible items. Trafficking is illegal and enforced by USDA-FNS using a number of methods. The Food and Nutrition Act includes penalties for retailers and participants engaged in trafficking; penalties include fines and imprisonment. An analysis of trafficking during the 2009-2011 period estimated that the trafficking rate is 1.3%, up from 1.0% in a 2006-2008 study. Current law authorizes civil penalties and SNAP disqualification penalties for retailers that engage in SNAP trafficking (the sale of SNAP benefits for money or ineligible items). USDA enforces those penalties through a variety of activities and funds from the SNAP account. Approximately $8 million each year was obligated for retailer integrity and trafficking in FY2010, FY2011, and FY2012. Some have argued that increasing the monitoring and penalties around lost-EBT-card replacement could eliminate a source of potential trafficking, and FNS has recently proposed a rule in this regard. Prior to the 2014 farm bill, the only mention of replacement cards in the authorizing statute was where the law states that state agencies may collect a fee for replacement of an EBT card by reducing the monthly allotment of the participating household. To track and prevent SNAP trafficking, the 2014 farm bill provides $15 million in mandatory funding in FY2014, which is available until expended. The law also authorizes up to $5 million, subject to appropriations, for each year from FY2014 through FY2018. The Senate's bill would have provided USDA $5 million in FY2014 in additional mandatory funding; it also would have authorized $12 million subject to appropriations for each year from FY2014 to FY2018. The House proposal was similar to the Senate's except that the House would have provided USDA $5 million annually for three years. The 2014 farm bill adds additional statutory measures regarding "the purposeful loss of cards." The law permits USDA to authorize a state agency to decline a participant's request for a replacement card, unless the household provides an explanation for the loss of the card. The provisions specify that USDA regulations must include protections for vulnerable individuals (homeless, disabled, victims of crimes) and must assure that certain procedures occur and that procedures are consistent with participants' existing due process protections. This change to the prior law was included in the Senate and House bills. Throughout the formulation of the new law, policy makers showed interest in reducing federal spending, including in the Nutrition Title. For some policy makers, there was interest in doing that without affecting benefits, but that can be difficult. Each year, roughly 95% of SNAP spending is on the benefits themselves, and around 5% is on non-benefit costs, such as the federal match to states' administrative costs, the related Nutrition Education and Obesity Prevention Grant program, SNAP Employment and Training funds, and the awards for high-performing states. This section summarizes two areas addressed in formulation of the new law, and a complete summary of the other SNAP provisions is in Table B-7 . State agencies are currently eligible for, in total, $48 million per year in performance awards. These grant awards are provided to states for performance accomplishments in payment accuracy, program access index (a proxy measure for the share of eligible people who participate in SNAP), application timeliness, and best negative (improper denial) error rate. The 2002 farm bill ( P.L. 107-171 ) established this system of performance awards and expanded the performance system to include measures other than payment accuracy rates (i.e., error rates). From FY2003 through FY2011, 52 of the 53 state agencies received bonus awards at least once. There had been no requirement that these performance awards be reinvested in SNAP. As part of SNAP's quality control system, states are also subject to fiscal penalties for poor performance. Although the system has changed a number of times, under the 2002 farm bill revision, sanctions are only assessed against states with above-threshold rates of error for two consecutive years. The law amended the SNAP performance bonus payments so their reinvestment in the program is required. This was the same as the Senate bill. The House bill would have repealed USDA's authority to issue performance awards and the related $48 million per year in mandatory funding. Formerly SNAP Nutrition Education, this program—as created by the 2010 child nutrition reauthorization ( P.L. 111-296 )—provides formula grant funding for states to provide programs for SNAP (and other domestic food assistance program) participants as well as other low-income households. With these funds, "[s]tate agencies may implement a nutrition education and obesity prevention program for eligible individuals that promotes healthy food choices consistent with the most recent Dietary Guidelines for Americans." The authorizing law provides mandatory funding of $375 million in FY2011 and adjusts for inflation each year thereafter. The program received $401 million in FY2014. The law amends the Nutrition Education and Obesity Prevention Grants so that funds may also be used for programs that promote physical activity. This was a change included in the House and Senate bills. The House bill would have reduced funding in FY2014 and then would have adjusted for inflation in subsequent years; CBO estimated that that proposal would have reduced funding for the program by $146 million over 5 years and $308 million over 10 years. "Programs in Lieu of SNAP" refers to the related programs operated by entities that do not operate SNAP. Puerto Rico, American Samoa, and the Northern Mariana Islands do not participate in the SNAP program. Instead, they receive nutrition assistance block grants, under which they administer a nutrition assistance program with service delivery unique to each territory. Indian tribal organizations may choose to operate the Food Distribution Program on Indian Reservations (FDPIR) instead of having the state offer regular food stamp benefits; the full cost of benefits and most administrative expenses are covered by the federal government. Funding for territorial nutrition programs and FDPIR is included within the account for SNAP. By authorizing the appropriations in Section 18(a) of the Food and Nutrition Act (see " SNAP Authorization and Appropriations "), the 2014 farm bill continues operations for the programs in general. Table B-8 summarizes the other proposals for these programs. FDPIR provides an alternative to SNAP for participating Indian Reservations by delivering a household food package, which includes specific foods, as opposed to SNAP's electronic benefit transfer benefits that are redeemable at authorized retailers. Funding for FDPIR is included within the SNAP account. The Food and Nutrition Act includes an authority to fund a local foods pilot program to incorporate local and traditional foods in the FDPIR program. The law, as House and Senate bills proposed, continues to authorize FDPIR and reauthorizes the local foods pilot program through the end of FY2017. The law requires USDA to study the feasibility of tribes, as opposed to states, operating nutrition assistance programs, in addition to FDPIR, and it provides (in FY2014 but available until expended) $1 million in mandatory funding. An authorization of this feasibility study was also included in the House and Senate bills. The law also directs USDA to carry out a demonstration project for the purchase of traditional and local foods. The Senate bill had included a set-aside from existing funding which would allow tribes to substitute local, tribal foods for up to 5% of the USDA commodities received through FDPIR; the 2014 farm bill does not include this policy. Guam and the Virgin Islands participate in SNAP, but the Commonwealth of the Northern Mariana Islands (CNMI), Puerto Rico, and American Samoa do not. In the Food and Nutrition Act of 2008, American Samoa and Puerto Rico are given mandatory funds for nutrition assistance block grants. CNMI receives a block grant that is negotiated with USDA. Generally speaking, the block grants offer flexibility to the administering territory, but also mean that they have limited funding. While SNAP is an open-ended entitlement, the nutrition assistance block grants to the territories grow at the rate of inflation (measured by the Thrifty Food Plan). The 2008 farm bill authorized and funded a study of the feasibility of including Puerto Rico in SNAP; the study was completed and published in June 2010. In the case of Puerto Rico's administration of its block grant, the territory currently has sufficient flexibility to provide some food assistance benefits in the form of SNAP. One of the feasibility study's findings on "Projected Administration Changes" was: Like SNAP, NAP [Puerto Rico's food assistance program] distributes benefits on an EBT debit card. However, unlike SNAP, up to 25 percent of the monthly benefit may be redeemed for cash. Although the cash is designated for eligible food items, it is widely acknowledged that participants use at least some of their allotted cash for non-food essentials, such as medicine and hygiene products. It is difficult to determine what the full impact of a completely non-cash allotment would be on Puerto Rico retailers and participants. Because the current cash allotment is the sole or primary source of cash income for many participants, it is clear that families would need to find other ways to pay for essential non-food items. The 2014 farm bill includes a policy that will phase out the block grant's provision of cash assistance over time. It first provides a mandatory $1 million in FY2014 for USDA (and HHS) to study aspects of Puerto Rico's 25% cash practice. After a report to Congress on the study, USDA is to annually phase out the provision of cash beginning in FY2017 until no cash is provided in FY2021. The law includes exceptions for vulnerable populations. The House proposal would have amended Puerto Rico's block grant so that Puerto Rico would no longer be permitted to use its block grant funding to provide benefits in the form of cash; Puerto Rico would have had to provide benefits only in EBT form. For the Commonwealth of the Northern Mariana Islands, similar to the House's proposal, the law authorizes and provides $1 million in both FY2014 and FY2015 for a feasibility study of CNMI's capacity to administer a SNAP pilot. Then—if determined to be feasible—the law authorizes and provides administrative and technical assistance funds to support the pilot ($13.5 million in FY2016, $8.5 million in each of FY2017 and FY2018). Different from the House proposal, the law adds that if the pilot is found to be unfeasible, then the funding will instead be added to CNMI's existing block grant. The Senate bill did not propose any changes to these territories' programs. USDA commodity foods are foods purchased by the USDA for distribution to USDA nutrition programs. They are not necessarily specific types of food; the catalog of commodity foods is a wide variety of fruit, vegetable, livestock, dairy—fresh, frozen, and processed foods. The USDA Food and Nutrition Service programs that include USDA commodity foods are The Emergency Food Assistance Program (TEFAP), Commodity Supplemental Food Program (CSFP), National School Lunch Program (NSLP), Summer Food Service Program (SFSP), and Child and Adult Care Food Program (CACFP). Many of these programs distribute "entitlement commodities" (an amount of USDA foods to which grantees are entitled by law) as well as "bonus commodities" (USDA food purchases based on requests from the agricultural producer community). All of the new law and conference proposal provisions that pertain to commodity distribution are summarized in Table B-9 . TEFAP, the main USDA-FNS program that supports emergency feeding organizations, currently receives federal government resources in several ways. Congress provides mandatory funding for the purchase of "entitlement commodity" foods that are distributed to emergency feeding organizations (e.g., food banks and food pantries) in addition to discretionary funding for organizations' administrative costs. TEFAP also receives bonus commodity donations from USDA when the department exercises its purchasing authority in response to requests from the agricultural industry for surplus removal or price support. TEFAP's mandatory funding for "entitlement commodities" for FY2012 and subsequent years (FY2013, FY2014) is $250 million, plus an adjustment for food-price inflation. This mandatory entitlement funding is only available to be spent over a one-year period. In addition, the law authorizes to be appropriated up to $100 million for TEFAP administrative and distribution costs; in recent years, funding of approximately $50 million has been provided. The law also authorizes to be appropriated up to $15 million in TEFAP infrastructure grants; funds have not been appropriated for these grants since FY2010. Before the 2014 farm bill, there was no statutory requirement about Kosher or Halal foods. According to CBO's accounting for inflation, the 2014 farm bill increases funding for TEFAP's entitlement commodities by $125 million over five years and $205 million over 10 years. The increases will first take effect in FY2015 with an increase of $50 million above prior law. Both proposals would have increased mandatory funding for TEFAP, but in differing amounts and with different approaches. The Senate bill would have increased entitlement commodity funding by $54 million over 10 years, and the House bill would have increased entitlement commodity funding by $333 million over 10 years. In addition, the new law includes a provision that requires USDA to devise a plan for increasing purchases and modifying the labeling of Kosher and Halal foods at emergency feeding organizations. This policy had been included in the House bill, but not in the Senate bill. The new law also requires funding for TEFAP to be available to be spent over a two-year period, and it reauthorizes the discretionary program, TEFAP infrastructure grants. Both of these policies had been included in the House and Senate bills. CSFP is a household-based food assistance program that provides distribution of USDA commodity foods to a household. The program operates in 39 states, DC, and through two Indian Tribal Organizations. Prior to the 2014 farm bill, low-income women, infants, children under six, and the elderly (60 or over) could participate in the program. In FY2013, over 97% of CSFP participants were elderly, with under 3% being non-elderly women, infants, and children under 6. The new law reauthorizes CSFP through FY2018. As included in the House and Senate bill, the new law makes a change to eligibility rules, limiting the program to only low-income seniors. This change has not been regarded as controversial, as the vast majority of CSFP participants are already seniors, and women, infants, and children usually opt to participate in the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). The provision includes some protections for the low-income women, infants, and children already participating in CSFP. FNS has already issued guidance on how this provision is to be implemented. In addition to USDA commodity foods purchased and distributed for TEFAP and CSFP, child-serving institutions that participate in the National School Lunch Program (NSLP), Summer Food Service Program (SFSP), and Child and Adult Care Food Program (CACFP, which also serves adult day care settings) also receive assistance in the form of USDA commodity foods (in addition to per-meal cash reimbursements). While typically, changes to the programs' authorizing statutes (Russell National School Lunch Act and Child Nutrition Act) are reported by the Senate Committee on Agriculture, Nutrition, and Forestry and the House Committee on Education and the Workforce, the policies pertaining to USDA commodity food procurement are overseen by the Senate Committee on Agriculture, Nutrition, and Forestry and the House Committee on Agriculture. In FY2013, approximately 10% of the federal assistance for the National School Lunch Program was in the form of donations of USDA commodity purchased foods. This includes "entitlement commodities," the food amounts to which a school is entitled based on the number of meals served; as well as "bonus commodities," which are based on USDA purchases under its agricultural surplus and price support authorities. Schools redeem National School Lunch Program commodity "entitlement" food assistance (the amount of which is based on a per-meal rate) from USDA's offerings. Some stakeholders have been interested in assuring that entitlement commodity assistance can instead be used for local purchases instead of USDA foods. The 2014 farm bill contained various policies that impact the USDA foods served in school meal programs (National School Lunch Program and National School Breakfast Program). Some are discussed below, but the complete list is summarized in Table B-9 . Processing of USDA Commodities . The new law, like the House and Senate bill proposed, extends the authority for USDA to enter into reprocessing agreements with private companies in order to process commodity foods. The law, like the House and Senate bills, also includes a new provision that allows USDA to contract with a processor and retain title to those foods while processing. USDA purchases of fresh fruits and vegetables ; farm to school. The new law, like the House and Senate bills proposed, continues the requirement that $50 million of USDA's additional acquisitions of fruits and vegetables be fresh fruit and vegetables. The law, similar to the House proposal, also creates a pilot grant program that would allow eight states to use this funding for their own local sourcing of fresh fruits and vegetables. Pulse crop pilot program. The new law included the Senate bill's proposal to create a pilot project to purchase pulse crops (dry beans, dry peas, lentils, and chickpeas) and pulse crop products for schools. Up to $10 million in discretionary appropriations are authorized. The 2014 farm bill's Nutrition Title contains numerous other new and reauthorized programs and policies. Below are a few highlights, including the reauthorization of programs included in the 2008 farm bill (e.g., Senior Farmers' Market Nutrition Program, Community Food Projects, and Fresh Fruit and Vegetable Program), and new mandatory funding that makes federal funding available for SNAP bonus incentive projects. While only a select overview is included in the list below, all remaining provisions are summarized in Table B-10 . Senior Farmers' Market Nutrition Program : Reauthorization. The new law reauthorizes the Senior Farmers' Market Nutrition Program, which provides formula grants to participating states to run programs for seniors to redeem vouchers at area farmers' markets, through FY2018. Funding remains at $20.6 million in mandatory funding per year, transferred from the Commodity Credit Corporation, so appropriations are not required. The House and Senate had proposed reauthorization at $20.6 million, but the House bill had also proposed further amendments to the program, which were not adopted. Namely, the House proposal would have expanded eligibility from "low-income seniors" to "low-income seniors and low-income families who are determined to be at nutritional risk," and a House amendment further specified that 50% of the funding would be for seniors. Fresh Fruit and Vegetable ("Snack") Program : Pilot Project to Include Frozen, Canned, and Dried Products. The Fresh Fruit and Vegetable Program is permanently authorized and funded by the 2008 farm bill, so there is no need for legislative action to continue operations. However, the House proposal would have made changes to the program's authorization; namely, it would have stricken "fresh" from the program's title and authorization and would allow the inclusion of frozen, dried, and canned fruits and vegetables. Instead, the new law includes a pilot project that requires USDA to test schools offering frozen, dried, and canned fruits and vegetables in at least five states. The new law includes $5 million to implement and evaluate this pilot. Community Food Projects: Increased Funding, Eligibility for Gleaners. Since the 1996 farm bill ( P.L. 104-127 ), the Food and Nutrition Act (formerly, Food Stamp Act) has permanently authorized a grant program for eligible nonprofit organizations, in order to improve community access to food. Infrastructure projects are an eligible use of these funds. Grants require 50% in matching funds. The 2008 farm bill (and subsequent extensions) provided $5 million annually in mandatory funding for this purpose. The 2014 farm bill reauthorized the program, and increased mandatory funding by $4 million each year to a total of $9 million in FY2015 and each fiscal year thereafter. The new law also included the Senate bill's expansions of eligible organizations and purposes, plus added gleaners (entities that glean fields for food donations to nutrition programs) as eligible. The Senate bill would have continued to provide the $5 million, and the House would have increased funding to $15 million per year, carving out $5 million of those funds for projects that would incentivize low-income households' fruit and vegetable purchases. "Food Insecurity Nutrition Incentive" Grants. The 2014 farm bill includes a new mandatorily funded grant program to support programs that provide SNAP households incentives when they purchase healthy foods. This policy (under the name Hunger-free Community Incentive Grants) was included in the Senate bill but not the House. Like the Senate bill, the new law includes $100 million in mandatory funding over five years for these grants. These competitive grants will be for projects that incentivize SNAP participants to buy fruits and vegetables. Until this federal funding opportunity, such bonus incentive projects were funded only by non-federal funds. Healthy Food Financing Initiative : Streamlined Program at USDA. Although the Administration already provides support to the development of fresh food retailers in underserved communities using a range of existing authorities, the House and Senate conference proposals both included a new authorization for a consolidated Healthy Food Financing Initiative housed at the USDA. USDA would approve a community development financial institution as "national fund manager." An annual amount of $125 million would be authorized to be appropriated. The new law included this language. Appendix A. Detailed CBO Cost Estimates and All-Sections Summary Detailed CBO Cost Estimates Appendix B. Comparison of the Enacted 2014 Farm Bill ( P.L. 113-79 ) Nutrition Title to the Nutrition Titles of the 2013 Conference Proposals and Prior Law | After action to reauthorize the 2008 farm bill in both the 112th and 113th Congresses, the Agriculture Act of 2014 (P.L. 113-79; "2014 farm bill") was enacted on February 7, 2014. In addition to farm programs and other agricultural policies, this newest omnibus farm bill reauthorizes the Supplemental Nutrition Assistance Program (SNAP) and other related nutrition programs. Farm bills since 1973 have included reauthorization of the Food Stamp Program (now called SNAP). The enacted 2014 law reconciles differences between the House-passed bill (H.R. 2642, as combined with H.R. 3102, Nutrition Reform and Work Opportunity Act) and the Senate-passed bill (S. 954). The Nutrition Title reauthorizes SNAP and related programs for five years, and CBO estimates that the Nutrition Title will reduce spending by $8.0 billion over 10 years (FY2014-FY2023). The SNAP provisions alone are estimated to reduce spending by slightly more than $8.6 billion over 10 years. Certain other Nutrition provisions are estimated to increase spending, which together result in the total estimated reduction of $8.0 billion. Farm bill conferees were faced with significant differences in the SNAP provisions in the Senate- and House-passed bills. Over the 10-year budget window (FY2014-FY2023), CBO estimated that the Senate's Nutrition Title would have reduced spending by approximately $4 billion and the House's Nutrition Title would have reduced spending by approximately $39 billion. The House bill would have reauthorized SNAP and related programs for three years, while the Senate would have reauthorized the programs for five years. Although the Nutrition Title of the 2014 law contains a number of provisions that change aspects of SNAP and related nutrition programs, conferees largely retained the provisions in the Food and Nutrition Act of 2008 and other nutrition program authorizing statutes. The budgetary impact of the 2014 farm bill's Nutrition Title is largely the result of changes to SNAP eligibility and benefit calculation rules. The law's treatment of major issues in households' eligibility and benefit amounts include the following: The 2014 farm bill amends how Low-Income Home Energy Assistance Program (LIHEAP) payments are treated in the calculation of SNAP benefits. According to information from June 2012, this change to benefit calculation is expected to reduce household benefit amounts in approximately 17 states. The 2014 farm bill disqualifies from SNAP certain ex-offenders who are not complying with the terms of their sentence. This is a narrower disqualification than that proposed in the House and Senate bills. The law includes policies related to the SNAP Employment and Training (E&T) program, including a pilot project authority and related funding ($200 million over FY2014 and FY2015) for states to implement and USDA to evaluate a variety of work programs for SNAP participants. The law includes the House bill's provisions that would expand reporting measures for all E&T programs. The law makes no changes to broad-based categorical eligibility. The law does not give states the option to administer drug testing as part of their eligibility determination processes (as had been proposed in the House bill). Since SNAP provides benefits redeemable for SNAP-eligible foods at SNAP-eligible retailers, much of SNAP law pertains to retailer authorization and benefit issuance and redemption. The 2014 farm bill includes the changes to retailer and redemption provisions that had been included in both the House and Senate bills. The law now requires stores to stock more fresh foods, requires retailers to pay for their electronic benefit transfer (EBT) machines, and provides additional funding for combatting trafficking (the sale of SNAP benefits). The 2014 farm bill also includes $100 million in mandatory funding (over 10 years) for Food Insecurity Nutrition Incentive grants, which will support organizations that offer bonus incentives for SNAP purchases of fruits and vegetables. The law increases funding for the Emergency Food Assistance Program (TEFAP), the program that provides USDA foods and federal support to emergency feeding organizations (e.g., food banks and food pantries). Taking into account CBO's estimates of inflation, the conference agreement is estimated to provide an additional $205 million for TEFAP over 10 years, $125 million of which is provided in the first five years. The law's Nutrition Title includes many other changes to SNAP and related program policy. These changes include amendments to the nutrition programs operated by tribes and territories, the Commodity Supplemental Food Program (CSFP), and the distribution of USDA foods to schools. The 2010 child nutrition reauthorization (Healthy, Hunger-Free Kids Act of 2010, P.L. 111-296) has already reauthorized WIC and the child nutrition programs through FY2015, but the 2014 farm bill does include related policies, such as farm-to-school efforts. |
In April 2009, a novel influenza virus began to spread around the world. Early in the outbreak, public reports referred to the virus as "swine flu," which reflected the dominant genetic makeup of the unknown disease. At the end of April, the World Health Organization (WHO) formally named the disease and explained how the disease emerged: Pigs can be infected by avian (bird), human, and swine (pig) influenza (flu) viruses. When flu viruses from different species infect pigs simultaneously, the viruses can reassort (swap genes) and new viruses that are a mix of swine, human or avian flu viruses can emerge. This type of reassortment has already happened in pigs; avian and human genes have been circulating among swine in the United States since 1998. This type of reassortment can also occur in humans. The currently circulating influenza A (H1N1) virus is such a reassortment, composed of genes of swine, avian and human origin. This particular combination had not been seen in humans or in swine. The origin of this reassortment, and when and where it happened, is not known. This virus is now being transmitted from human to human in a sustained manner. The role of swine in the emergence of this virus is under investigation. WHO refers to the virus as Influenza A(H1N1). The U.S. Centers for Disease Control and Prevention (CDC) and other Administration officials refer to it as 2009 H1N1 flu. Throughout this report, the virus is referred to as H1N1. The virus does not appear to be as lethal as H5N1 avian influenza—which reemerged in 2005—but is slightly more lethal than seasonal flu. Although H1N1 has spread enough to be characterized as a pandemic, researchers are not yet sure how virulent the virus will become. On April 21, 2009, CDC reported that two children in California had recovered from a unique influenza strain, which contained gene segments from swine flu viruses. The children had not had contact with pigs. Two days later, CDC reported five more H1N1 cases, three in California and two in Texas. On April 24, 2009, Mexico's Health Ministry announced that a new strain of influenza was affecting the country, with just over 1,000 suspected cases. The Mexican government also announced that it was closing schools and canceling public gatherings such as sporting events and concerts in Mexico City and surrounding states through May 6, 2009. This was subsequently extended to all schools throughout the country. By April 27, 2009, WHO had reported that health officials in Canada and Spain had reported human cases with no deaths. Two days later, WHO Director-General Dr. Margaret Chan raised the influenza pandemic alert level from Phase 4 to Phase 5 ( Figure 1 ). According to WHO, Phase 4 is characterized by verified human-to-human transmission of an animal or human-animal influenza reassortant virus able to cause 'community-level outbreaks.' Phase 5 is characterized by human-to-human spread of the virus into at least two countries in one WHO region. While most countries will not be affected at this stage, the declaration of Phase 5 is a strong signal that a pandemic is imminent and that the time to finalize the organization, communication, and implementation of the planned mitigation measures is short. On June 11, 2009, WHO Director-General Margaret Chan raised the pandemic alert level to Phase 6, the highest level. On the date of the announcement, Dr. Chan characterized the virus as "moderately severe," though she warned the virus could become increasingly virulent at any time. Dr. Chan emphasized that the shift reflected the spread of the disease not a change in virulence. As of June 22, 2009, WHO reported that more than 50,000 human cases of H1N1 had been confirmed in more than 80 countries and territories, including 231 deaths ( Table A-1 and Figure A-1 ). It is important to note that more people than officially reported may have contracted H1N1; the number of cases reflects only cases confirmed by laboratory testing and reported to WHO by foreign health authorities. The United Nations Food and Agricultural Organization (FAO), the World Organization for Animal Health (OIE), and WHO agree that there is no risk of contracting the virus from consumption of well-cooked pork or pork products. WHO also advises that "limiting travel and imposing travel restrictions would have very little effect on stopping the virus from spreading, but would be highly disruptive to the global community." WHO does caution, however, that those who are ill should delay international travel. According to WHO, most people who have contracted H1N1 have experienced influenza-like symptoms, such as sore throat, cough, runny nose, fever, malaise, headache, and joint/muscle pain, and recovered without antiviral treatment. Drugs provided to H1N1 patients may reduce the symptoms and duration of illness, just as they do for seasonal influenza. They also may contribute to preventing severe disease and death. The strain of H1N1 circulating the globe is a new virus, and only a small number of people with the infection have been treated for it with antiviral drugs. WHO has tested those who received treatments in Mexico and the United States and found that older antiviral drugs have not been very effective against H1N1, though oseltamivir (brand name Tamiflu®) and zanamivir (brand name Relenza®) are. WHO has been maintaining a global stockpile of approximately 5 million adult treatment courses of oseltamivir that were donated by manufacturers and donor countries. This stockpile was initiated after the onset of H5N1 bird flu outbreaks. WHO has already distributed some of the treatments and is distributing 3 million adult treatment courses from the stockpile to developing countries in need. There is no available vaccine against the current strain of H1N1, though CDC, WHO, and others are working on developing one. Scientific evidence, though incomplete, suggests that currently available seasonal influenza vaccines will offer no protection against H1N1. WHO and CDC are preparing vaccine candidate viruses and estimate that once the strain is modified, it could take between five and six months to mass-produce a vaccine against H1N1. Once a vaccine is developed, WHO estimates that at least 1 to 2 billion vaccine doses could be produced annually. Once a vaccine is developed, Sanofi-Aventis announced that it would donate 100 million vaccine doses to WHO for distribution to poor countries in need. GlaxoSmithKline also reportedly plans to donate 50 million doses to WHO. Most countries, with the exception of China, have adhered to the WHO recommendation against banning international travel or closing borders. China has reportedly quarantined and prevented a number of Mexican nationals, including those living in China at the time of the outbreak, from traveling. Mexico reportedly responded by barring all flights to China until "concerns about discrimination were addressed." Though no other country has reportedly quarantined Mexican nationals or any other citizens from countries with outbreaks, some countries have warned against nonessential travel to the United States and Mexico. On April 27, 2009, the European Union Health Commissioner Androulla Vassiliou reportedly urged Europeans to postpone nonessential travel to the United States and Mexico. On the same day, the CDC recommended that U.S. travelers avoid all nonessential travel to Mexico. On May 15, 2009, it downgraded the recommendation to a "travel health precaution." In defending the decision not to close U.S. borders with Mexico, Homeland Security Secretary Janet Napolitano testified at an April 29, 2009, Senate Homeland Security Committee hearing that "closing the border [to Mexico] would yield only very marginal benefits; at the same time, closing the border has very high costs. The strain of the virus that was first detected in Mexico is already present throughout the United States, and there is no realistic opportunity to contain the virus through border closures, so our focus must now be on mitigating the virus." Closing U.S. borders could involve a series of legal and logistical issues. A number of countries have reportedly installed or are in the process of installing "thermal (temperature) scanners" in airports to detect the body temperature of travelers and further screen those whose body temperature exceed 100 degrees Fahrenheit. There is some debate, however, on the effectiveness of such measures. Several countries have instituted actions to prevent the spread of H1N1 among animals. Egypt is reportedly the first country to order the slaughter of pigs, though pigs have not yet been identified as a source of human transmission. Several countries have also banned the import of pork and pork products from the United States, Canada, and Mexico. On May 1, 2009, USAID established the Pandemic Influenza Response Management Team—composed of its Bureaus of Global Health and Democracy, Conflict, and Humanitarian Assistance—to coordinate the U.S. humanitarian response to H1N1 outbreaks. As of May 18, 2009, the United States has provided more than $16 million to assist countries in Latin America and the Caribbean respond to H1N1 outbreaks. U.S. aid focuses on H1N1 specifically, and builds on influenza pandemic preparedness efforts that began in earnest after the 2003 severe acute respiratory syndrome (SARS) outbreak. U.S. responses to global H1N1 outbreaks are conducted mostly by CDC and the U.S. Agency for International Development (USAID), though the Department of Defense (DOD) has also provided support ( Table 1 ). Foreign assistance efforts largely focus on commodity delivery and disease detection and surveillance. In addition to the support listed above, USAID announced on May 27, 2009, that it had donated "4,000 personal protection equipment (PPE) kits to Vietnam and 100 boxes of biodegradable powder—enough to produce over 20,000 liters of disinfectant to help animal health workers respond quickly to potential new outbreaks of avian or H1N1 influenza." The kits—valued at over $57,000—can be used in response to H5N1 bird flu or H1N1 outbreaks. CDC has been engaged in efforts to respond to H1N1 outbreaks since the virus was identified. As one of four WHO collaborating centers around the world, the CDC influenza laboratory in Atlanta routinely receives viral samples from many countries, including Mexico. CDC creates or develops reagents that are used to detect subtypes of influenza that are sent to national influenza centers around the world. Once the subtype of influenza is identified, CDC generates testing kits that are sent to public health laboratories worldwide at no cost. At the onset of the outbreak, CDC sent experts out to the field to help strengthen laboratory capacity and train health experts to control the spread of a virus. HHS Secretary Kathleen Sebelius announced on April 30, 2009, that the department "began moving 400,000 treatment courses—valued at $10 million—to Mexico, which represent less than 1% of the total American stockpile." In total, the Administration aims to distribute 2 million courses in Latin America and the Caribbean. In addition, CDC has deployed 16 staff to Mexico and one health expert to Guatemala, including experts in influenza epidemiology, laboratory, health communications, and emergency operations, including distribution of supplies and medications, information technology, and veterinary sciences. These teams work under the auspices of the WHO/Pan American Health Organization Global Outbreak Alert and Response Network and a trilateral team of Mexican, Canadian, and American experts. The teams aim to better understand the clinical illness severity and transmission patterns of H1N1 and improve laboratory capacity in Mexico. CDC's Emergency Operations Center also coordinates and collaborates with the European Centre for Disease Prevention and Control (ECDC) and the China CDC. In addition to efforts related to H1N1, CDC directly or indirectly supports pandemic influenza preparedness efforts in more than 50 countries. In some cases, CDC sends an expert to work with a WHO country office or foreign ministry of health. In other cases, CDC forms cooperative agreements with groups through which it provides funding for country efforts. USAID announced on April 28, 2009, that it would provide an additional $5 million to WHO and the Pan American Health Organization (PAHO) in support of efforts to respond to the H1N1 virus in the Latin America and the Caribbean, with particular emphasis placed on advanced disease surveillance and control measures. As of May 18, 2009, USAID has provided $6.1 million for international H1N1 assistance, with about $0.9 million directed at H1N1 response efforts in Mexico, $0.2 million in Panama, and $5 million to the region, as indicated above. The assistance includes support to FAO for animal surveillance efforts in Mexico and other parts of Latin America and the Caribbean and provision of commodities. In May 2009, it distributed more than 100,000 personal protection equipment (PPE) kits valued at more than $1 million from its avian and pandemic influenza stockpile to protect first responders in the region from contracting or spreading the disease. USAID also announced that it had already pre-positioned 400,000 PPE kits in 82 countries in preparation of a possible influenza pandemic. As part of its Humanitarian Pandemic Preparedness (H2P) Initiative, USAID held a three-day pandemic preparedness exercise at the end of April 2009 in Ethiopia. The exercise brought together stakeholders and national authorities from nine countries in East Africa: Burundi, Djibouti, Egypt, Ethiopia, Kenya, Rwanda, Sudan, Tanzania, and Uganda. Participants included civilian and military representatives who met to identify roles and responsibilities, establish coordination principles, develop a pandemic response action plan, and test existing ones. During the session, participants underwent a simulation exercise that allowed them to test their plans, identify their weaknesses, and improve and refine their preparedness plans. The exercises not only help governments prepare for any influenza virus that might cause a pandemic, whether it originates from pigs, birds, or any other source, but they also help governments address cross-border movement of populations. At the regional events, national leaders can interact with each other and identify some possible issues that might arise with an influenza outbreak, such as those that arose between the United States and Mexico. USAID plans to conduct similar exercises in South Africa in July 2009 and Asia in August 2009. USAID is also reportedly working with the Department of Defense (DOD) and its Pacific and African combatant commands—PACOM and AFRICOM—to provide direct military-to-military assistance in 30 countries across Africa and Asia aimed at ensuring that militaries are prepared to cooperate with civilian authorities and fully prepared and capable of executing their responsibilities during a pandemic. In May 2009, USAID also reportedly conducted a joint pandemic preparedness exercise with PACOM, AFRICOM, and the World Food Program (WFP), which involved 27 African and Asian countries and their military representatives. In FY2005, Congress provided emergency supplemental funds for U.S. technical assistance efforts related to global pandemic influenza preparedness and response. In each appropriation year since, Congress has funded U.S. efforts to train health workers in foreign countries to prepare for and respond to a pandemic that might occur from any influenza virus, including H5N1 avian flu and H1N1. The U.S. Department of State announced in October 2008 that since FY2005, the United States has pledged about $949 million for global avian and pandemic influenza efforts, accounting for 30.9% of overall international donor pledges of $3.07 billion. The United States is the largest single donor to global avian and pandemic preparedness efforts. The funds have been used to support international efforts in more than 100 nations and jurisdictions. The assistance focused on three areas: preparedness and communication, surveillance and detection, and response and containment. The $949 million was provided for the following efforts: $319 million for bilateral activities; $196 million for support to international organizations, including WHO, the U.N. Food and Agriculture Organization (FAO), the U.N. Development Program (UNDP), the International Federation of the Red Cross and Red Crescent Societies (IFRC), the U.N. System Influenza Coordinator (UNSIC), the World Organization for Animal Health (OIE), and the U.N. Children's Fund (UNICEF); $123 million for regional programs, including disease detection sites; $83 million for a global worldwide contingency, available to address the evolving nature of the threat; $77 million for international technical and humanitarian assistance and international coordination; $71 million for international influenza research (including vaccines and modeling of influenza outbreaks) and wild bird surveillance, including the U.S. launch of the Global Avian Influenza Network for Surveillance (GAINS) for wild birds, with a collection of tens of thousands of samples for H5N1 analysis; $67 million for stockpiles of non-pharmaceutical supplies, including over 1.6 million PPE kits, approximately 250 laboratory specimen collection kits and 15,000 decontamination kits for use in surveillance, outbreak investigation and emergency response and containment efforts; and $13 million for global communications and outreach. The cumulative pledge of $949 million consists of the following contributions by agency: USAID: $542 million. HHS, including CDC, the National Institutes of Health (NIH), and the Food and Drug Administration (FDA): $353 million. U.S. Department of Agriculture (USDA): $37 million. Department of Defense (DOD): $10 million. Department of State (DOS): $7 million. In addition, President Barack Obama has requested $1.5 billion in supplemental funding for U.S. domestic and international pandemic preparedness and response activities. It was not stated how much of these funds the President intended to spend on international efforts. On June 19, 2009, the 2009 Supplemental Appropriations ( H.R. 2346 ) was sent to the President for his signature. The bill made available $50 million for USAID pandemic preparedness activities and $200 million to CDC for domestic and international H1N1 activities. The conference report did not specify how much of the $200 million CDC should spend on international efforts. Infectious diseases are estimated to cause more than 25% of all deaths around the world. A number of infectious disease outbreaks over the past decade, such as H5N1 avian influenza and severe acute respiratory syndrome (SARS), have heightened concerns about how infectious diseases might threaten global security. Most recently, the emergence of influenza A H1N1 has demonstrated the threat that infectious diseases pose. It is important to note that about 75% of the diseases that have emerged over the past decades have originated from animals. As a result, effective responses to the growing threat of infectious diseases require a multidisciplinary approach that brings together stakeholders from a variety of sectors, including agricultural and animal health. Investments that the United States and other international players have made to prepare for a possible influenza pandemic, and to monitor the spread of other infectious diseases, have been applied to the most recent global response to H1N1. While health experts have made considerable gains against the disease—including developing strain specific tests that are capable of identifying H1N1, identifying and distributing effective treatments against the disease, and utilizing a global surveillance system—other questions remain. Some health experts are concerned that some of the poorer countries may not yet have the capacity to sufficiently monitor and respond to H1N1. Others warn that it is too early to become complacent about H1N1, as transmission of influenza viruses tend to accelerate in winter months. Countries in the Southern hemisphere are only beginning to enter their winter season and are beginning to report cases. Questions still remain about whether the virus could change or reassort its genes, particularly should outbreaks in countries simultaneously contending with H5N1 bird flu cases occur (such as Egypt, Vietnam, and Indonesia). The section below raises some questions that health experts are considering about the global spread of H1N1. In May 2009, there was vigorous debate about whether WHO should maintain its pandemic influenza phase system, which reflects the spread of the virus and transmission patterns, not severity. Some argued that WHO should develop an alert system that is based on severity. Supporters of this idea asserted that the public might not understand that widespread death may not occur at the highest pandemic phase level. Critics of the system, including some European leaders, warned that if WHO raised the pandemic threat level to Phase 6, panic might ensue and considerable economic and social disruptions may occur. Other health experts maintained that recent cases of sustained human-to-human transmission of H1N1 in Japan justified raising the pandemic threat level to Phase 6. On June 11, 2009, WHO raised the pandemic phase level from 5 to 6. While announcing her decision, Director General Margaret Chan underscored that the shift did not reflect a change in severity. WHO also released a pandemic influenza preparedness and response guide that was updated and replaced its 2005 guide. Among other changes, the update "retained the six-phase structure, but regrouped and redefined the phases to more accurately reflect pandemic risk and the epidemiological situation based upon observable phenomena." The update also outlines steps governments should take in planning and preparing for an epidemic ( Table A-2 ). U.S. agencies have recognized the threat of infectious diseases, particularly zoonotic ones that have their origins in animals. USAID announced in April 2009 that it would launch a new five-year emerging pandemic threats program in October 2009. The program will be conducted in collaboration with CDC and USDA to support the development of a global early warning system for the threat posed by diseases of animal origin that infect humans, such as SARS, H5N1, and HIV/AIDS. USAID expects that a significant proportion of the funds will be used to invest in establishing a network of laboratories within Africa specifically intended to improve the ability to diagnose, both within animal and human populations, new emergent pathogens. USAID did not specify, however, how much will be provided for this effort or how extensive it will be. Some observers are concerned that South Africa is the only sub-Saharan country to have confirmed any cases human cases of H1N1 human cases. With the exception of South Africa (and to a certain extent Botswana), laboratory and surveillance systems in sub-Saharan Africa are in relatively poor condition. Some experts suggest that the absence of case reports from most African countries reflects limited public health and surveillance capacity, not a true absence of disease. Although there is consensus that laboratory and disease surveillance capacity is weak in most African countries, CDC, USAID, and other international health experts have been working to improve those systems. CDC has sent H1N1 testing kits to 237 laboratories in 107 countries, including 18 in Africa. Countries without the kits send viral samples to one of four WHO collaborating centers in Atlanta, Britain, Japan, and Australia. The ability of poor countries to purchase treatments and vaccines against diseases has been a debatable issue for some time. Arguments about access were raised when HIV/AIDS transmission was at its peak and many countries could not afford patented treatments. Discussions about access resurfaced at the peak of global H5N1 avian flu outbreaks. Indonesia intermittently sent viral samples to WHO, citing concerns that once a vaccine was developed, poorer countries would be unable to afford them or wealthier producing countries would hoard the vaccines. Some have raised similar concerns again with the recent H1N1 outbreaks. The link between access, poverty and health have been well-documented. USAID estimates that about 30% of the world's population lacks regular access to medicines and more than 50% of the poorest areas in Africa and Asia lack access. WHO estimates that more that 90% of the global capacity to develop influenza vaccines is located in Europe and in North America. With the bulk of capacity to develop and purchase treatments and vaccines concentrated in richer countries, poorer countries rely on the generosity of donor countries. Some are concerned that should a pandemic arise, richer countries will hoard treatments and vaccines for their populations. In addition to questions of access, others raise concern about the capacity of poorer countries to effectively administer mass vaccination and treatment campaigns. WHO reported that it would not conduct mass H1N1 vaccination campaigns should a vaccine be developed. Instead, the organization expects that national authorities will undertake such efforts. Some argue that countries that are already incapable of administering routine vaccines will be unlikely to successfully undertake such an effort. According to the most recent estimates compiled in 2002, some 1.4 million of deaths among children under five years of age were due to diseases that could have been prevented by routine vaccination. This represents 14% of total global mortality in children under five years of age. Health experts—including the WHO—are concerned that other factors could alter the severity of the H1N1 strain currently circulating the globe. One concern raised is the possibility of having strains of H5N1 bird flu and H1N1 circulating in the same area. This could allow the two flu strains to reassort (i.e., intermix their genes) to create yet another strain with the potential to cause human illness. Concerns about the likelihood that H5N1 might cause an influenza pandemic began in January 2004, when Thailand and Viet Nam reported their first human cases of avian influenza. Health experts were particularly concerned about H5N1 outbreaks, because all prerequisites for the start of a pandemic were met except one: efficient human-to-human transmission. The human cases were directly linked to historically unprecedented outbreaks of highly pathogenic H5N1 avian influenza in poultry that began in 2003 and rapidly affected eight Asian nations. By 2006, about 50 countries worldwide had confirmed outbreaks of H5N1 bird flu among its animal and human populations. In 2008 and 2009, six countries reported human H5N1 cases, though the disease has apparently become endemic in Asia. Health experts are closely watching whether countries contending with ongoing H5N1 cases begin to experience H1N1 cases. Of the six countries that reported human H5N1 cases in 2008 and 2009, only Indonesia and Cambodia have not reported H1N1 cases. H5N1 bird flu kills about 60% of humans who contract the virus. While H5N1 is more virulent than H1N1, it is not as easily transmissible. Most human deaths of H5N1 have occurred after direct contact with a sick bird, while animals have not yet been identified as a source of transmission for H1N1. | In April 2009, a novel influenza virus began to spread around the world. The World Health Organization (WHO) refers to the virus as Influenza A(H1N1). The U.S. Centers for Disease Control and Prevention (CDC) and other Administration officials refer to it as 2009 H1N1 flu. Throughout this report, the virus is referred to as H1N1. The virus does not appear to be as lethal as H5N1 avian influenza—which reemerged in 2005—but is slightly more lethal than seasonal flu. Although the virus has been characterized as a pandemic, researchers can not predict how virulent the virus will be ultimately. As of June 22, 2009, WHO confirmed that more than 50,000 human cases of H1N1 had occurred in more than 80 countries and territories, including 231 deaths. With the exception of Britain and Australia, all human deaths have occurred in the Americas. About 87% of all deaths have occurred in Mexico (49%) and the United States (38%). The United Nations Food and Agricultural Organization (FAO), the World Organization for Animal Health (OIE), and WHO agree that there is no risk of contracting the virus from consuming well-cooked pork or pork products. WHO asserts that limiting travel and imposing travel restrictions would minimally affect the spread of the virus, but would be highly disruptive to the global community. The strain of H1N1 circulating the globe is treatable with two antiviral drugs, oseltamivir (brand name Tamiflu®) and zanamivir (brand name Relenza®), though there is no available vaccine. WHO has been maintaining a global stockpile of approximately 5 million adult treatment courses of oseltamivir that were donated by manufacturers and donor countries. This stockpile was initiated after the onset of H5N1 bird flu outbreaks. WHO has already distributed some of the treatments through the WHO Regional Offices and is distributing 3 million treatment courses from the stockpile to developing countries in need. As of May 18, 2009, the United States had provided more than $16 million to assist countries respond to H1N1 outbreaks. Global responses by U.S. agencies to H1N1 are conducted primarily by CDC and the U.S. Agency for International Development (USAID), though DOD does provide some support to global aid. CDC has sent experts to Latin America and the Caribbean to help the countries strengthen laboratory capacity and train health experts. HHS has already sent 400,000 treatment courses to Mexico, accounting for less than 1% of the total American stockpile. In total, the Administration aims to provide 2 million courses to Mexico. USAID announced on April 28, 2009, that it would provide an additional $5 million to WHO and the Pan American Health Organization (PAHO) for interventions against H1N1 in Mexico and Central America. To date, USAID has provided $6.2 million for international H1N1 assistance. The assistance includes support to FAO for animal surveillance efforts in Mexico and other parts of Central America, and the provision of personal protection equipment (PPE) kits from its avian and pandemic influenza stockpile to prevent first responders from contracting or spreading the disease. In May 2009, it distributed more than 100,000 PPE kits in Mexico City and announced that it had already pre-positioned 400,000 PPE kits in 82 countries in preparation of a possible influenza pandemic. Investments that the United States and other stakeholders have made to prepare for a possible influenza pandemic, and to monitor the spread of other infectious diseases, have been applied to the most recent global response to H1N1. While health experts have made considerable gains against the disease, questions remain. Some health experts are concerned that poorer countries may not yet have the capacity to sufficiently monitor and respond to H1N1. Others warn that H1N1 transmission might accelerate in winter months. Questions still remain about whether the disease can change or reassort, particularly in countries simultaneously contending with H5N1 bird flu cases occur (such as Egypt, Vietnam, and Indonesia). |
In health insurance, beneficiaries may face two types of out-of-pocket payments: (1) participation-related cost-sharing, typically in the form of monthly premiums, regardless of whether services are utilized, and (2) service-related cost-sharing, which consists of payments made directly to providers at the time of service delivery. Such beneficiary cost-sharing under Medicaid is described below. In order to obtain health insurance generally, enrollees may be required to pay monthly premiums and/or, less frequently, enrollment fees. Such charges are prohibited under traditional Medicaid for most eligibility groups. Nominal amounts set in regulations, ranging from $1 to $19 per month, depending on monthly family income and size, can be collected from (1) certain families moving from welfare to work who qualify for transitional assistance under Medicaid, and (2) pregnant women and infants with annual family income exceeding 150% of the federal poverty level (FPL), or, for example, about $19,800 for a family of two. Premiums and enrollment fees can exceed these nominal amounts for other specific groups. For example, for certain individuals who qualify for Medicaid due to high out-of-pocket medical expenses, states may implement a monthly fee as an alternative to meeting financial eligibility thresholds by deducting medical expenses from income (i.e., the "spend down" method). Cost-sharing is not capped for workers with disabilities and income up to 250% FPL. Premiums cannot exceed 7.5% of income for other workers with disabilities and income between 250% and 450% FPL. (If a state covers both groups, the same cost-sharing rules must apply.) Finally, some groups covered by Medicaid through certain waivers can be charged premiums that exceed nominal amounts. Under DRA authority, the general rules regarding applicable premiums are specified for three income ranges. For individuals with income under 100% FPL, and between 100% to 150% FPL, premiums are prohibited. Like traditional Medicaid, other specific groups (e.g., some children, pregnant women, individuals with special needs) are also exempt from paying premiums under the new DRA option. For persons with income above 150% FPL, DRA places no limits on the amount of premiums that may be charged. For the most part, premiums are not used under traditional Medicaid, except for workers with disabilities and waiver populations. Among the four states (Idaho, Kansas, Kentucky, and West Virginia) with approval for alternative DRA benefit packages, only Kentucky imposes monthly premiums: (1) $20/family with children with income over 150% FPL who are enrolled in the State Children's Health Insurance Program (SCHIP; additional details below), and (2) up to $30/family (not to exceed 3% of the adjusted, average monthly income) during the last six months of transitional Medicaid for working families with income over 100% FPL. Beneficiary out-of-pocket payments to providers at the time of service can take three forms. A deductible is a specified dollar amount paid for all services rendered during a specific time period (e.g., per month or year) before health insurance (e.g., Medicaid) begins to pay for care. Coinsurance is a specified percentage of the cost or charge for a specific service rendered. A copayment is a specified dollar amount for each item or service delivered. While deductibles and coinsurance are rarely used in traditional Medicaid, copayments are applied to some services and groups. The Appendix provides a comparison of the maximum charges allowed for service-related cost-sharing under traditional Medicaid, DRA, and SCHIP. SCHIP is a capped federal grant that allows states to cover low-income, uninsured children in families with income above Medicaid eligibility thresholds. Children may be enrolled in separate SCHIP programs for which SCHIP rules apply (shown in the Appendix ), or in Medicaid, for which traditional Medicaid or DRA rules apply. Some states (e.g., Kentucky) have both types of SCHIP programs (a Medicaid expansion and a separate SCHIP program), for which children with the highest income levels are enrolled in the separate program. Service-related cost-sharing under separate SCHIP programs generally parallels the rules under traditional Medicaid for lower-income subgroups; there are no limits specified for higher-income subgroups. Total SCHIP cost-sharing is capped at 5% of family income per eligibility period. Service-related cost-sharing under traditional Medicaid is prohibited for the following specific groups and services: (1) children under 18, (2) pregnant women for pregnancy-related services, (3) services provided to certain institutionalized individuals, (4) individuals receiving hospice care, (5) emergency services, and (6) family planning services and supplies. For most other groups and services, nominal amounts are allowed. For example, nominal copayments specified in regulations range from $0.50 to $3, depending on the payment for the item or service. These nominal amounts will be increased by medical inflation beginning in 2006 (regulations not yet released). Under the DRA option, certain groups and services are also exempt from the service-related cost-sharing provisions. These exemptions are nearly identical to those under traditional Medicaid. However, under traditional Medicaid, all children under 18 are exempt, while under DRA, only children covered under mandatory eligibility groups (the lowest income categories) and certain foster care/adoption assistance youth are exempt. Also, groups exempted from the general service-related cost-sharing provisions under DRA may nonetheless be subject to cost-sharing for non-emergency services provided in a hospital emergency room (ER), and/or for prescribed drugs (see the Appendix ). Under SCHIP, only American Indian and Alaskan Native children are exempt from cost-sharing, and cost-sharing is also prohibited for well-baby and well-child services. Among the four states with approval for alternative benefit packages via DRA, only Kentucky includes cost-sharing for participants, summarized in Table 1 . For many services across the four Kentucky plans, there is no cost-sharing for beneficiaries. When applicable, copayments for selected non-institutional services, acute inpatient hospital care, and for generic and preferred brand-name drugs are very similar to the maximums allowed under traditional Medicaid. For non-preferred brand-name drugs and for non-emergency care in an ER, a 5% coinsurance charge will be applicable in most cases. For all four Kentucky plans, the maximum annual out-of-pocket expense per member is $225 for health care services and $225 for prescriptions. Additionally, under DRA, the total aggregate amount of all cost-sharing (premiums plus service-related charges) cannot exceed 5% of family income applied on a monthly or quarterly basis as specified by the state. Under Kentucky's DRA SPA, this limit is applied on a quarterly basis. The rules governing consequences for failure to pay premiums differ somewhat under traditional Medicaid and DRA. Under traditional Medicaid, for certain groups of pregnant women and infants for whom monthly premiums may be charged, states cannot require prepayment, but may terminate Medicaid eligibility when failure to pay such premiums continues for at least 60 days. In contrast, under DRA, states may condition Medicaid coverage on the payment of premiums, but like traditional Medicaid, states may terminate Medicaid eligibility only when nonpayment continues for at least 60 days. States can apply this DRA provision to some or all applicable groups. Under both traditional Medicaid and DRA, states may waive premiums in cases of undue hardship. In Kentucky, benefits are terminated after two months of non-payment of premiums for children in the separate SCHIP program. Upon payment of a missed premium, re-enrollment is allowed. After 12 months of non-payment, payment of the missed premium is not required for re-enrollment. Also, working families with transitional Medicaid will lose coverage after two months of missed premiums unless good cause is established. There are more differences between traditional Medicaid and DRA with respect to rules for failure to pay service-related cost-sharing. Under traditional Medicaid, providers cannot deny care to beneficiaries due to an individual's inability to pay a cost-sharing charge. However, this requirement does not eliminate the beneficiary's liability for payment of such charges. In contrast, under DRA, states may allow providers to require payment of authorized cost-sharing as a condition of receiving services. Providers may be allowed to reduce or waive cost-sharing on a case-by-case basis. P.L. 109-432 exempts individuals in families with income below 100% FPL from the DRA failure to pay rules for both premiums and service-related cost-sharing. According to state regulations, Kentucky requires all providers to collect applicable cost-sharing from Medicaid beneficiaries at the time of service delivery or at a later date. No provider can waive cost-sharing, but only pharmacy providers can deny services for failure to pay (as per a state law). Finally, under SCHIP, states must specify consequences applicable to nonpayment of premiums and/or service-related cost-sharing, and must institute disenrollment protections (e.g., providing both reasonable notice and an opportunity to pay policies). | Under traditional Medicaid, states may require certain beneficiaries to share in the cost of Medicaid services, although there are limits on the amounts that states can impose, the beneficiary groups that can be required to pay, and the services for which cost-sharing can be charged. Prior to DRA, changes to these rules required a waiver. DRA provides states with new options for benefit packages and cost-sharing that may be implemented through Medicaid state plan amendments (SPAs) rather than waiver authority. These rules vary by beneficiary income level and for some types of service. The recently enacted P.L. 109-432 (Tax Relief and Health Care Act of 2006) modified the DRA cost-sharing rules. This report describes the new cost-sharing options and recent state actions to implement these provisions, and will be updated as additional activity warrants. |
Historically, Congress has mandated programs to help U.S. exporters compete with subsidies provided by other countries, to assist with financing for exports where credit is a constraint, or to promote U.S. agricultural exports. Some in Congress have criticized programs that assist with exports as corporate welfare; others suggest that private entities could and should themselves finance export activities. The 2008 farm bill extends funding authority for credit guarantees and export market development through FY2012. The enacted farm law repeals legislative authority for the major export subsidy program, but extends authority for a smaller program that subsidizes dairy product exports. Funded by using the borrowing authority of the Commodity Credit Corporation (CCC), the farm bill agricultural export programs are administered by the Foreign Agricultural Service (FAS) of the U.S. Department of Agriculture (USDA). CCC export credit guarantees assure payments for commercial financing of the sale of U.S. agricultural exports. If a foreign buyer defaults on the debt financing incurred, the CCC assumes the debt. In the 2002 farm bill ( P.L. 107-171 ) Congress authorized $5.5 billion (in export value, not cost to the Treasury) for such guarantees, plus an additional $1 billion to be made available to countries that are emerging markets. Four CCC export credit guarantee programs were authorized in the 2002 farm bill. GSM-102 guaranteed short-term (up to 3 years) financing of U.S. farm products; GSM-103 guaranteed longer-term (3-10 years) financing. The Supplier Credit Guarantee Program (SCGP) guaranteed very short-term (up to 1 year) financing of exports. The Facilities Financing Guarantee Program (FFGP) guaranteed financing of goods and services exported from the United States to improve or establish agriculture-related facilities in emerging markets. In 2006, FAS suspended operation of the GSM-103 program. The suspension was in response to a WTO dispute panel decision in a case brought by Brazil against U.S. cotton policy. The panel ruled that GSM programs were prohibited export subsidies because they did not recover their operating costs. Also FAS suspended the SCGP in FY2006, largely because of a high rate of defaulted obligations and evidence of fraud. In its farm bill proposals, the Administration requested that Congress formally repeal legislative authorities for GSM-103 and the SCGP. The Administration also requested that Congress lift the statutory 1% cap on loan origination fees for GSM-102,which the WTO cited as a subsidy element in the operation of the export credit guarantee programs. The 2008 farm bill repeals authority for the SCGP, the GSM-103 intermediate credit guarantee, and the 1% cap on loan origination fees for the GSM-102 program. The new farm bill caps the credit subsidy for the program at $40 million annually. The amount of GSM-102 credit that CCC must make available each year is set at not less than $5.5 billion, but the $40 million credit subsidy cap, according to the manager's statement accompanying the bill, is expected to finance $4 billion annually in export credit guarantees. The 2008 farm bill extends authority for the FFGP to FY2012. It also provides that the Secretary of Agriculture may waive requirements that U.S. goods be used in the construction of a facility under this program, if such goods are not available or their use is not practicable. The new law also permits the Secretary to provide a guarantee for this program for the term of the depreciation schedule for the facility, not to exceed 20 years. The 2002 farm bill authorized four programs to promote U.S. agricultural products in overseas markets, including the Market Access Program (MAP), the Foreign Market Development Program (FMDP), the Emerging Markets Program (EMP), and the Technical Assistance for Specialty Crops Program (TASC). Authorization of CCC funds for the market development programs expired with the 2002 farm bill in 2007. During the farm bill debate both the Administration and producers of fruits and vegetables advocated increased funding for export market development programs, targeted to specialty crops (fruits and vegetables). MAP assists primarily value-added products. Its purpose is to expand exports over the long term by undertaking activities such as consumer promotions, technical assistance, trade servicing, and market research. MAP projects are jointly funded by the federal government and industry groups. Trade organizations, nonprofit industry organizations, and private firms that are not represented by an industry group submit proposals for marketing activities to the USDA, which evaluates proposals and selects recipient organizations. The 2008 farm bill extends MAP through FY2012, makes organic produce eligible for the program, and keeps the funding level at the FY2007 level—$200 million—for each of the next five years (FY2008-FY2012). The 2002 farm bill reauthorized CCC funding for FMDP through FY2007 at an annual level of $34.5 million. FMDP, which resembles MAP in most major respects, mainly promotes generic or bulk commodity exports. The 2008 farm bill extends FMDP through FY2012 without change in the funding authorization. EMP provides funding for technical assistance activities intended to promote exports of U.S. agricultural commodities and products to emerging markets in all geographic regions, consistent with U.S. foreign policy. An emerging market is defined in the authorizing legislation (the 2002 farm bill) as any country that is taking steps toward a market-oriented economy through food, agricultural, or rural business sectors of the economy of the country. Additionally, an emerging market country must have the potential to provide a viable and significant market for U.S. agricultural commodities or products. The 2002 farm bill authorized funding at $10 million annually through FY2007. The 2008 farm bill reauthorizes the Emerging Markets Program through FY2012 without change. TASC aims to assist U.S. specialty crop exports by providing funds for projects that address sanitary, phytosanitary, and technical barriers that prohibit or threaten U.S. speciality crop exporters. The 2002 farm bill defined specialty crops as all cultivated plants, and the products thereof, produced in the United States, except wheat, feed grains, oilseeds, cotton, rice, peanuts, sugar, and tobacco. The types of activities covered include seminars and workshops, study tours, field surveys, pest and disease research, and pre-clearance programs. The 2002 farm bill authorized $2 million annually of CCC funds each fiscal year through FY2007 for the TASC program. The 2008 farm bill extends TASC through FY2012 and increases funding to $4 million in FY2008; $7 million in FY2009; $8 million in FY2010; and $9 million in each of FY20011 and FY2012. The 2002 farm bill authorized direct export subsidies of agricultural products through the Export Enhancement Program (EEP) and the Dairy Export Incentive Program (DEIP). Both programs subsidized agricultural exports when U.S. domestic prices were higher than world or international prices. EEP, which mainly subsidized exports of wheat and wheat flour (around 80% of EEP subsidies), has been little used as U.S. and world prices have moved closer together. The last year of significant EEP subsidies was 1995; there were no EEP subsidies during the five years of the 2002 farm bill. DEIP provided subsidies for dairy product exports; no DEIP subsidies have been provided since 2005. Agricultural export subsidies are a major issue in the Doha Round of multilateral trade negotiations, where preliminary agreement has been reached to eliminate them by 2013. The 2008 farm bill repeals legislative authority for EEP, but extends legislative authority for DEIP through December 31, 2012. (The DEIP authorization is in Title I, the Commodities title of the 2008 farm bill.) The 2008 farm bill requires the U.S. Agency for International Development (USAID) to make a contribution on behalf of the United States to the Global Crop Diversity Trust of up to $60 million over five years. U.S. contributions to the trust may not exceed one fourth of the total of funds contributed to the trust from all sources. The Global Diversity Trust is the funding mechanism for the International Treaty on Plant Genetic Resources for Food and Agriculture, which is an international agreement for the conservation, exploration, collection, characterization, evaluation and documentation of plant genetic resources for food and agriculture. The trust, administered by the United Nations Food and Agriculture Organization, (FAO), assists in funding the operation of gene banks held by the countries that are party to the treaty. The 2008 farm bill includes a provision that requires the Secretary of Agriculture, in cooperation with the Secretary of Labor, to develop standards that importers of agricultural products into the United States could choose to use to certify that those products were not produced with the use of abusive forms of child labor. The consultative group would develop recommendations on practices that would enable companies to monitor and verify whether the food products they import are made with the use of child or forced labor. | Agricultural exports, which are forecast by the U.S. Department of Agriculture to reach $108.5 billion in 2009, are an important source of employment, income, and purchasing power in the U.S. economy. Programs that deal with U.S. agricultural exports are a major focus of Title III, the trade title, in the new omnibus farm bill, the Food, Conservation, and Energy Act of 2008 (P.L. 110-246, H.R. 6124). The enacted farm bill repeals the major U.S. export subsidy program, and reauthorizes and changes a number of programs that assist with financing U.S. agricultural exports or that help develop markets overseas. Changes include modifying export credit guarantee programs to conform with U.S. commitments in the World Trade Organization (WTO), making organic products eligible for export market development programs, and increasing the funds available to address sanitary and phytosanitary barriers to U.S. specialty crop exports. International food aid programs are the other major focus of the farm bill trade title. For a discussion of farm bill changes in food aid programs, see CRS Report RS22900, International Food Aid Provisions of the 2008 Farm Bill. |
In April 2003, the sequence of the human genome was deposited into public databases. Scientists involved in the Human Genome Project (HGP) reported that the finished sequence consists of overlapping fragments covering 99% of the coding regions of the human genome, with an accuracy of 99.999%. These rapid advances provide powerful tools for determining the causes, and potentially the cures, for many common, complex diseases such as diabetes, heart disease, Parkinson's disease, bipolar illness, and asthma. In congressional testimony Dr. Francis Collins, the Director of the National Human Genome Research Institute, described the potential the information generated by the HGP holds for medicine and public health. He stated that "The human genome sequence provides foundational information that now will allow development of a comprehensive catalog of all of the genome's components, determination of the function of all human genes, and deciphering of how genes and proteins work together in pathways and networks. Completion of the human genome sequence offers a unique opportunity to understand the role of genetic factors in health and disease, and to apply that understanding rapidly to prevention, diagnosis, and treatment. This opportunity will be realized through such genomics-based approaches as identification of genes and pathways and determining how they interact with environmental factors in health and disease, more precise prediction of disease susceptibility and drug response, early detection of illness, and development of entirely new therapeutic approaches." As Collins stated, with completion of the human genome sequence, scientists will now focus on understanding the clinical and public health implications of the sequence information. All disease has a genetic component and therefore genomic research has the potential to substantially reduce the collective burden of disease in the general population. Clinical genetic tests are becoming available at a rapid rate, with 1,013 clinical genetic tests currently available. In addition, private insurers are beginning to include some clinical genetic tests in their health insurance benefits packages as evidence of the tests' clinical validity accumulates. For example, some health plans have coverage policies for specific conditions, such as hereditary cancer testing, Cystic Fibrosis, Tay Sachs disease, and hereditary hemochromatosis. These scientific advances in genetics, while promising, are not without potential problems. The ethical, social and legal implications of genetic research have been the subject of significant scrutiny and a portion of the funds for the Human Genome Project are set aside to support the analysis and research of these issues. As scientific knowledge about genetics becomes increasingly widespread, numerous researchers and commentators, including Dr. Francis Collins, have expressed concerns about how this information will used. In congressional testimony, Dr. Collins stated: "while genetic information and genetic technology hold great promise for improving human heath, they can also be used in ways that are fundamentally unjust. Genetic information can be used as the basis for insidious discrimination....The misuse of genetic information has the potential to be a very serious problem, both in terms of people's access to employment and health insurance and the continued ability to undertake important genetic research." This concern has encompassed fear of discrimination in many aspects of life, including employment and health and life insurance. A study on discrimination found that a number of institutions, including health and life insurance companies, health care providers, blood banks, adoption agencies, the military and schools, were reported to have engaged in genetic discrimination against asymptomatic individuals. The discriminatory practices included allegedly treating a genetic diagnosis as a preexisting condition for insurance purposes, refusal by an adoption agency to allow a woman at risk for Huntington's disease to adopt based on the woman's genetic risk, and termination from employment after disclosure of a risk of Huntington's disease. Similarly, another study reported that twenty-two percent of the respondents indicated that they or a family member were refused health insurance as a result of a genetic condition. Both the U.S. Chamber of Commerce and America's Health Insurance Plans (AHIP) have countered that there is no convincing evidence that employers or insurers engage in genetic discrimination and that federal legislation to prohibit discrimination based on genetic information is unnecessary. Larry Lorber, representing the U.S. Chamber of Commerce, stated in congressional testimony that "There is little to no evidence of employer collection or misuse of genetic information in today's workplace. This is despite continued predictions that, in the absence of a bill, the fear of increased insurance costs, absenteeism, and low productivity would inevitably drive vast numbers of employers to genetic testing of the workforce and employment discrimination based on genetic makeup. Whether it is due to the threat of liability under existing protections, fear of public backlash, moral concerns or simply a lack of interest, employer collection and misuse of genetic information remains largely confined to the pages of science fiction." He goes on to state that, "the current body of Federal law, including the ADA, Title VII of the Civil Rights Act, HIPAA and other Federal laws are more than ample to deal with any misuse of genetic information." In discussions with the Secretary's Advisory Committee on Genetics, Health and Society (SACGHS), the Chamber stated that while it does not believe that employers are engaging in genetic discrimination, it does recognize that the fear of potential discrimination may warrant a legislative solution. In addition, America's Health Insurance Plans states that, "As a matter of practice, health insurance plans do not use or disclose such private health information [genetic information] for purposes outside of normal insurance coverage activities. Moreover, federal and state laws currently prohibit the inappropriate use of genetic information." Legal cases of genetic discrimination have been few. However, studies have shown that public fear of discrimination is substantial and negatively influences the uptake of genetic testing and the use of genetic information by consumers and health professionals. SACGHS learned that 68% of Americans are concerned about who would have access to their personal genetic information; 31% state this concern would prevent them from having a genetic test; and 68% agree that insurers would do everything possible to use genetic information to deny health coverage. A 2004 survey conducted by the Genetics and Public Policy Center found that 92% of Americans oppose employer access to personal genetic information and 80% oppose access to this information by health insurers. In addition, SACGHS as well as its predecessor Committee, the Secretary's Advisory Committee on Genetic Testing (SACGT), sponsored two public forums to gather perspectives on genetic discrimination. Many comments were received from patients, consumers, health professionals, scientists, genetic test developers, educators, industry representatives, policymakers, lawyers, students and others representing a wide range of diverse ethnic and racial groups. The comments and testimony revealed several anecdotal cases of discrimination. SACGT sent two letters to the Secretary of HHS urging support for nondiscrimination protections: During consultations with the public SACGT heard from many Americans who are concerned about the misuse of genetic information by third parties, such as health insurers and employers, and the potential for discrimination based on that information. Many stated that fear of genetic discrimination would dissuade them from undergoing a genetic test or participating in genetic research studies. Others stated that they would pay out of pocket for a genetic test to prevent the results from being placed in their medical record. Such concerns are a deterrent to advances in the field of genetic testing and may limit the realization of the benefits of genetic testing. The SACGHS held a half day session where it heard testimony from members of the public, health care providers, insurers, employers and other stakeholders. This testimony revealed actual cases of genetic discrimination as well as considerable fear of genetic discrimination and altered behavior due to this fear. The Committee compiled the comments it received both orally and in writing, produced a DVD highlighting the oral testimony it received, and provided an extensive legal analysis concluding that current law does not provide adequate protection against genetic discrimination in health insurance and employment. This information was shared with the Secretary of HHS, with a recommendation that it also be shared with key Members of Congress. The Committee was interested in independently investigating the claims made by opponents that genetic discrimination was not occurring and that current law provides adequate protection against discrimination. A joint report by the Department of Labor, the Department of Health and Human Services, the Equal Employment Opportunity Commission (EEOC) and the Department of Justice summarized the various studies on discrimination based on genetic information and argued for the enactment of federal legislation. The report stated that "genetic predisposition or conditions can lead to workplace discrimination, even in cases where workers are healthy and unlikely to develop disease or where the genetic condition has no effect on the ability to perform work" and that "because an individual's genetic information has implications for his or her family members and future generations, misuse of genetic information could have intergenerational effects that are far broader than any individual incident of misuse." Concluding that existing protections are minimal, the report went on to call for the enactment of legislation which states that (1) employers should not require or request that employees or potential employees take a genetic test or provide genetic information as a condition of employment or benefits, (2) employers should not use genetic information to discriminate against, limit, segregate, or classify employees, and (3) employers should not obtain or disclose genetic information about employees or potential employees under most circumstances. According to the Labor Department report, employers should be able to (1) use genetic information for monitoring for the effects of a particular substance in the workplace under certain circumstances, and (2) disclose genetic information for research and other purposes with the written, informed consent of the individuals. In addition, the report states that the statutory authority of federal agencies or contractors to promulgate regulations, enforce workplace safety and health laws, or conduct occupational or other health research should not be limited. The National Council on Disability (NCD), an independent federal agency that advises the President and Congress on issues affecting individuals with disabilities, published a position paper arguing for the enactment of federal legislation prohibiting genetic discrimination on March 4, 2002. The NCD argues that recent advances in genetic research have brought an increasing potential for genetic discrimination, that genetic discrimination is a historical and current reality, that genetic discrimination undermines the purposes of genetic research and testing, that genetic test information has little value for purposes of making employment decisions and insurance decisions, and that existing laws are insufficient to protect individuals from genetic discrimination. President Bush has also made the prohibition of genetic discrimination one of the key components of his health care reform agenda. In his June 2001 radio address to the nation, the President stated that, "Genetic discrimination is unfair to workers and their families. It is unjustified - among other reasons, because it involves little more than medical speculation. A genetic predisposition toward cancer or heart disease does not mean the condition will develop. To deny employment or insurance to a healthy person based only on a predisposition violates our country's belief in equal treatment and individual merit." The Administration has indicated that it favors enactment of legislation to prohibit the improper use of genetic information in health insurance and employment. It should be emphasized that legal issues relating to genetics may vary depending on whether insurance, employment or other types of discrimination, or medical research are involved. Approaches to addressing the issues raised in these contexts vary from taking no legislative action, addressing certain specific concerns (as was done in the Health Insurance Portability and Accountability Act), or more far reaching approaches such as comprehensive legislation on genetics or legislation focused on all medical records, including genetic information. Generally legal issues raised regarding genetics have been based on two main concepts: privacy and discrimination. The privacy interests of an individual in his or her genetic information have been seen as significant and protecting these interests is seen as making discriminatory actions based on this information less likely. However, another approach would be to prohibit this potential misuse of the information by prohibiting discrimination. Some statutes, like the Americans with Disabilities Act (ADA), 42 U.S.C. §§ 12101 et seq., take a two-pronged approach to similar issues regarding medical information about disabilities by both protecting the confidentiality of the information and by prohibiting discriminatory acts. Currently there are no federal laws that directly and comprehensively address the issues raised by the use of genetic information. There are, however, a few laws that address parts of these issues but the only federal law that directly addresses the issue of discrimination based on genetic information is the Health Insurance Portability and Accountability Act (HIPAA). On February 8, 2000, President Clinton issued an executive order prohibiting discrimination against federal employees based on protected genetic information. On December 20, 2000, the Department of Health and Human Services issued final regulations on medical privacy which are not specific to genetics but cover all personal health information, including genetic information. This rule went into effect on April 14, 2001 but was amended in 2002. In addition, many states have enacted laws which vary widely in their approaches to the protection of genetic information. P.L. 104 - 191 , the Health Insurance Portability and Accountability Act of 1996 (HIPAA), has been hailed as taking "important steps toward banning genetic discrimination in health insurance" but has also been criticized as not going far enough. The act prohibits a group health plan or issuer of a group health plan from using genetic information to establish rules for eligibility or continued eligibility and provides that genetic information shall not be treated as a preexisting condition in the absence of the diagnosis of the condition related to such information. It also prohibits a group health plan or issuer of a group health plan from using genetic information in setting a premium contribution. These protections apply to individuals within the group plans; they do not apply to the acceptance of the whole group or to the premiums set for the group. Thus, HIPAA prohibits group health plans or issuers of group health plans from charging an individual a higher premium than a similarly situated individual; however, the law does not prevent an entire group from being charged more. The act would not prohibit group health plans or issuers of plans (i.e., insurers) from requiring or requesting genetic testing, does not require them to obtain authorization before disclosing genetic information, and does not prevent them from excluding all coverage for a particular condition or imposing lifetime caps on all benefits or on specific benefits. In addition, this act does not apply to individual health insurance policies, and does not address the issues of the use of genetic information in contexts other than health insurance such as employment. The Americans with Disabilities Act (ADA), 42 U.S.C. § 12101 et seq., prohibits discrimination against an individual with a disability in employment, public services, public accommodations, and communications. The threshold issue in any ADA case is whether the individual alleging discrimination is an individual with a disability. The act defines the term disability with respect to an individual as having "(A) a physical or mental impairment that substantially limits one or more of the major life activities of such individual, (B) a record of such an impairment; or (C) being regarded as having such an impairment." Although the statutory language of the ADA does not reference genetic traits, there was a discussion of the issue during congressional debate. So far there have been no judicial decisions but one case was brought by the EEOC and settled. In addition, Terri Seargent filed with the EEOC alleging genetic discrimination and received a determination on November 21, 2000 that the EEOC's investigation supported her allegation of discrimination under the ADA. The ADA has been interpreted by the Equal Employment Opportunity Commission (EEOC) as including genetic information relating to illness, disease, or other disorders. The legislative history was cited by the EEOC in its guidance to the definition of disability for its compliance manual. In this guidance, the EEOC examined the definition of disability under the ADA, noting that the definition was composed of three prongs: disability means (1) a physical or mental impairment that substantially limits one or more of the major life activities of an individual, (2) a record of such an impairment, or (3) being regarded as having such an impairment. It was under the third prong that the EEOC determined that discrimination based on genetic information relating to illness, disease, or other disorders was prohibited. Although this EEOC interpretation was widely heralded as a significant step for the protection of rights for individuals whose genes indicate an increased susceptibility to illness, disease or other disorders, it is limited in its application and may be even more limited after the recent Supreme Court decisions on the definition of disability. However, the EEOC has not withdrawn this guidance and at Senate hearings, EEOC Commissioner Paul Miller stated that the ADA "can be interpreted to prohibit employment discrimination based on genetic information. However, the ADA does not explicitly address the issue and its protections are limited and uncertain." In addition, Commissioner Miller observed that even if the ADA were found to cover genetic discrimination, the requirements of the ADA may not protect workers from all types of genetic discrimination. He stated, "for example, the ADA does not protect workers from requirements or requests to provide genetic information to their employers....In addition, once the applicant is hired, the employer may request that the employee take a medical exam, such as a genetic test, if the employer can demonstrate that the information from that test is job related and consistent with business necessity." The first ADA case alleging genetic discrimination was filed with the EEOC by Terri Seargent. Ms. Seargent, whose situation was extensively discussed during Senate debate on genetic discrimination in the 106 th Congress, had a promising career as a manager for a small insurance broker in North Carolina. She had positive performance evaluations but after medical tests determined that she had Alpha 1 Antitrypson Deficiency, a condition that affects the lungs and liver, and she began taking expensive medication, she was terminated from her employment. Ms. Seargent filed with the EEOC alleging genetic discrimination and received a determination on November 21, 2000 that the EEOC's investigation supported her allegation of discrimination under the ADA. The EEOC settled its first court action challenging the use of workplace genetic testing under the ADA against Burlington Northern Santa Fe Railway (BNSF). The settlement, announced on April 18, 2001, ended genetic testing of employees who filed claims for work-related injuries based on carpal tunnel syndrome. EEOC Commissioner Paul Steven Miller stated "The Commission will continue to respond aggressively to any evidence that employers are asking for or using genetic tests in a manner that violates the ADA. Employers must understand that basing employment decisions on genetic testing is barred under the ADA's 'regarded as' prong, as stated in EEOC's 1995 policy guidance on the definition of the term 'disability.' Moreover, genetic testing, as conducted in this case, also violates the ADA as an unlawful medical exam." Although the combination of the ADA's legislative history and the EEOC's guidance has led commentators to argue that the ADA would cover genetic discrimination, the merit of these arguments has been uncertain since there have been no reported cases holding that the ADA prohibits genetic discrimination. This uncertainty has increased in light of Supreme Court decisions on the definition of disability under the ADA. The first Supreme Court ADA case to address the definition of disability was Bragdon v. Abbott , a 1998 case involving a dentist who refused to treat an HIV infected individual outside of a hospital. In Bragdon, the Court found that the plaintiff's asymptomatic HIV infection was a physical impairment impacting on the major life activity of reproduction thus rending HIV infection a disability under the ADA. In two 1999 cases the Court examined the definitional issue whether the effects of medication or assistive devices should be taken into consideration in determining whether or not an individual has a disability. The Court in the landmark decisions of Sutton v. United Airlines and Murphy v. United Parcel Service, Inc., held, contrary to the interpretation given by the EEOC, that the determination of whether an individual has a disability should be made with reference to mitigating measures. In reaching this holding, the Court looked to the first prong of the definition of disability (having a physical or mental impairment that substantially limits one or more of the major life activities of an individual) and emphasized that the phrase "substantially limits" appears in the present indicative verb form "requiring that a person be presently—not potentially or hypothetically—substantially limited in order to demonstrate a disability....A person whose physical or mental impairment is corrected by medication or other measures does not have an impairment that presently 'substantially limits' a major life activity." In Albertsons Inc. v. Kirkingburg the Court held unanimously that the ADA requires proof that the limitation on a major life activity by the impairment is substantial. The Court in Sutton also looked at the findings enacted as part of the ADA which stated that "some 43,000,000 Americans have one or more physical or mental disabilities" and found that this figure was inconsistent with the argument that the statute covered individuals without looking at the mitigating effects of medications or devices. The individualized nature of the inquiry into whether an individual was an individual with a disability was emphasized. More recently the Court held in Toyota Motor Manufacturing v. Williams, that to be an individual with a disability under the act, an individual must have substantial limitations that are central to daily life, not just limited to a particular job. The Court held that "to be substantially limited in performing manual tasks, an individual must have an impairment that prevents or severely restricts the individual from doing activities that are of central importance to most people's daily lives." Significantly, the Court also stated that "[t]he impairment's impact must also be permanent or long-term." Although the Court's decision in Sutton did not turn on the third prong of the definition of disability (being "regarded as having such an impairment") the Court did address the interpretation of this part of the definition. There are two ways, the Court stated, that an individual can fall within the "regarded as" prong: (1) a covered entity mistakenly believes that a person has a physical impairment that substantially limits one or more major life activities, or (2) a covered entity mistakenly believes that an actual impairment substantially limits one or more major life activities. The Court found that, on its own, the allegation that an entity has a vision requirement in place does not establish a claim that the entity regards an individual as substantially impaired in the major life activity of working. The term "substantially limits" was regarded as significant. It requires "at a minimum, that plaintiffs allege they are unable to work in a broad class of jobs." The Court emphasized that it was "assuming without deciding" that working is a major life activity and that the EEOC regulations interpreting "substantially limits" are reasonable and found that even using the EEOC interpretation, the plaintiffs in Sutton failed to allege adequately that their vision is regarded as an impairment that substantially limits them in a major life activity. Being precluded from being a global airline pilot was not sufficient since they could obtain other, although less lucrative jobs, as regional pilots or pilot instructors. The "regarded as" prong was directly at issue in Murphy . In Murphy the Court held that the fact that an individual with high blood pressure was unable to meet the Department of Transportation (DOT) safety standards was not sufficient to create an issue of fact regarding whether an individual is regarded as unable to utilize a class of jobs. Like Sutton , the holding in Murphy emphasized the numerous other jobs available to the plaintiff. The Supreme Court's decisions on the ADA did not directly address genetic discrimination and it is possible that the ADA could be interpreted to cover a particular genetic defect. However, the reasoning used in the Court's recent decisions appears to make it unlikely that an ADA claim based on genetic discrimination would be successful. There are several factors that lead to this conclusion. First, the Supreme Court in Sutton specifically struck down an interpretation by the EEOC regarding the use of mitigating factors and raised questions concerning the validity of the EEOC's interpretation. The Court also found no statutory authority for agency interpretation of the definition of disability. The EEOC had taken the position that whether or not an individual has a disability should be determined by what his or her condition would be without medication or an assistive device. Rejecting this EEOC interpretation, in Sutton the Supreme Court noted that no agency was given the authority to interpret the term "disability" but that because both parties accepted the regulations as valid "we have no occasion to consider what deference they are due, if any." Similarly, in Murphy the Court clearly stated that its use of the EEOC regulations did not indicate that the regulations were valid. However, in its earlier decision in Bragdon v. Abbott , the Court had found its conclusion that HIV infection was covered by the ADA to be "reinforced by administrative guidance issued by the Justice Department...." The cases subsequent to Bragdon did not examine this seeming contradiction so exactly how a future decision would view EEOC regulations and guidance is uncertain. This issue is especially important regarding potential cases of genetic discrimination since the EEOC has published guidance indicating that the ADA covers genetic discrimination, and there are no reported cases. Similarly, the Supreme Court showed little indication to examine the legislative history of the ADA. The Court in Sutton held that it was not necessary to consider the legislative history of the ADA regarding the issue of whether individuals should be examined in their uncorrected state or with the use of mitigating medications or devices. It found that the statutory language was sufficient to support its holding on this issue. Although the issue regarding genetic discrimination is distinct from that of the use of mitigating medications and devices, the Court's general reluctance to examine legislative history in Sutton may indicate that the language on genetic discrimination quoted above from the congressional debates also would not be examined. The Court's reliance in Sutton upon the findings in the ADA that 43,000,000 Americans have one or more physical disabilities also indicates that the Court may not find genetic defects to be covered. The number of individuals cited in the findings as having a disability was seen by the Court as inconsistent with the argument that the statute covered individuals whose disabilities were mitigated by medications or devices. Since the prevalence of genetic defects is believed to be widespread, coverage of genetic defects could arguably include almost every individual. Thus, it is possible that the Court could use the same rationale as in Sutton to find genetic defects not included. In Bragdon v. Abbott, where the Court found that HIV infection was covered under the ADA, the majority opinion spent considerable time discussing the immediate physiological effects of the infection. This would appear to be consistent with the holding in Sutton that the "substantially limits" definitional language requires that the substantial limitation not be potential or hypothetical. In addition, in Toyota Motor Manufacturing v. Williams substantial limitations were seen by the Court as those that are central to daily life, not just limited to a particular job. This reasoning could be contrasted to the situation presented by genetic defects which in many cases do not ever manifest. Interestingly, in his dissenting opinion in Bragdon v. Abbott, then Chief Justice Rehnquist, who was in the majority in Sutton , stated that the argument regarding coverage of HIV infection "taken to its logical extreme, would render every individual with a genetic marker for some debilitating disease 'disabled' here and now because of some possible future effects." Whether the Court would now share this view that such coverage of genetic discrimination is an invalid interpretation of the definition is uncertain, especially since the Court in Bragdon was discussing the first prong of the definition, not the "regarded as" prong which is the most likely basis for coverage of genetic defects. In other cases the Court provided considerable guidance concerning the "regarded as" prong of the definition of disability, the most likely aspect of the definition to be used to find coverage of genetic defects. Including the requirement that the individual be regarded as "substantially limited" in a major life activity, the Court found that this language meant that being precluded from a particular job was not sufficient to be substantially limited in the major life activity of working if other jobs in the same class could be obtained. And when this specific issue was raised in Murphy , the plaintiff was not found to be regarded as substantially limited in the major life activity of working. The main point of this rather complicated discussion is that making the case that one is regarded as substantially limited in a major life activity, particularly the major life activity of working, is likely to be difficult. The Supreme Court's decisions do not directly address ADA coverage of genetic discrimination. They emphasize an individualized approach to the determination of whether an individual has a disability under the ADA. Although an argument could be made that the ADA would cover individuals with genetic defects in certain cases, the Court's decisions, particularly Sutton and Murphy , use reasoning that would make it unlikely that most ADA claims based on genetic discrimination would be successful. In addition, even assuming the ADA was found to apply, it may not protect employees from having their employers have access to their genetic information. Although the ADA prohibits an employer from making medical inquiries prior to a job offer, the employer may obtain medical information in certain cases after the offer of employment has been made. Assuming that the prohibitions against discrimination in the ADA would apply, it is difficult to prove that genetic information was the reason for discrimination. This raises issues relating to the privacy of genetic information. Title III of the ADA provides that no individual shall be discriminated against on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation. A place of public accommodation is defined in part as an insurance office. It could be argued that discrimination in insurance on the basis of genetic information would be a violation of Title III of the ADA. However, such an argument would be limited since, in addition to the limitations of the definition of disability discussed previously, the ADA specifically states that Titles I through IV "shall not be construed to prohibit or restrict an insurer....from underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with State law." The ADA also provides that this provision "shall not be used as a subterfuge to evade the purposes of titles I and III." The issue of insurance was discussed by the Department of Justice in its technical assistance manual which observed that "[t]he ADA, therefore, does not prohibit use of legitimate actuarial considerations to justify differential treatment of individuals with disabilities in insurance." Thus, if an insurer uses legitimate actuarial considerations regarding providing insurance to an individual with a genetic condition, it is unlikely that there would be a violation of the ADA. On February 9, 2000, President Clinton signed Executive Order 13145 prohibiting genetic discrimination against employees in federal executive departments and agencies. In announcing the executive order at a meeting of the American Association for the Advancement of Science, the President stated that "This extraordinary march of human understanding imposes on us a profound responsibility to make sure that the age of discovery can continue to reflect our most cherished values." Many commentators lauded the executive order, and quoted with approval its description as "preventive policy making—to put in place the kind of protections that the public needs and deserves before we find ourselves in a needless crisis situation." However, it has also been criticized both on a philosophical level and in the details of its coverage. The EEOC has issued guidance on the executive order. The executive order defines "protected genetic information" as "(A) information about an individual's genetic tests; (B) information about the genetic tests of an individual's family members; or (C) information about the occurrence of a disease; or medical condition or disorder in family members of the individual." Current health status information would not be protected under this executive order unless it was derived from the information described above. The executive order requires executive departments and agencies to implement the following nondiscrimination requirements: the employing entity shall not discharge, fail or refuse to hire, or otherwise discriminate against any employee because of protected genetic information or because of information about a request for or receipt of genetic services; the employing entity shall not limit, segregate or classify employees in any way that would deprive or tend to deprive any employee of employment opportunities or otherwise adversely affect that employee's status because of protected genetic information or because of information about a request for or receipt of genetic services; the employing entity shall not request, require, collect, or purchase protected genetic information with respect to an employee or information about a request for or receipt of genetic services; the employing entity shall not disclose protected genetic information with respect to an employee or information about a request for or receipt of genetic services with certain exceptions; the employing entity shall not maintain protected genetic information or information about a request for or receipt of genetic services in general personnel files. Such materials shall be treated as confidential medical records and kept separate from personnel files. There are certain exceptions to these prohibitions. For example, the employing entity may request or require information if such current condition could prevent the applicant or employee from performing the essential functions of the job, or where it is to be used exclusively to determine whether further medical evaluation is needed to diagnose a current disease. Genetic monitoring of biological effects of toxic substances in the workplaces are permitted in certain circumstances. Although the Constitution does not expressly provide for a right to privacy, the Supreme Court has found some right to informational privacy. However, these rights are limited by judicial deference to government's need to acquire the information and by the fact that such a constitutional right would be limited to state action. As a practical matter, this would mean that federal or state collections of information may receive some constitutional protection but the collection and use of information by private health plans or organizations would not be covered. The ninth circuit court of appeals in Norman - Bloodsaw v. Lawrence Berkeley Laboratory touched upon privacy issues in the context of genetic information. The Lawrence Berkeley Laboratory, a research institution jointly operated by state and federal agencies, allegedly tested the blood and urine of its employees for several medical conditions, including sickle cell trait. The employees sued alleging various statutory and constitutional violations including the violation of the right to privacy. The district court had dismissed the claims but the court of appeals remanded observing that "[o]ne can think of few subject areas more personal and more likely to implicate privacy interests than that of one's health or genetic make-up." Certain federal statutes may provide some privacy protection for medical records. The Privacy Act of 1974, 5 U.S.C. § 552a, prohibits the disclosure of records maintained on individuals by federal government agencies except under certain conditions. Subsection 552a(f)(3) allows agencies to establish special procedures for individuals who wish to access their medical records. The intent of this provision as described in the House report was to ensure rules so that an individual who would be adversely affected by the receipt of such data may be apprized of it in a manner which would not cause such adverse effects. The Freedom of Information Act (FOIA), 5 U.S.C. §§ 552 et seq., establishes a right of access to records maintained by agencies within the executive branch of the federal government. It contains several exemptions, including one for "personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy." Both the Privacy Act and FOIA may, then, provide some privacy protections for genetic information but they are limited in their scope and would not encompass information held by a private entity. The ADA provides for some privacy protections for individuals with disabilities in the context of employment. Before an offer of employment is made, an employer may not ask a disability related question or require a medical examination. The EEOC in its guidance on this issue stated that the rationale for this exclusion was to isolate an employer's consideration of an applicant's non-medical qualifications from any consideration of the applicant's medical condition. Once an offer is made, disability related questions and medical examinations are permitted as long as all individuals who have been offered a job in that category are asked the same questions and given the same examinations. The ADA also requires that information obtained regarding medical information be kept in a separate medical file. The precise reach of the protections, especially regarding predictive genetic information is uncertain. As was discussed previously, it is not clear whether the definition of disability under the ADA would cover an individual with a genetic predisposition to a condition when that condition has not manifested. The Health Insurance Portability and Accountability Act (HIPAA) contains requirements for the standardization of electronically transmitted health insurance financial claims and administrative transactions, such as the submission of claims, processing of enrollments, verification of insurance eligibility, and payment and remittance advice. HIPAA required the Secretary of Health and Human Services (HHS) to make recommendations to Congress by August 1997 concerning the protection of privacy of individually identifiable health information and Congress had until August 1999 to enact legislation on this issue. If Congress did not enact legislation, HIPAA requires the Secretary of HHS to promulgate regulations on privacy protections. The Secretary of HHS issued final regulations on December 20, 2000. The final privacy regulations, which became effective on April 14, 2001, and were modified on August 14, 2002, apply to health insurers, providers, and health care clearinghouses and give patients the right to inspect, copy and in certain situations, amend their medical records. The regulations cover all personal health information in paper, oral or electronic form. Individually identifiable health information is defined broadly and includes genetic information as well as information about an individual's family history. Covered entities are required to have in place reasonable safeguards to protect the privacy of patient information and limit the information used or disclosed to the minimum amount necessary to accomplish the intended purpose of the disclosure. Civil money penalties are provided, although there is no private right of action, and egregious violations carry federal criminal penalties of up to $250,000 and ten years in prison. Although these regulations are general and not specific to genetics, they will have an effect on genetic information. In the comments to the regulations, the Department noted that many commentators requested additional protections for sensitive information, including genetic information. In response, the Department noted that generally the regulations do not differentiate among types of protected health information. Although there is limited federal law relating to the use of genetic information, many states have enacted statutes dealing with various aspects of these issues. Early state statutes focused on particular genetic conditions. The first statute to prohibit discrimination based on a genetic trait was enacted in North Carolina and prohibited employment discrimination based on the sickle cell trait. In 1991 Wisconsin became the first state to enact a comprehensive law to prohibit discrimination based on genetic test results. Currently, the states vary in their provisions with some prohibiting discrimination in employment while others deal solely with discrimination in insurance. A recent survey of state law found that thirty-four states have enacted genetic nondiscrimination in employment laws. These laws vary and the National Conference of State Legislatures noted: All laws prohibit discrimination based on the results of genetic tests; many extend the protections to inherited characteristics, and some include test results of family members, family history and information about genetic testing, such as the receipt of genetic services. Most states also restrict employer access to genetic information, with some prohibiting employers from requesting, requiring and obtaining genetic information or genetic test results, or directly or indirectly performing or administering genetic tests. Some states may also make exceptions to statutory requirements if, for example, genetic information may identify individuals who may be a safety risk in the workplace. A related survey found that forty-seven states have passed laws pertaining to the use of genetic information in health insurance. Many state genetic laws also include specific provisions relating to genetic privacy. In a recent survey, twenty-seven states were found to require consent to disclose genetic information while seventeen states require informed consent for a third party to perform or require a genetic test or obtain genetic information. Eighteen states were found which establish specific penalties for violating genetic privacy laws. Although these state statutes do provide some types of coverage, they do not cover employer self-funded plans providing private health insurance for employees and their dependents. These plans are exempt from state insurance laws due to the preemption provision in the federal Employee Retirement Income Security Act (ERISA). Since it has been estimated that over one-third of the nonelderly insured population obtains its coverage through self-funded plans and these types of plans are increasing, the ERISA exemption limits the application of state laws significantly. H.R. 493 , the Genetic Information Nondiscrimination Act of 2007 (GINA), was introduced by Representative Slaughter and 143 cosponsors on January 16, 2007. After being reported out of the House Education and Labor Committee, the House Energy and Commerce Committee, and the House Ways and Means Committee, the bill passed the House on April 25, 2007, by a vote of 420 to 3. H.R. 493 , as passed by the House, contains provisions prohibiting genetic discrimination in health insurance (Title I) and in employment (Title II). On March 5, 2008, the text of H.R. 493 as passed by the House was added to the end of the Paul Wellstone Mental Health and Addiction Equity Act of 2007 ( H.R. 1424 ) in the engrossment of H.R. 1424 . On April 24, 2008, the Senate took up H.R. 493 , replaced the existing language with an amendment in the nature of a substitute, and passed the measure, as amended, by a vote of 95-0. H.R. 493 , as amended and passed by the Senate, is very similar to the version passed by the House last year. The most significant difference is new language strengthening the "firewall" between Title I and Title II of the act. The House is expected to pass H.R. 493 (as amended) during the week of April 28, 2008. Senator Snowe, joined by 22 cosponsors, introduced S. 358 , a companion bill to H.R. 493 , on January 22, 2007. Senator Snowe noted in her introductory remarks that "in June of 2003, after sixteen months of bipartisan negotiation, we achieved a unified, bipartisan agreement to address genetic discrimination. Today we again introduce the legislation encompassing that agreement, which the Senate has twice passed ... unanimously." S. 358 , which, like H.R. 493 , contains provisions prohibiting genetic discrimination in health insurance (Title I) and in employment (Title II), was reported out of the Senate Health, Education, Labor, and Pensions Committee on March 29, 2007. H.R. 493 , as passed originally by the House and most recently by the Senate, prohibits health insurance plans from denying enrollment or charging higher premiums to individuals or groups based on an individual's or family member's genetic information. It also prohibits health insurance plans from requesting or requiring that any individual, or family member of an individual, undergo a genetic test. In addition, it contains privacy provisions amending the HIPAA statute to require revisions in the HIPPA Privacy Rule prohibiting certain uses and disclosures of genetic information. H.R. 493 , as passed originally by the House and most recently by the Senate, provides that references to genetic information include genetic information on a fetus carried by a pregnant woman and, with respect to an individual utilizing assisted reproductive technology, includes genetic information of any embryo legally held by the individual or family member. H.R. 493 allows group health plans to obtain genetic information for purposes of payment, and allows a plan to request that an individual undergo a genetic test for the purposes of research, but the plan must make clear that this would be entirely voluntary on the part of the individual and would not be used for underwriting purposes. H.R. 493 , as passed originally by the House and most recently by the Senate, also prohibits discrimination in employment because of genetic information and, with certain exceptions, prohibits an employer from requesting, requiring, or purchasing genetic information. If such information is obtained, the bill requires that it be treated as part of a confidential medical record and provides that an employer is considered to be in compliance with the maintenance of information requirements if the genetic information is treated as a confidential record under § 102(d)(3)(B) of the Americans with Disabilities Act. In addition, the bill does not prohibit an entity covered by regulations promulgated pursuant to part C of Title XI of the Social Security Act or section 264 of the Health Insurance Portability and Accountability Act from any use or disclosure of health information that is authorized by those regulations. H.R. 493 adds a provision in Title II, like that in Title I, relating to the genetic information of a fetus or embryo. There are detailed provisions on enforcement that generally apply the remedies available in existing civil rights laws such as Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-4 et seq. On January 17, 2007, the White House issued a statement calling upon Congress to pass genetic nondiscrimination legislation. The administration praised the Senate for passing a bipartisan genetic nondiscrimination bill in the 109 th Congress and noted that "the Administration looks to build on that success and work with both houses of Congress, and the business community, to pass a bill the President can sign into law." The news release noted the importance of genetic nondiscrimination protections for the ability to use new genetic technologies, and observed that "the President believes it is critical that an individual's personal genetic information not be used by an employer to deny a job....[and] that insurance companies do not use genetic information to deny an application for coverage." In the 109 th Congress, S. 306 , the Genetic Information Nondiscrimination Act of 2005, was introduced by Senator Snowe on February 7, 2005. The Senate Health, Education, Labor and Pensions Committee reported S. 306 out with an amendment in the nature of a substitute by a voice vote. The bill was passed, with an amendment, on February 17, 2005 by a vote of 98-0. The amendment deleted former section 103 which would have added a prohibition of discrimination based on genetic information or services in church health insurance plans to the Internal Revenue Code. The Administration indicated that it favored enactment of legislation to prohibit the improper use of genetic information in health insurance and employment and supported the enactment of S. 306 , 109 th Congress. A companion bill, H.R. 1227 , was introduced in the House on March 10, 2005 by Representative Biggert. H.R. 1227 was referred to the House Committees on Education and the Workforce, Energy and Commerce, and Ways and Means. S. 306 was similar to S. 1053 , which passed the Senate in 2003. It prohibits health insurance plans from denying enrollment or charging higher premiums to individuals based on the individual's or family member's genetic information. In addition, it contains privacy provisions prohibiting certain uses and disclosures of genetic information as well as prohibiting the collection of genetic information for insurance underwriting purposes. S. 306 also prohibits discrimination in employment because of genetic information and, with certain exceptions, prohibits an employer from requesting, requiring, or purchasing genetic information. If such information is obtained, the bill requires that it be treated as part of a confidential medical record. There are detailed provisions on enforcement which generally apply the remedies available in existing civil rights laws such as Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-4 et seq. Another bill, H.R. 6125 , 109 th Congress, was introduced in the House on September 20, 2006 by Representative Paul. This bill would have prohibited discrimination based on genetic information by certain group health plans and in employment by federal, state or local entities or recipients of federal financial assistance or contractors. Employees or family members who have been adversely effected would have had a cause of action in federal court for compensatory and punitive damages, with the punitive damages limited to no more than 30% of compensatory damages. Several bills were introduced in the 108 th Congress to address genetic discrimination and privacy. For example, S. 16 , the Equal Rights and Equal Dignity for Americans Act of 2003 introduced by Senator Daschle on January 17, 2003, contained nondiscrimination provisions relating to insurance and employment. On May 1, 2003, Representative Slaughter introduced H.R. 1910 , The Genetic Nondiscrimination in Health Insurance and Employment Act, which prohibited genetic discrimination in insurance and employment. H.R. 1910 was a companion to S. 1053 , introduced by Senator Snowe on May 13, 2003, in the Senate. On October 14, 2003, the Senate passed the Genetic Information Nondiscrimination Act of 2003 ( S. 1053 ). This bill prohibited health insurance plans from denying enrollment or charging higher premiums to individuals based on the individual's or family member's genetic information. In addition, the bill banned the collection, use and disclosure of genetic information for insurance underwriting purposes. In the employment context, this bill prohibited the use of genetic information in employment decisions, such as hiring, firing, job assignments and promotions. The bill also prevented the acquisition and disclosure of genetic information as well as applies the procedures and remedies authorized under the Civil Rights Act of 1964 to cases of genetic discrimination. Although President Bush supported genetic discrimination legislation and the House held a hearing in July 2004, the House did not pass a bill in the 108 th Congress. Legislation relating to genetic discrimination and privacy was a major issue in the 107 th Congress. The Senate version of the Patient Protection Act, S. 1052 , which passed the Senate on June 29, 2001, contained an amendment prohibiting certain genetic discrimination by group health plans and health insurance issuers. It also contains a provision relating to confidentiality. Congress did not pass the legislation prior to the adjournment of the 107 th Congress. Other Senate legislation in the 107 th took various approaches. S. 318 , introduced by Senator Daschle, would have prohibited genetic nondiscrimination in health insurance and employment. S. 1995 sponsored by Senators Snowe, Frist and Jeffords, also would have prohibited genetic discrimination in insurance and employment but was less broad that S. 318 . S. 19 , the Protecting Civil Rights for all Americans Act introduced by Senator Daschle, contained nondiscrimination provisions relating to insurance and employment. Senator Snowe also introduced S. 382 , the Genetic Information Nondiscrimination in Health Insurance Act of 2001, which would have prohibited discrimination in insurance. S. 450 , the Financial Institution Privacy Protection Act of 2001 introduced by Senator Nelson, contained provisions protection the privacy of health information, including genetic information. In the House, Representative Slaughter introduced H.R. 602 , the Genetic Nondiscrimination in Health Insurance and Employment Act, which would have prohibited genetic discrimination in insurance and employment. H.R. 602 was paralleled by S. 318 in the Senate. Although legislation specifically relating to genetic discrimination and privacy was not enacted during the 106 th Congress, a provision relating to health insurance was considered in the conference on H.R. 2990 . The Senate amended H.R. 2990 as passed by the House, striking all the language after the enacting clause and substituting the language in S. 1344 . This Senate bill would have amended ERISA, the Public Health Service Act and the Internal Revenue Code to prohibit health plans or health insurance issuers, in both group and individual markets, from using predictive genetic information to set premiums. It also contained confidentiality provisions. Senator Daschle had offered a more comprehensive amendment to the FY2001 Labor-HHS Appropriations bill, S. 2553 . It would have prohibited insurance companies from raising premiums or denying coverage on the basis of genetic tests and would have also barred employers from using predictive genetic information to make employment-related decisions. The amendment was defeated by a vote of 54-44. | In April 2003, the sequence of the human genome was deposited into public databases. This milestone, which has been compared to the discoveries of Galileo, and other advances in genetics have created novel legal issues relating to genetic information. The Human Genome Project produced detailed maps of the 23 pairs of human chromosomes and sequenced 99% of the three billion nucleotide bases that make up the human genome. The sequence information should aid in the identification of genes underlying disease, raising hope for genetic therapies to cure disease, but this scientific accomplishment is not without potential problems. For instance, the presence of a specific genetic variation may indicate a predisposition to disease but does not guarantee that the person will manifest the disease: How should an employer or insurer respond? The ethical, social and legal implications of these technological advances have been the subject of significant scrutiny and concern. The legal implications of such information have been addressed in various ways largely by states, but also by Congress. The Health Insurance Portability and Accountability Act of 1996, P.L. 104-191, is the first federal law to specifically address discrimination and insurance issues relating to genetic discrimination. Congress is currently considering genetic discrimination legislation. H.R. 493, the Genetic Information Nondiscrimination Act of 2007 (GINA), was introduced in the 110th Congress by Representative Slaughter and 143 cosponsors on January 16, 2007. It passed the House on April 25, 2007. A companion bill, S. 358, 110th Congress, was introduced by Senator Snowe and 22 cosponsors on January 22, 2007, and has been reported out of the Senate Labor and Human Resources Committee. On March 5, 2008, the text of H.R. 493 as passed by the House was added to the end of the Paul Wellstone Mental Health and Addiction Equity Act of 2007 (H.R. 1424) in the engrossment of H.R. 1424. On April 24, 2008, the Senate took up H.R. 493, replaced the existing language with an amendment in the nature of a substitute, and passed the measure, as amended, by a vote of 95-0. The House is expected to pass H.R. 493 (as amended) during the week of April 28, 2008. In the 109th Congress, S. 306, the Genetic Information Nondiscrimination Act of 2005, was passed on February 17, 2005, by a vote of 98-0. A companion bill, H.R. 1227, was introduced on March 10, 2005, and another bill, H.R. 6125 was introduced on September 20, 2006. In the 108th Congress, the Senate passed the Genetic Information Nondiscrimination Act of 2003, S. 1053. H.R. 1910 was introduced in the House and hearings were held, but the bill was not passed in the 108th Congress. This report discusses current federal law, state statutes, and legislation. It will be updated as needed. |
Title IV of the Higher Education Act (HEA) authorizes programs that provide student financial aid to support attendance at a variety of institutions of higher education (IHEs). These institutions include public institutions, private non-profit institutions, and private for-profit (proprietary) institutions. During the 2005-2006 academic year, a total of 6,441 institutions were classified as Title IV IHEs. Of these, 39.9% were proprietary (for-profit) institutions, with the rest almost equally divided between public and private non-profit institutions. It is estimated that Title IV federal student aid programs made over $80 billion available to students attending IHEs during the 2005-2006 academic year. In order for students attending a school to receive federal Title IV assistance, the school must: Be licensed or otherwise legally authorized to provide postsecondary education in the state in which it is located, Be accredited by an agency recognized for that purpose by the Secretary of the U.S. Department of Education (ED), and Be deemed eligible and certified to participate in federal student aid programs by ED. Of the three components of this triad—state licensing, accreditation, and eligibility and certification—the first two were developed independently to serve purposes related to quality assurance and consumer protection, but not necessarily from a federal perspective. To avoid generating concerns about federal interference in educational decision-making, the federal government (ED specifically) relies on accrediting agencies and state licensing to determine standards of program quality. The federal government's only direct involvement in determining institutional eligibility for Title IV programs is through the third arm of the triad, which focuses on protecting the administrative capacity and fiscal integrity of its funding programs through certification by ED. In the 1992 reauthorization of the HEA, a central goal of the Congress was to reform the triad structure to address reported problems of fraud and abuse. Growing default costs in the guaranteed student loan program, as well as media and other reports of exploitation of the student aid programs, especially by proprietary institutions, focused attention on the need to improve the triad structure used to approve institutions for program participation. The Higher Education Amendments of 1992 ( P.L. 102-325 ) made numerous changes to the HEA intended to strengthen program integrity, including revision of the definitions of eligible institutions and inclusion of provisions to reform the process by which institutions become eligible to participate in Title IV student aid programs. Instead of singling out the proprietary school sector for special screening and oversight, the 1992 amendments reformed the institutional eligibility rules for all postsecondary institutions. The amendments, however, have had the greatest impact on proprietary schools. The Higher Education Act Amendments of 1998 ( P.L. 105-244 ) were signed into law by President Clinton on October 7, 1998. Among the key provisions affecting institutional eligibility were: Modification of the requirement that proprietary institutions of higher education derive at least 15% of their revenues from non-Title IV sources to require proprietary institutions to derive at least 10% of their revenues from non-Title IV sources, Elimination of the requirement for accrediting agencies to conduct unannounced site visits at institutions, Modification of refund policy requirements to apply only to Title IV funds and to require pro-rata refunds for all Title IV recipients who withdraw before the completion of 60% of the payment period or period of enrollment, Establishment of a distance learning demonstration program, and Addition of the requirement that any IHE with a teacher preparation program that has lost state approval or financial support because it has been designated as low-performing by the state is no longer eligible to accept or enroll any students in its teacher preparation program who are receiving Title IV aid. On February 8, 2006, President George W. Bush signed the Higher Education Reconciliation Act of 2006 (HERA), Title VIII of the Deficit Reduction Act of 2005, into law ( P.L. 109-171 ). The HERA made several changes to the HEA related to institutional eligibility. These changes affected program eligibility for participation in Title IV programs, rules governing the percentage of courses offered through telecommunications and the percentage of students participating in courses offered through telecommunications, and requirements for the return of Title IV funds by IHEs and students. Each of these changes is discussed in detail in this report. This report provides a general overview of HEA provisions that affect institutional eligibility for participation in Title IV student aid programs and, in some instances, discusses specific issues that may arise during the HEA reauthorization process. It begins with a general discussion of eligibility, both at the institutional level and program level. The discussion of institutional eligibility provides a brief summary of several key rules that affect eligibility. The second part of the report focuses on the program integrity triad: state authorization, accreditation, and eligibility and certification. This is followed by an overview of three additional issues that are closely associated with institutional eligibility: Program Participation Agreements, return of Title IV funds policy, and distance education. To participate in the federal student aid programs, institutions must meet specific criteria, including requirements related to program offerings, student enrollment, operations, and the length of academic programs. This section discusses the definition of an eligible IHE for Title IV purposes, academic year requirements, eligible program requirements, and reauthorization issues. The HEA includes two definitions of IHEs. The first definition, contained in Section 101, applies to institutional participation in non-Title IV programs. The second definition, contained in Section 102, applies only to institutions participating in Title IV programs. The use of these definitions is one legislative technique used to screen out institutions with certain characteristics associated with fraud and abuse, without denying eligibility to other institutions. All 6,441 institutions that were identified as Title IV postsecondary institutions during the 2005-2006 academic year met the Section 102 definition of an IHE. Section 101 recognizes IHEs as those that are legally authorized by the state, are accredited or preaccredited by an agency or association recognized by ED, are nonprofit institutions, award a bachelor's degree or provide at least a two-year program that is accepted as credit toward the completion of a bachelor's degree, and enroll as regular students only individuals who have graduated from a secondary institution or hold the equivalent of a high school diploma. The statute also recognizes institutions offering not less than a one-year program of training in preparation for employment and institutions admitting students beyond the age of compulsory secondary school attendance. Section 102 includes all institutions recognized as IHEs under Section 101 and expands the definition of IHEs for Title IV purposes to include proprietary institutions, postsecondary vocational institutions, and institutions outside of the United States (i.e., foreign institutions). Proprietary institutions are defined as those institutions that provide training in preparation for gainful employment in a recognized occupation, are legally authorized by the state, are accredited by an agency or association recognized by ED, and admit as regular students only individuals who have graduated from a secondary institution or hold the equivalent of a high school diploma, or who are past the age of compulsory attendance in the state in which the institution is located. In addition, proprietary institutions must have been in existence for at least two years and derive at least 10% of school revenue from non-Title IV funds. The latter requirement is commonly referred to as the 90/10 rule. Postsecondary vocational institutions must meet criteria similar to those applicable to proprietary institutions with two exceptions. First, these institutions must be nonprofit institutions. Second, they do not have to derive at least 10% of their revenue from non-Title IV funds. All Title IV eligible institutions must also meet requirements with respect to the course of study offered and student enrollment. The first set of requirements focus on courses offered by correspondence or telecommunications. Federal regulations define a correspondence course as a home study course offered by an IHE in which the IHE provides the student with instructional materials. Upon completing a section of the instructional materials, the student takes a correspondent examination provided by the IHE and returns it to the IHE for grading. In contrast, a telecommunications course is defined as a course that is offered via the application of technology, including via the Internet. In general, institutions offering over 50% of their courses by correspondence, excluding courses offered by telecommunications, are not Title IV eligible (Section 102(a)(3)(A)). An institution is also not considered eligible for the purposes of Title IV if 50% or more of its students are enrolled in correspondence courses, excluding courses offered by telecommunications (Section 102(a)(3)(B)). A more detailed discussion about the 50% rules and recent changes to these rules appears in the section on distance education. Two other requirements regarding enrollment also apply to all eligible institutions. The institution must not have a student enrollment in which more than 25% of its students are incarcerated (Section 102(a)(3)(C)). Second, an institution will not be granted eligibility for Title IV programs if more than 50% of its students do not possess a high school diploma or its equivalent and the institution does not provide a two-year or four-year course of study (or both) leading to an associate's or bachelor's degree, respectively (Section 102(a)(3)(D)). Generally, foreign institutions are eligible to participate in the Federal Family Education Loan (FFEL) program if they meet the same requirements as an IHE under Section 101 and have been approved by ED to participate in FFEL. Foreign medical and veterinary institutions, however, must meet additional requirements to participate in FFEL. Foreign medical institutions must meet one of two sets of additional criteria (Section 102(a)(2)(A)). The first set of criteria require that at least 60% of the students and at least 60% of the graduates of a graduate medical school located outside of the United States must not be U.S. citizens or permanent residents, and at least 60% of the students or graduates of a graduate medical school located outside of the United States or Canada taking examinations administered by the Educational Commission for Foreign Medical Graduates must receive a passing score. Under the alternative second set of criteria, a foreign medical school can be eligible to participate in FFEL if the institution has a clinical training program that was approved by a state as of January 1, 1991. To participate in FFEL, foreign for-profit veterinary institutions must have their students complete their clinical training at an approved veterinary school located in the United States. In addition to meeting the definitions discussed in Sections 101 and 102, institutions must comply with several additional requirements to be eligible for Title IV programs. For example, an institution must certify to ED that it has adopted and implemented a program to prevent the use of illicit drugs and alcohol abuse by students. An institution failing to provide this certification is not eligible to receive funds or any other form of financial assistance under any federal program (Section 120). An institution must meet specific management requirements, shall not be considered an IHE for Title IV purposes if the institution, the institution's owner, or the institution's chief executive office has been convicted of, or pled nolo contendere or guilty to, a crime involving Title IV funds (Section 102). An institution must also certify that is has established a campus security policy and has complied with requirements for the disclosure of this policy and campus crime statistics (Section 485(f)). There are also reporting and dissemination requirements that institutions must meet with respect to general institutional information (e.g., costs of attendance, available financial assistance, description of the institution's academic programs), athletically related student aid, intercollegiate athletic programs, and students' right to be informed about the availability of this information (Section 485). These compliance requirements are reiterated in the Program Participation Agreement (PPA) discussed later in this report. Prior to the HERA, an academic year was required to include a minimum of 30 weeks of instructional time for undergraduate study during which a full-time student was expected to complete at least 24 semester or trimester hours or 36 quarter hours at an IHE measuring program length in credit hours, or at least 900 clock hours at an IHE measuring program length in clock hours. The Secretary was permitted to reduce the requirement of a minimum of 30 weeks of instructional time to 26 weeks of instructional time on a case-by-case basis for IHEs providing a 2-year or 4-year program of instruction for which it awards associate's or bachelor's degrees. The HERA modified the minimum weeks of instructional time for programs measuring program length in clock hours. While programs measuring instructional time in credit hours must continue to provide a minimum of 30 weeks of instructional time, programs measuring instructional time in clock hours are required to provide a minimum of 26 weeks of instructional time. It should be noted that the provision allowing the Secretary to waive the requirement of a minimum of 30 weeks of instructional time at IHEs providing a 2-year or 4-year program of instruction leading to an associate's or bachelor's degree was retained. The Higher Education Amendments of 1992 defined the academic year that an eligible institution must provide as including both a minimum number of credit hours for undergraduate students and a minimum length of instructional time for all students (Section 481 (d)). According to the statute, an academic year must contain at least 30 weeks of instructional time. This 30-week requirement may be met through standard terms (i.e., quarters, semesters, and trimesters), non-standard terms (i.e., the term has a beginning and end date but does not meet the definition of a standard term), or a non-term program (i.e., the program is not organized in terms and may or may not have pre-established beginning and end dates). ED addressed the implementation of the statutory requirement that the academic year contain at least 30 weeks of instruction through regulatory action. Initially, this involved defining what constituted a "week of instructional time." In the April 1994 interim final regulations, for programs using standard terms or clock hours, a week of instructional time was defined as any week that included at least one day of "regularly scheduled instruction, examination, or preparation for examination ..." For programs measured in credit hours without standard terms, a week of instructional time was defined "as any week in which at least five days of regularly scheduled instruction, examination, or preparation for examination occurs." The former was known as the "one day rule." The November 1994 final regulations retained the one day rule, but modified the requirement for programs measured in credit hours without standard terms to provide greater flexibility to these institutions. There were concerns, however, that programs without standard terms may alter their program structures to meet the 30-week requirement without providing an adequate level of instruction to a full-time student. Under these circumstances, a student could be receiving more financial aid than was merited (e.g., receiving full-time student aid when part-time student aid was appropriate). ED was also concerned that the workload in these programs "was not properly distributed through the period." Thus programs without standard terms were required to provide 12 hours, instead of five days, of regularly scheduled instruction, examination, or preparation for examination in order for it to be considered a week of instructional time. This became known as the "12-hour rule." Implementation of the 12-hour rule, however, resulted in several unintended consequences. For example, many programs offer rolling starting times and overlapping terms, which provide students with increased flexibility and access to higher education. These non-standard or non-term educational programs were experiencing difficulty complying with the 12-hour rule. The 12-hour rule was also difficult for distance education programs to implement for several reasons, including the difficulty in determining the number of hours of instruction in which students were participating weekly. In addition, the 12-hour rule resulted in inequities in Title IV funding received by students completing the same amount of academic credit, based on whether an individual student was enrolled in an institution using standard or non-standard academic terms. In recognition of the difficulties created by the 12-hour rule, ED revised its regulatory guidance and stated that all Title IV program eligibility will be determined using the one-day rule regardless of whether standard terms are used or not. This new regulation went into effect on July 1, 2003. In order to qualify as an eligible institution for the purpose of Title IV, a school must offer at least one eligible program. The IHE must ensure that a program qualifies as a Title IV eligible program prior to awarding Title IV funds to students in that program. IHEs are also responsible for ensuring that individual Title IV eligible programs are included on the institution's accreditation notice, and that the institution is authorized by the state to provide the programs. There are several provisions that specify the criteria for program eligibility. These program definitions classify a school as an IHE, proprietary institution of higher education, or postsecondary vocational institution. A school is considered an IHE if it: offers a program leading to an associate's, bachelor's, professional, or graduate degree, or offers a program of two or more academic years that is acceptable for full credit toward a bachelor's degree, or offers a training program of at least one academic year leading to a certificate, degree, or other recognized credential and prepares students for gainful employment in a recognized occupation. There are three types of programs that classify a school as a proprietary institution or postsecondary vocational education institution. Each program type requires a specific number of weeks of instruction and must prepare students for gainful employment in a recognized occupation. The first type of eligible program must provide undergraduate instruction for at least 600 clock hours, 16 semester or trimester hours, or 24 quarter hours offered during a minimum of 15 weeks of instruction. The program may admit students who have not completed the equivalent of an associate's degree as students. The second type of eligible program must be a graduate or professional program or must admit only students who have completed the equivalent of an associate's degree as students. It must provide at least 300 clock hours, 8 semester hours, or 12 quarter hours of instruction offered during a minimum of 10 weeks of instruction. The third type of eligible program, known as a short-term program, must provide at least 300 but less than 600 hours of undergraduate instruction during a minimum of 10 weeks of instruction. The program must admit at least some students who have not completed an associate's degree or its equivalent as students. Short-term programs must also meet several additional criteria in order to be considered eligible. First, the program must have verified student completion and job placement rates of at least 70%. Second, the program may not be more than 50% longer than the minimum training period required by the state or federal agency, if any, for the occupation for which the program prepares students. Last, the program must have been in existence for at least one year. The HERA expanded the definition of an eligible program to include instructional programs that use the direct assessment of student learning or recognize the direct assessment of student learning by others rather than measuring student learning in credit hours or clock hours. The assessment used to determine student learning must be consistent with the institution's or program's accreditation. The Secretary of Education (Secretary) is required to determine whether a program that proposes to use direct assessment rather than credit hours or clock hours to measure student learning qualifies as an eligible program. Finally, the HERA added a definition of an eligible program offered through distance education. This new definition is discussed in the distance education section of this report. There are several issues related to institutional eligibility that may be considered by Congress. Examples of these issues are summarized below: Definition of an institution of higher education: Congress may consider whether it is necessary to have separate definitions of an IHE for Title IV and non-Title IV purposes. One issue that may be focused on in this debate is whether Congress wants to allow proprietary institutions to participate in other titles of the HEA. Under current law, their participation in limited to Title IV. Regular students: Under the Section 101 definition of an IHE, IHEs may only admit students who have a high school diploma or its equivalent or are beyond the age of compulsory attendance as regular students. Congress may consider extending the definition of a regular student to include students who are dually enrolled in high school and college courses and students who were home schooled. 90/10 rule: As previously discussed, the 90/10 currently applies only to proprietary institutions. Congress may consider eliminating the 90/10 requirement or applying the 90/10 requirement to all IHEs. Congress may also consider continuing to apply the 90/10 rule only to proprietary institutions but eliminating the 90/10 rule as a requirement for institutional eligibility, so that proprietary institutions that violate the rule do not necessarily lose their Title IV eligibility. College costs and prices: Congress may require IHEs to provide additional information about their costs and prices to aid consumers in selecting an IHE to attend. Congress may also consider offering incentives to IHEs that are able to reduce their costs and pass these savings on to students, or may consider penalizing or publicly identifying IHEs whose prices are rising faster than a particular benchmark (e.g., the Consumer Price Index-All Urban Consumers). Part H of Title IV specifies the roles and responsibilities for the three aspects of the program integrity triad: state authorization, accreditation by an accrediting organization recognized by the Secretary of Education, and eligibility and certification by ED. The triad is intended to provide balance in assuring the eligibility of institutions for Title IV. The state role is primarily one of consumer protection, while the accrediting agencies are intended to function as a quality assurance mechanism. These two legs of the triad were developed independently of the federal government. The federal government has historically relied on them to avoid generating concerns about federal interference in educational decision-making. ED is responsible for oversight of compliance, the third leg of the triad; that is, protecting the administrative and fiscal integrity of the federal student aid programs. The state role in the triad is to provide legal authority for postsecondary institutions to operate in the state in which they are located. The state provides legal authorization to an institution through a charter, license, or other written document issued by the appropriate state agency or state official. For example, the document may be provided by a licensing board or a state educational agency. An institution is required to provide ED with evidence that it has received the authority to operate in a particular state when it applies to participate in the federal student aid programs. The state agencies responsible for providing legal authorizations for institutions to operate in the state are also required to carry out three additional functions: Upon request, the agencies must provide the Secretary with information about the licensing and authorization process used by the state, Notify the Secretary when the state revokes the authority of an institution of higher education to operate, and Notify the Secretary if the agency has credible evidence that an institution has committed fraud in administering its Title IV programs or has substantially violated a Title IV provision (Section 495). Accreditation by an agency or association recognized by ED is the second component of the triad for institutional eligibility. Accrediting agencies are private organizations set up to review the qualifications of member institutions based on self-initiated quality guidelines and self-improvement efforts. Institutional and program accreditation was included in the triad as a quality control mechanism. Accreditation has always been and continues to be a voluntary process. It started in the late 1800s with the formation of associations to distinguish institutions of higher education that merited the designation of college or university from those that did not but called themselves colleges. Beginning in 1952 the federal government began to formally recognize accrediting agencies. Accreditation was subsequently linked to institutional eligibility for Title IV aid as an indicator of the institution's educational quality. There are currently three types of accrediting organizations: Regional accrediting organizations. These eight commissions operate in six regions of the U.S. They accredit 2,986 colleges and universities. Accreditation status is granted to the whole institution. It does not guarantee the quality of individual programs or the students who graduate from those programs. At least 97% of the institutions accredited by regional accrediting organizations are degree-granting, nonprofit institutions. Regional accrediting organizations may also accredit proprietary institutions regardless of whether they are degree-granting institutions. National accrediting organizations. These entities operate across the U.S., also accrediting whole institutions. According to information provided by the Council for Higher Education Accreditation (CHEA), there are two types of national accrediting organizations—faith-based and private career. The four faith-based accreditors review religiously-affiliated or doctrinally-based institutions. There are 412 faith-based accredited institutions, all of which are degree-granting and non-profit. The seven private career accreditors accredit a substantially larger number of institutions. Of the 3,416 institutions accredited by private career accreditors, about 75% are non-degree-granting and about 90% are proprietary institutions. Many are single-purpose institutions (e.g., focused on business and technology). Specialized or programmatic accrediting organizations. These entities also operate nationwide. They review programs and single-purpose institutions (e.g., engineering and technology). In many instances, particular programs (e.g., law) are accredited by a specialized accrediting organization, while the institution at which that program is offered is accredited by a regional or national accrediting organization. There are 18,152 programs that hold this type of accreditation. The accreditation process begins with institutional self-assessment. The results of this analysis are reviewed by faculty and administrative peers. Generally, an outside team composed of peers and members of the public conducts a site visit at the institution. Based on the results of the self-assessment, peer review, and findings from the site visit, the accreditation commission determines whether accreditation should be awarded to a new institution, renewed for an existing institution, denied, or put on provisional or probational status. Reevaluation occurs regularly, generally on a cycle ranging from every few years to every 10 years. In order for a postsecondary institution to acquire institutional eligibility for the purposes of Title IV, it must be accredited by an agency or association recognized by ED as a reliable authority for assessing the quality of education or training provided by that institution. Accrediting organizations must meet a specific set of criteria prior to receiving recognition from ED. Once granted, recognition is established for up to five years. The accrediting organization must then be reapproved for inclusion on the list of recognized accrediting entities. According to Section 496, the accrediting agency or association must be a state, regional, or national agency or association that demonstrates the ability and experience to serve as an accrediting agency or association. These agencies or associations must then meet one of the following specific criteria: In order to participate in Title IV programs, the agency or association must have a voluntary membership of IHEs and have the accreditation of these institutions as one of its primary purposes or, for the purposes of participation in other ED or other federal programs, the agency must have a voluntary membership and have as its primary purpose accrediting IHEs or programs. It must be a state agency approved by the Secretary as an accrediting agency or association on or before October 1, 1991. For the purposes of determining eligibility for Title IV programs, the agency or association must either conduct accreditation through a voluntary membership organization of individuals participating in a profession, or the agency or association must have as its primary purpose to accredit programs within institutions that have already been accredited by another agency or association recognized by the Secretary. Accrediting agencies or associations meeting the first or third criterion must also be administratively and financially separate and independent from any associated or affiliated trade organization or membership organization. For accrediting organizations meeting the third criterion, if the agency or association was recognized by the Secretary on or before October 1, 1991, the Secretary may waive the requirement that the agency or association be administratively and financially separate and independent if it can be shown that existing relationships with associated or affiliated trade organizations or membership organizations have not compromised the independence of the accreditation process. Regardless of the type of accrediting association or agency, the organization must consistently apply and enforce standards that ensure that the education programs, training, or courses of study offered by an IHE are of sufficient quality to meet the stated objectives for which the programs, training, or courses are offered. The standards used by the accrediting agency or association must assess student achievement, in relation to the institution's mission, including, as applicable, course completion, passage of state licensing examinations, and job placement rates. The accrediting organization must also consider the institution's curricula, faculty, facilities, fiscal and administrative capacity, student support services, recruiting and admissions practices, measures of program length, objectives of the credentials offered, and student complaints received directly by the agency or association or those that are available to the agency or association. The institution's record of compliance with the institutional requirements of Title IV must also be examined with respect to the most recent student loan default rate data provided by ED, the results of financial or compliance audits, program reviews, and other information provided to the agency or association by ED. There are additional requirements that accrediting agencies and associations must meet that focus on operating procedures, including reviewing newly established branch campuses at accredited institutions and publicly disclosing when an institution is considered for accreditation or reaccreditation. Accrediting agencies and associations must also perform regular on-site inspections that focus on educational quality and program effectiveness. Section 496 also prescribes the procedures for ED's recognition of accrediting agencies, including requirements to conduct an independent evaluation, solicit third party information, make records of the decision process available, and publish reasons for denial of recognition. The Secretary is also specifically prohibited from basing recognition decisions on anything other than the statutory criteria, while accrediting agencies are expressly permitted to have criteria in addition to those needed for recognition. The Secretary is advised on issues regarding accreditation by the National Advisory Committee on Institutional Quality and Integrity (NACIQI) authorized by Section 114 of the HEA. The 15 members of this advisory committee are appointed for 3 year terms by the Secretary. The Secretary is required to appoint individuals who are representatives of or knowledgeable about postsecondary education training, and the committee must include representatives from all sectors and types of IHEs. NACIQI is charged with assessing the process of eligibility and certification for Title IV purposes and providing recommendations for improving the process. The committee is also responsible for advising the Secretary with respect to the standards accrediting organizations must meet for Title IV purposes, the recognition of specific accrediting organizations, and the relationship between accreditation and the certification and eligibility of IHEs and state licensing responsibilities for Title IV purposes. Generally institutions are accredited by only one accrediting agency or association. If an institution wants to change accrediting agencies, it must submit all documentation related to the prior accreditation to ED. These documents should demonstrate reasonable cause for making the change. Otherwise, ED will no longer consider the institution eligible for Title IV funds. Institutions seeking dual accreditation must also submit to each accrediting agency and ED the reasons for dual accreditation and demonstrate reasonable cause for holding dual accreditation. Dually accredited institutions must choose one accrediting agency for the purposes of Title IV eligibility. These rules were added to prevent abuses by institutions changing accrediting agencies or having dual accreditation as a means to avoid loss of eligibility for Title IV purposes. Institutions that have had their accreditation withdrawn, revoked, or terminated for cause during the preceding 24 months are not eligible to be certified (or recertified) as an IHE or to participate in any programs authorized by the HEA, unless the accrediting agency rescinds the withdrawal, revocation, or termination. The same rules apply if an institution voluntarily withdraws from accreditation under a show cause or suspension order. However, a special rule (Section 496 (k)) allows the Secretary to continue the eligibility of a religious institution whose loss of accreditation (voluntary or otherwise) is related to its religious mission and not to the accreditation standards required by the HEA. ED is responsible for the eligibility and certification portion of the triad. In this capacity, ED is responsible for verifying the institution's legal authority to operate in a state and its accreditation status, and evaluating its administrative capability and financial responsibility. ED has developed an Application for Approval to Participate in Federal Student Financial Aid Programs (E-App) that all institutions must complete in order to be eligible to participate in Title IV programs. Through the application, ED requests information and documentation related to educational programs, telecommunications and correspondence courses, changes in ownership or structure, third-party servicers that perform functions related to the federal student aid programs, administrative capability, and financial responsibility. Eligibility to participate in Title IV programs is authorized for up to six years. Regarding financial responsibility, ED determines whether the institution is able to provide the services described in its publications, has the administrative resources needed to comply with the Title IV requirements, and has the ability to meet all of its financial obligations. In addition, if an institution fails to meet specific financial ratios (e.g., equity ratio) established by ED regarding financial responsibility, ED may use additional criteria to determine whether an institution is financially responsible, including third-party financial guarantees, evidence that the institution's liabilities are backed by the state or other government entity, or a financial statement audited by an independent certified public accountant indicating that the institution has sufficient resources to prevent its closure. The Secretary may waive the specific ratio requirements for two-year or four-year IHEs providing an associate's or bachelor's degree if there is no reasonable doubt about the institution's solvency and ability to provide high quality educational services, the institution is up-to-date on its current liability payments, and it has substantial equity in school-occupied facilities. Institutions must also maintain sufficient cash reserves to ensure repayment of any required Title IV funds. The level of required reserves is specified by ED. In addition, ED may require that financial guarantees be provided by the institution or the owners of the institution in order to protect the financial interests of the United States. Section 498(d) specifies that ED is authorized to establish procedures and requirements with respect to the administrative capacity of IHEs. Administrative capability refers to the institution's ability to provide the education described in its public documents (e.g., marketing brochures) and to properly manage Title IV programs. More specifically, according to the regulations established by ED, administrative capability focuses on required electronic processes, requirements for the financial aid office, student academic progress, student financial aid history, default rates, withdrawal rates, and debarment and suspension. There are several requirements institutions must meet in demonstrating administrative capability. For example, institutions must be able to use the federal student aid program electronic processes. The school financial aid office must have a staff member to administer the Title IV programs and coordinate Title IV aid with other aid received by students. This individual must have adequate staff support. A system must be developed to identify and resolve discrepancies in Title IV information received by various school offices. In addition, the school must refer any cases of student fraud or criminal misconduct in applying for Title IV aid to the Office of Inspector General in ED. Financial aid counseling must be provided to all enrolled and prospective students and their families. Last, the administrative procedures for Title IV programs must include an adequate internal system of checks and balances. The institution must ensure that Title IV recipients are making satisfactory academic progress and establish a maximum timeframe in which a student must complete his/her educational program. The institution must also consider a student's financial aid history when making award decisions. An institution seeking to participate in Title IV programs for the first time must have an undergraduate withdrawal rate for regular students of no more than 33% for the institution's latest completed award year. ED requires that institutions certify that neither the institution nor its employees with management or supervisory responsibilities that involve federal funds has not been debarred or suspended by a federal agency. IHEs have a fiduciary responsibility to safeguard Title IV funds and ensure that they are used to benefit the intended students. An institution may be deemed not administratively capable based on cohort default rates for specific Title IV programs, including FFEL, Direct Loans (DL), and Perkins loans. An institution's cohort default rate is calculated as the number of borrowers last attending that institution entering repayment in a given fiscal year who default by the end of the succeeding year divided by the total number of borrowers entering repayment in a given year. For institutions with fewer than 30 borrowers entering repayment, the default rate is aggregated over the most recent three-year period. A school will be found not administratively capable if: The cohort default rates for FFEL or DL equal or exceed 25% for one or more of the three most recent fiscal years, or The most recent cohort default rate for FFEL or DL exceeds 40%, or The cohort default rate on Perkins loans made to students for attendance at the school exceeds 15%. ED may grant provisional certification to an institution that would be deemed administratively capable except for having high cohort default rates. Provisional certification may be granted for up to three years. An institution may be awarded provisional certification of eligibility for up to one award year if the IHE is seeking initial certification. It may also receive provisional certification for up to three years if ED is determining the institution's administrative capacity and financial responsibility for the first time, the institution has experienced a partial or total change in ownership, or ED has determined that the administrative or financial condition of the institution may hinder the institution's ability to meet its financial responsibilities. In addition, if ED withdraws the recognition of an accrediting agency, an institution which had been relying on that agency for its accreditation and otherwise meets all requirements for Title IV eligibility may continue to participate in Title IV programs for up to 18 months from the date recognition was withdrawn. The institution will lose its Title IV eligibility after 18 months if it has not been accredited (or preaccredited, if applicable) by another accrediting organization recognized by the Secretary. Prior to granting Title IV eligibility to or recertifying an institution, ED staff may conduct a site visit at that institution. ED also has the authority to conduct program reviews on a systematic basis at all IHEs participating in Title IV programs. Priority for the reviews is given to institutions with a cohort default rate for the FFEL program that exceeds 25% or to institutions in the highest 25% of such institutions, followed by institutions with a default rate in dollar volume for the FFEL program which places the institutions in the highest 25% of such institutions. Priority is also given to institutions with significant fluctuation in Federal Stafford Loan or Federal Direct Stafford/Ford loan volume or Federal Pell Grant award volume, institutions reported by the state or accrediting agency to have deficiencies or financial aid problems, and institutions with high annual dropout rates. If through the program review process ED determines that an IHE is not financially responsible or lacks the administrative capacity to participate in the federal student aid programs, the IHE may be placed on provisional certification, take other corrective actions, or impose sanctions. Sanctions issued by ED may include emergency actions, fines, limitations, suspensions, and terminations. An IHE will be sanctioned if it violates statutory or regulatory requirements governing the federal student aid programs, its PPA, or any agreement the IHE has made under the law or regulations. An IHE will also be sanctioned if it substantially misrepresents the nature of its programs, its financial charges, or the employability of its graduates. ED may also sanction a third-party service provider that performs activities related to the federal student aid programs. Once a violation has been identified, ED may take formal or informal actions. If an IHE has violated the federal student aid program regulations, ED may allow the program to respond to the problem and provide information for how it will correct it. If this informal approach does not work or if an IHE has repeatedly violated statutory or regulatory requirements, ED may take additional action. ED may take emergency action to withhold federal student aid funds from an IHE or its students if ED receives reliable information that the IHE is violating statutory or regulatory provisions, special arrangements, agreements, or limitations. An emergency action suspends an IHEs participation in all federal student aid programs, prohibits the IHE from disbursing federal student aid funds, and prohibits the IHE from certifying FFEL applications. Emergency action may only be taken if ED determines that the IHE is misusing federal funds, immediate action is required to stop the misuse of funds, and the potential loss of funds outweighs the importance of using established procedures for limitation, suspension, or termination (discussed below). Emergency actions are limited to 30 days in duration, unless ED initiates either limitation, suspension, or termination proceedings during those 30 days. If ED initiates one of these additional proceedings, the emergency action is extended until the proceeding is complete. An IHE is given an opportunity to show cause that an emergency action is unwarranted. ED has established several formal procedures for addressing violations of statutory or regulatory requirements, including fines, limitations, and suspensions. ED may also fine an IHE up to $27,500 for each violation of statutory or regulatory provisions. The size of the fine is determined by ED, taking into consideration the school's size and the seriousness of the violation. ED may also place an IHE under a limitation, during which the IHE agrees to abide by certain conditions or restrictions as it administers the federal student aid programs. A limitation lasts for at least 12 months, but while the limitation is in effect and upheld by an IHE, the IHE may continue to participate in the federal student aid programs. If a program violation occurs and ED wants to suspend an IHEs participation in the federal student aid programs temporarily while the violation is corrected, ED may revoke an IHEs ability to participate in the federal student aid programs for up to 60 days. Each of these actions may require an IHE to take corrective action, such as repaying illegally used funds to ED. The last type of action ED may take is the termination of an IHE's participation in the federal student aid programs. Generally, an IHE may not apply to be reinstated for 18 months. An IHE must apply to be reinstated and must show that it has corrected all the violations upon which its termination was based, including the repayment of any Title IV funds. ED may approve the request, approve the request subject to limitations, or deny the request. Institutions lose their eligibility to participate in Title IV programs for one of four main reasons: School closure, Eligibility to participate expired and school did not renew eligibility, Voluntary withdrawal, or Failure to meet requirements (e.g., accreditation, financial responsibility, administrative capability). Table 1 details the loss of Title IV institutional eligibility from January 1, 2000 through December 31, 2005. During this time period, 530 institutions lost their eligibility to participate in Title IV programs. The most common reason for loss of eligibility was closure (31% of institutions), followed by loss of accreditation (20% of institutions). There are several issues related to institutional eligibility that may be considered by Congress. Examples of these issues are summarized below: Transfer of credit: Many postsecondary education students attend more than one IHE in pursuit of a postsecondary education credential. A recent GAO study found that institutions to which students try to transfer base their decisions on which credits to accept on the type of accreditation held by the sending institution, whether academic transfer agreements have been established with the sending institution, and the comparability of coursework. The study also found that many institutions that are accredited by regional accrediting agencies would not accept credits earned at nationally accredited institutions. Congress may consider legislation related to the creation of articulation agreements. It may also consider requiring IHEs to publicly release their transfer of credit policies and requiring that IHEs do not deny the transfer of credit solely on the accreditation held by the sending institution. Congress may also require accrediting organizations to ensure that IHEs are in compliance with any transfer of credit policies included in statutory language. Accountability: There is increased interest in knowing whether the federal investment in postsecondary education, primarily through the Title IV programs, and whether the investment made by students and their families in postsecondary education is a worthwhile investment. That is, there is interest in knowing the outcomes of the educational process, such as student learning, job placement rates, graduation rates, and graduate school attendance. As such, Congress may require accrediting organizations to focus more of their attention on the outcomes of the education process rather than focusing on the inputs (e.g., faculty, curricula) of the academic process. There are several other issues that affect institutional eligibility for Title IV federal student aid programs. This section focuses on three specific issues–Program Participation Agreements (PPA), the return of Title IV funds, and distance education. Failure to meet the requirements associated with each of these areas may result in a loss of Title IV eligibility. IHEs are required to enter into a Program Participation Agreement with ED in order to participate in most programs authorized under Title IV. By signing the PPA, the institution agrees to comply with the laws, regulations, and policies governing the Title IV programs. In order to aid the institution in administering federal student aid programs in the appropriate manner, the PPA provides critical information about the institution's participation in the programs. It includes the effective date of the institution's approval for participation, the date by which the institution must reapply for participation, the expiration date of its current approval, and the Title IV programs in which the institution is eligible to participate. The PPA also states the general terms and conditions for institutional participation in the FSA programs and contains information from the General Provisions Regulations (34 CFR Part 668) by which the institution is bound. The PPA also reiterates provisions discussed earlier in this report as additional requirements for institutional eligibility, including certifying the institution has a drug and alcohol abuse program, certifying the institution has established a campus security program, reporting general institutional information, and providing data on student athletes. By signing the PPA, the institution also agrees to make a good faith effort to register students to vote unless the institution is located in a state that has implemented the motor vehicle-voter registration provision of the National Voter Registration Act. Institutions are also required to provide a GED preparatory program to its students if it admits students without a high school diploma or its recognized equivalent. The institution is also required to comply with the civil rights and privacy requirements contained in federal regulations that apply to all students. One of the provisions of the PPA specifically prohibits the payment of commissions, bonuses, or other incentive payments to individuals based on their success in enrolling students or obtaining financial aid. The provision was added during the 1992 reauthorization to eliminate abuses at trade institutions that were enrolling unqualified applicants in order to receive Title IV funds. Through the negotiated rulemaking process, however, ED developed new regulations for incentive compensation that took effect July 1, 2003. ED has created 12 "safe harbors" that IHEs can use to avoid statutory prohibitions against incentive compensation for recruiters and other individuals. Without these safe harbors, ED determined that a strict interpretation of the statutory requirement would prohibit almost every compensation arrangement related to a student's admission to a postsecondary institution, including common business practices. ED has interpreted the requirement as functioning as a safeguard against institutions providing incentives to staff to enroll unqualified students. Of the 12 safe harbors, one focuses on whether a particular compensation payment is considered an incentive payment. It describes the conditions under which compensation may be paid by an IHE without it being considered an incentive payment. The remaining 11 safe harbors address the conditions under which an incentive payment may be made based upon student enrollments. Examples of these safe harbors include allowing IHEs to provide incentive payments to recruiters who enroll students in non-Title IV eligible programs, providing compensation for Internet-based recruitment and admission activities, and providing compensation through a profit-sharing or bonus plan. During the 1992 reauthorization, a new federal requirement for program participation was added with respect to the return of Title IV funds. The intent was to eliminate incentives for institutions to enroll students and receive Title IV funds without suffering any negative financial consequences if students dropped out. The initial legislation established a refund policy that affected all funding (e.g., federal funding, state funding, scholarships, grants, parental support) provided on behalf of first-time students who were receiving Title IV funds. According to the return of funds policy, funds were required to be returned to the federal government prior to returning funds to any other source. This policy was substantially changed during the 1998 reauthorization. The return of Title IV funds policy currently applies to all students receiving Title IV funds who withdraw from school, but only applies to Title IV funding. The policy was further revised by the HERA. The return policy is a statutory schedule used to determine how much Title IV aid a student has earned at the time of his/her withdrawal from school. The schedule requires a pro-rata calculation of the amount of aid earned through the 60% point in each payment period or period of enrollment. After the 60% point, a student has earned 100% of Title IV funds for that period. ED has developed a specific process that institutions use to determine the amount of Title IV funds earned by a student and the amount of Title IV aid, if any, that needs to be returned to ED or disbursed to the student. The process is briefly discussed in this section. Institutions initially determine how much Title IV aid was received by the student. IHEs then calculate the percentage of Title IV aid earned by the student, by determining the date of the student's withdrawal. This is determined differently depending on whether the institution is required to take attendance. At institutions required to take attendance, the student's withdrawal date is determined based on attendance records. At institutions not required to take attendance, different procedures exist to determine the student's date of withdrawal depending upon whether the student provided official notification of his/her withdrawal. The withdrawal date is used to determine the point at which the student withdrew, so that the percentage of the period of enrollment or payment period completed can then be calculated. The calculation of the percentage of the period of enrollment or payment period completed differs depending of whether the student withdrew from a program using credit-hours or clock-hours. If a student withdraws from a credit-hour program, the percentage of Title IV aid earned is equal to the percentage of the enrollment or payment period completed. The percentage of the period completed is determined by dividing the number of calendar days in the payment or enrollment period that the student completed by the total number of calendar days in the payment or enrollment period. If the student completed over 60% of the payment or enrollment period, he/she has earned 100% of his/her Title IV aid and no repayment of funds by the school or student is required. If the student withdrew at or prior to the 60% point in the payment or enrollment period, the percentage of Title IV aid earned is pro-rated. For example, if the student withdrew at the 50% point, he/she has earned 50% of his/her Title IV aid. The percentage of Title IV aid earned by a student who withdrew from a clock-hour program is based on the percentage of scheduled hours the student completed prior to withdrawing. A student who withdraws after the point at which he/she was scheduled to complete 60% of the scheduled hours in the payment period or period of enrollment has earned 100% of his/her aid. The percentage of payment period of period of enrollment completed is calculated by dividing the total number of clock hours scheduled to be completed as of the date the student withdrew by the total number of hours included in the payment period or period of enrollment. The percentage of Title IV aid earned is then multiplied by the sum of the Title IV aid disbursed plus the Title IV aid that could have been disbursed to the student or on the student's behalf to determine the amount of Title IV aid earned by the student. If the student received less Title IV aid than the amount earned, the institution may make a post-withdrawal disbursement. If the student received more Title IV aid than the amount earned, the school, the student, or both must return the unearned funds. The amount of aid that must be returned is based only on the amount of aid that was disbursed. If it is determined that funds must be returned, the institution first calculates how much it must return. The school must return the lesser of: (1) the amount of Title IV funds awarded to the student that the student did not earn, or (2) the amount of institutional charges incurred by the student for the payment or enrollment period multiplied by the percentage of unearned funds. Funds are then returned to the Title IV programs up to the net amount distributed. The IHE has up to 45 days after the date it determines a student has withdrawn to return its portion of the unearned funds. The student is responsible for all unearned Title IV funds that the school is not required to return. The initial amount owed by the student is the balance of unearned funds after the school returns its portion of unearned funds. This is referred to as the initial amount due because a student does not have to make grant repayments in full, so it is possible that the student may be responsible for returning a smaller amount of funds than initially calculated. The initial Title IV grant overpayment is reduced by 50%. The amount owed by the student is then recalculated, and the student repays the required funds. This last provision in the calculation of Title IV funds to be returned regarding the reduction of the grant amount had been somewhat controversial. The statute had been interpreted to mean that the 50% reduction in grant funds referred to 50% of the amount due for grant repayment rather than 50% of the total grant. For example, assume a student had received only a $1,650 Pell Grant, but has $825 in unearned Title IV aid. Also assume the institution had to return $250, leaving $575 as the initial amount to be repaid by the student. The $575 would have been multiplied by 50%, reducing the amount owed to $287.50. The HERA clarified the interpretation of this provision. Section 484B(b)(2) was amended to limit the amount of a grant overpayment to be repaid by a student to the amount by which the original grant overpayment exceeds 50% of the total Title IV grant funds received by the student. Thus, in the previous example, instead of multiplying $575 by 50%, the total grant amount of $1,650 would be multiplied by 50% to determine the amount of grant aid that would not have to be repaid. The result of this calculation is $825. Since the amount by which any grant repayment would be reduced ($825) is greater than the amount owed ($575), the student would not have to repay any of the Pell Grant. This statutory change provides a greater benefit to the student. In some cases, students who have withdrawn from an IHE may have earned more Title IV aid than they actually received. Prior to the HERA, if a student earned more grant or loan aid than he/she received, an IHE was required to make (or offer) a post-withdrawal disbursement to the student within 30 days of the date the IHE determined the student withdrew. The HERA added additional requirements that IHEs must follow in making this disbursement. Prior to making a post-withdrawal disbursement of loan funds to a student who had withdrawn, the IHE must contact the student, explain the repayment obligations associated with accepting the funds, and confirm that the loan funds are still needed by the student. The result of this contact and the final determination regarding the post-withdrawal disbursement must be documented in the student's file. With the war in Iraq, the issue of how to handle federal aid provided to student reservists called to active duty has become a more prominent issue. Based on the return of Title IV funds policy, if these students officially withdraw from their IHE, the IHE must make a return of Title IV funds calculation. According to current ED guidance, the IHE must return any funds that it owes to ED but students should not be notified if they owe funds. If, on the other hand, the student reservist takes a leave of absence to serve, the total leave of absence is currently capped at 180 days in a 12-month period, raising questions about how to handle extended periods of absence. Based on ED regulations, a student who takes a leave of absence for military duty must be able to resume his/her studies at the point at which those studies were interrupted. The student cannot be obligated to pay additional institutional charges to complete the coursework. Students who withdraw are not afforded the same protections by statutory language or regulations. ED, however, has encouraged institutions to provide students with a full refund of institutional charges or provide a credit for students to resume attendance at a later time. ED has also encouraged institutions to develop flexible re-enrollment options for students affected by the military mobilization. Distance education refers to instructional modes where there is a separation in time and/or place between the instructor and the student. The term "distance education" refers to both correspondence courses and telecommunications courses offered by television, audio or computer transmission, or over the Internet. Historically, distance education courses have been used as a means to increase student access to postsecondary education by providing alternatives to the traditional mode of on-campus instruction. Recently, there has been substantial growth in the number and types of courses being offered by institutions due to the availability of new technology, such as the Internet. Title IV program requirements, especially those related to the disbursement of funds, are based on student participation in term-based on-campus instruction. Existing requirements may restrict funding to students participating in distance education and may not be easily applied to distance education programs. This issue was partially addressed by the Higher Education Amendments of 1998 with the creation of the Distance Education Demonstration Program discussed below. As previously discussed, the regulations governing the administration of Title IV programs provide specific definitions for correspondence and telecommunications courses. A correspondence course is a home study course offered by an institution. The institution provides the student with instructional materials, including examinations. Upon the completion of a section of the instructional materials, the student takes the corresponding examinations and returns the examinations to the institution for grading. A telecommunications course is a course that is offered via the application of technology. This includes courses offered by television, audio or computer transmission, or over the Internet. If a correspondence course also includes telecommunications technology, the course is classified based on the predominant mode of instruction. During the 1992 reauthorization, to combat cases of fraud and abuse in institutions that primarily delivered instruction through print-based media, Congress established several requirements that are collectively known as the 50% rules. These requirements affected both institutional eligibility and student eligibility for Title IV aid, and were substantially revised by the HERA. The 1992 requirements are summarized below: If the sum of the telecommunications courses and correspondence courses equals or exceeds 50% of the total number of courses offered during that award year, telecommunications courses are considered correspondence courses. An institution loses its Title IV eligibility if more than 50% of its courses are offered by correspondence (Section 102 (a)(3)(A)). An institution loses its Title IV eligibility if 50% or more of its students are enrolled in correspondence courses (Section 102 (a)(3)(B)). The first 50% rule discussed above had implications for an institution's eligibility to participate in Title IV programs. If the sum of an institution's telecommunications courses and correspondence courses equaled or exceeded 50% of all courses offered by an institution, all telecommunications courses were considered correspondence courses. The HERA eliminated the requirement that courses offered by telecommunications be considered correspondence courses. Based on the second 50% rule, if an institution offered more than 50% of its courses by correspondence then it would lose its eligibility to participate in Title IV programs. While this requirement continues to apply to institutions offering courses by correspondence, courses offered by telecommunications were specifically excluded from this requirement by the HERA. Under the third 50% rule, an institution would lose its Title IV eligibility if 50% or more of its students were enrolled in correspondence courses. As with the second 50% rule, this rule continues to apply to student enrollment in correspondence courses, but courses offered by telecommunications were specifically excluded from this requirement by the HERA. The previous distinction between correspondence courses and telecommunications courses, and the 50% rule that resulted in telecommunications courses being considered correspondence courses, directly affected student eligibility for Title IV funds. For example, prior to the HERA, students enrolled in telecommunications courses were eligible to receive Title IV funds if they were enrolled in a degree program or a certificate program that was at least one year long. For certificate programs of less than one year, telecommunications students were considered correspondence students and, therefore, were not eligible to receive Title IV funds as correspondence students had to be enrolled in a degree-granting program to receive Title IV aid. As previously discussed, the HERA eliminated the rule that required telecommunications courses to be considered correspondence courses and, as part of this change, eliminated the requirement that a telecommunications course had to be part of a program of study of one year or longer. Thus, students enrolled in distance education courses, rather than correspondence courses, are eligible to receive Title IV aid if they are enrolled in degree-granting programs or certificate programs of any length, provided the program meets the program eligibility requirements for distance education programs. Students enrolled in correspondence courses, however, are only eligible for Title IV aid if they are enrolled in a degree-granting program. Another distinction between students enrolled in distance education courses and correspondence courses also remains. A student enrolled solely in correspondence courses cannot be considered more than a half-time student for the purposes of Title IV aid regardless of the number of credits the student is taking. Students enrolled solely in telecommunications courses, however, can be considered full-time students for the purposes of Title IV aid. As previously mentioned, the HERA added a definition of a distance education eligible program for Title IV purposes. An otherwise eligible program (see previous discussion of program eligibility) that is offered in whole or in part through telecommunications is eligible for the purposes of Title IV if the program is offered by an institution, other than a foreign institution, that has been determined to have the capability to effectively deliver distance education programs by an accrediting agency recognized by the Secretary. The accrediting agency must have the evaluation of distance education programs within its scope of recognition. Currently, the Secretary recognizes 19 accrediting agencies as having the evaluation of distance education programs within their scope of recognition. During the 1998 HEA reauthorization, Congress recognized that with changes in technology, IHEs are increasingly offering courses via distance education. A demonstration program was established to: (1) examine the quality and viability of expanding distance education programs, the support of which was limited under the HEA prior to HERA; (2) provide increased student access to postsecondary education through distance education; and (3) determine the most effective ways to deliver distance education, statutory and regulatory modifications needed to increase access to distance education programs, and the appropriate level of Title IV aid that should be made available to distance education students. Several program requirements for institutions participating in Title IV programs were waived for the demonstration program. For example, the 50% rules that applied to the percentage of correspondence courses offered by the institution and the percentage of students enrolled in correspondence courses were waived for many program participants. In addition, under certain circumstances, the provision that defines a telecommunications course as a correspondence course was also waived. Other institutions received waivers of the definition of a full-time student to allow correspondence students to be considered full-time students. An initial group of 15 participants were selected to participate in the program beginning July 1, 1999. Nine participants were invited to join the program at the beginning of its third year. Five additional participants joined the program in December 2003. There are currently 24 participants in the program–nine proprietary institutions, seven private non-profit institutions, four public universities, three consortia, and one public system. Generally, institutions were considered eligible to apply for the program if they were located in the United States and participated in Title IV programs or provided a two-year or four-year program leading to an associate's degree or bachelor's degree, respectively, but were ineligible to participate in Title IV programs because of limitations on the number of correspondence courses or the number of students participating in correspondence courses. In April 2005, ED submitted a third report to Congress on the demonstration program. Enrollment in distance education programs offered by the eight program participants that reported data for eight years indicated that enrollment had increased from 7,930 in 1998-1999 to 63,350 in 2003-2004–nearly a 700% increase in enrollment. Among the seven institutions in the second cohort of participants that provided data for all four years of their participation, enrollment grew by 400%. The greatest growth occurred at institutions primarily serving adult students. Students served by institutions participating in the DEDP tend to be female, enrolled part-time, and older than traditional college age. ED concluded that granting waivers to program participants, including waivers of the 50% rules, had not led to increases in fraud and abuse. They determined that the administrative capability and financial viability of an institution posed a greater risk to the integrity of federal student aid programs than the mode through which an institution provided instruction. ED also found that while distance education may enable institutions to be innovative with respect to student access and flexibility, this innovation may be hampered by the administrative requirements of Title IV student financial aid programs. For example, some DEDP participants have experienced difficulties administering federal student aid programs for non-traditional academic structures, as the federal student aid system was developed in an environment in which most institutions enrolled traditional students, offered programs on a semester or quarter basis, and students took summers off. While HERA made changes to the 50% rules and program eligibility requirements, additional issues related to distance education may be discussed during HEA reauthorization. Examples of these topics are outlined below. Given the tremendous growth in distance education programs, Congress may consider whether accrediting agencies should be required to have specific standards for evaluating the quality and quantity of distance education programs in order to be recognized as an accrediting agency by ED, or whether accrediting organizations should review distance education similarly as they review traditional education programs. In addition, Congress may consider adding safeguards to ensure that a student who registers for a distance education course is the same student who completes the coursework and receives the credit. The Congress may consider adding a specific definition of a telecommunications course to replace the existing definition of telecommunications included in Section 484(l)(4). ED has suggested that the definition should "specify that there be regular and substantive interaction between students and the instructor." The current definition does not address this interaction. An increasing number of institutions are offering multiple start dates for courses, shorter courses, and overlapping terms. This makes student aid calculation and disbursement complicated. The Congress may consider switching to an alternative model for aid calculation and disbursement based on an individual student's program of instruction, which could potentially alleviate some of this difficulty. | Title IV of the Higher Education Act (HEA) authorizes programs that provide student financial aid to support attendance at a variety of institutions of higher education (IHEs). These institutions include public institutions, private non-profit institutions, and private for-profit (proprietary) institutions. In order for students attending a school to receive federal Title IV assistance, the school must: Be licensed or otherwise legally authorized to provide postsecondary education in the state in which it is located, Be accredited by an agency recognized for that purpose by the Secretary of the U.S. Department of Education (ED), and Be deemed eligible and certified to participate in federal student aid programs by ED. The most recent reauthorization of the Higher Education Act in 1998 resulted in several key changes to provisions affecting institutional eligibility, including: The requirement that proprietary institutions derive at least 10% of their revenues from non-Title IV sources (also known as the 90/10 rule), Modification of refund policy requirements to apply only to Title IV funds and to require pro-rata refunds for all Title IV recipients who withdraw before the completion of 60% of the payment period or period of enrollment, and Establishment of a distance learning demonstration program. Since the 1998 reauthorization, Congress has acted through the Higher Education Reconciliation Act (P.L. 109-171) to make additional changes to HEA institutional eligibility requirements, particularly as they relate to program eligibility, distance education, and the return of Title IV funds. ED has also made regulatory changes affecting institutional eligibility—most notably the elimination of the 12-hour rule and clarification of incentive compensation regulations. As the 110th Congress considers HEA reauthorization, several issues may become a focus of debate. These issues may include, for example, the 90/10 rule, accreditation, institutional outcomes, transfer of credit, and distance education. This report will be updated as warranted by major legislative action. |
Granting Russia permanent normal trade relations (PNTR) status requires a change in law because Russia is prohibited from receiving PNTR under Title IV of the Trade Act of 1974. The change would likely occur in the form of legislation to eliminate the application of Title IV to trade with Russia. Title IV includes the so-called Jackson-Vanik amendment free emigration requirements. Extension of PNTR has implications for Russia's accession to the World Trade Organization (WTO). The WTO requires its members to extend immediate and unconditional nondiscriminatory treatment to the goods and services of all other members. After 19 years of negotiations, Russia joined the WTO on August 22, 2012. On November 16, 2012, the House passed (365-43), and on December 6, 2012, the Senate passed (92-4) H.R. 6156 , which does just that, among other things. The legislation also included provisions—the Magnitsky Rule of Law Accountability Act of 2012—that impose sanctions on individuals linked to the incarceration and death of Russian lawyer Sergei Magnitsky. H.R. 6156 also authorized PNTR status for Moldova. President Obama signed the legislation into law on December 14, 2012. "Normal trade relations" (NTR), or "most-favored-nation" (MFN), trade status is used to denote nondiscriminatory treatment of a trading partner compared to that of other countries. Only two countries—Cuba and North Korea—do not have NTR status in trade with the United States. In practice, duties on the imports from a country which has been granted NTR status are set at lower rates than those from countries that do not receive such treatment. Thus, imports from a non-NTR country can be at a large price disadvantage compared with imports from NTR-status countries. Section 401 of Title IV of the Trade Act of 1974 requires the President to continue to deny NTR status to any country that was not receiving such treatment at the time of the law's enactment on January 3, 1975. In effect this meant all communist countries, except Poland and Yugoslavia. Section 402 of Title IV, the so-called Jackson-Vanik amendment, denies the countries eligibility for NTR status as well as access to U.S. government credit facilities, such as the Export-Import Bank, as long as the country denies its citizens the right of freedom of emigration. These restrictions can be removed if the President determines that the country is in full compliance with the freedom-of-emigration conditions set out under the Jackson-Vanik amendment. For a country to maintain that status, the President must reconfirm his determination of full compliance in a semiannual report (by June 30 and December 31) to Congress. His determination can be overturned by the enactment of a joint resolution of disapproval concerning the December 31 report. The Jackson-Vanik amendment also permits the President to waive the freedom-of-emigration requirements, if he determines that such a waiver would promote the objectives of the amendment, that is, encourage freedom of emigration. This waiver authority is subject to an annual renewal by the President and to congressional disapproval via a joint resolution. Before a country can receive NTR treatment under either the presidential determination of full compliance or the presidential waiver, it and the United States must have concluded and enacted a bilateral agreement that provides for, among other things, reciprocal extension of NTR or MFN treatment. The agreement and a presidential proclamation extending NTR status cannot go into effect until a congressional joint resolution approving the agreement is enacted. In 1990, the United States and the Soviet Union signed a bilateral trade agreement as required under Title IV of the Trade Act of 1974. The agreement was subsequently applied to U.S.-Russian trade relations, and the United States signed similar but legally separate agreements with the other former non-Baltic Soviet states. The United States extended NTR treatment to Russia under the presidential waiver authority beginning in June 1992. Since September 1994, Russia has received NTR status under the full compliance provision. Presidential extensions of NTR status to Russia have met with virtually no congressional opposition. Russian leaders continually pressed the United States to "graduate" Russia from Jackson-Vanik coverage entirely. They saw the amendment as a Cold War relic that did not reflect Russia's new stature as a fledgling democracy and market economy. Moreover, Russian leaders argued that Russia implemented freedom-of-emigration policies since the fall of the communist government, making the Jackson-Vanik conditions inappropriate and unnecessary. While Russia remained subject to the Jackson-Vanik amendment, some of the other former Soviet republics have been granted permanent and unconditional NTR. For example, Kyrgyzstan and Georgia received PNTR in 2000, and Armenia received PNTR in January 2005. Perhaps what has irked Russian leaders greatly is that the United States granted permanent and unconditional NTR status to Ukraine in 2006. As with these other countries, extending PNTR to Russia involved legislation that would remove the application of Title IV of the Trade Act of 1974 as it applied to Russia. It authorized the President to grant PNTR by proclamation. On November 16, 2012, the House passed (365-43), and on December 6, 2012, the Senate passed (92-4) H.R. 6156 , which did just that, among other things. President Obama signed the legislation into law on December 14, 2012. During the Cold War, U.S.-Soviet economic ties were very limited. They were constrained by national security and foreign policy restrictions, including the Jackson-Vanik amendment restrictions. They were also limited by Soviet economic policies of central planning that prohibited foreign investment and tightly controlled foreign trade. With the collapse of the Soviet Union, successive Russian leaders have been dismantling the central economic planning system. This has included the liberalization of foreign trade and investment. U.S.-Russian economic relations have expanded, but the flow of trade and investment remains very low, as reflected in Table 1 , which contains data on U.S. merchandise trade with Russia since 2001. The table indicates that U.S.-Russian trade, at least U.S. imports, has grown appreciably. The surge in the value of imports is largely attributable to the rise in the world prices of oil and other natural resources—which comprise most of U.S. imports from Russia—and not to an increase in the volume of imports. U.S. exports span a range of products including meat, machinery parts, and aircraft parts. U.S. imports increased more than 244%, from $7.8 billion to $26.8 billion from 2000 to 2008, and U.S. exports rose 343%, from $2.1 billion to $9.3 billion. However, U.S. exports and imports with Russia declined substantially in 2009, as a result of the global financial crisis and economic downturn, but increased in 2010 and 2011 as both countries have shown signs of recovery. Exports continued to increase in 2012 while imports decreased somewhat. Russia was the 28th -largest export market and 16 th -largest source of imports for the United States in 2012. U.S. exports to and imports from Russia are heavily concentrated in a few commodity categories. The top five 2-digit Harmonized System (HS) categories of imports accounted for about 70% of total U.S. imports from Russia and consisted of precious stones and metals, inorganic chemicals, mineral fuels, aluminum, iron and steel, and fish and other seafood. About 60% of U.S. exports to Russia consisted of products in three 2-digit HS categories: aircraft, machinery (mostly parts for oil and gas production equipment), and meat (beef, pork, and poultry). Russia's treatment of imports of U.S. meats—poultry, pork, and beef—is one of the most sensitive issues in U.S.-Russian trade relations. Russia's agricultural sector, particularly meat production, has not been very competitive, and domestic producers have not been able to fulfill Russia's expanding demand for meat, especially as the rise of Russian incomes has led to a rise in demand for meat in the Russian diet. U.S. producers, especially of poultry, have been able to take advantage and have become major sources of meat to the Russian market. At the same time, Russia has become an important market for U.S. exports of meat. For example, in 2009, Russia was the largest market for U.S. poultry meat exports. On January 1, 2010, the Russian government implemented new regulations on imports of poultry, claiming that the chlorine wash that U.S. poultry producers use in the preparation of chickens violates Russian standards and is unsafe. These regulations effectively halted U.S. exports of poultry to Russia. The United States claimed that the wash is effective and safe and that Russian restrictions are not scientifically based. U.S. and Russian officials conducted discussions to resolve the issue. At their June 24, 2010, press conference that closed a bilateral summit meeting, President Obama and then-President Medvedev announced that the dispute over poultry trade had been resolved and that U.S. shipments of poultry to Russia would resume. However, the full resumption of shipments was delayed over Russian demands to inspect U.S. poultry processing plants before they can be certified for shipping to Russia. On September 30, 2010, the two countries reportedly reached a compromise on this issue whereby Russian inspectors would examine and certify U.S. plants on an expedited basis. However, as a result of the Russian restrictions, U.S. exports of poultry to Russia plummeted almost 70% by the end 2011 compared to 2009. The lack of adequate intellectual property rights (IPR) protection in Russia has tainted the business climate in Russia for U.S. investors for some time. The Office of the United States Trade Representative (USTR) consistently identifies Russia in its Special 301 Report as a "priority watch list" country, as it did in its latest (April 30, 2012) report. The USTR report acknowledges improvements in IPR protection and cites steps taken to fulfill its commitments to improve IPR protection made as part of the 2006 bilateral agreement that was reached as part of Russia's WTO accession process. It also finds that Russia has problems with weak enforcement of IPR in some areas, including internet piracy. Russian economic policies and regulations have been a source of concerns. The United States and the U.S. business community have asserted that structural problems and inefficient government regulations and policies have been a major cause of the low levels of trade and investment with the United States. U.S. exporters have also cited problems with Russian customs regulations that are complicated and time-consuming. PNTR for Russia is closely tied to Russia's efforts to join the WTO. The WTO requires its members to extend immediate and unconditional nondiscriminatory treatment to the goods and services of all other members. To fulfill that commitment, the United States would have to extend PNTR to Russia. Russia first applied to join the General Agreement on Tariffs and Trade (GATT—now the World Trade Organization [WTO]) in 1993. Russia completed negotiations with a WTO Working Party (WP), which includes representatives from about 60 WTO members, including the United States and the European Union (EU). WP members raised concerns about Russia's IPR enforcement policies and practices, sanitary and phytosanitary (SPS) regulations that may be blocking imports of agricultural products unnecessarily, and Russia's demand to keep its large subsidies for its agricultural sector. The United States also raised issues regarding the role of state-owned enterprises (SOEs) in the Russian economy and Russian impediments to imports of U.S. products containing encryption technology. Prime Minister Putin's June 9, 2009, announcement that Russia would be abandoning its application to join the WTO as a single entity and would instead pursue it with Belarus and Kazakhstan as a customs union seemed to set back the accession process. However, after meeting resistance from WTO officials, Russia and the other two countries decided to pursue accession separately. On June 24, 2010, during their meeting in Washington, DC, President Obama and President Medvedev pledged to resolve the remaining issues regarding Russia's accession to the WTO by September 30. The United States also pledged to provide technical assistance to Russia to speed up the process of Russia's accession taking into account its customs union with Belarus and Kazakhstan. On October 1, 2010, the USTR announced that "the United States and Russia have reached agreement on the substance of a number of Russian commitments." He noted that Russia had enacted amendments to laws related to the protection of IPR and that the United States "looks to the effective implementation of these laws." Russia completed its bilateral negotiations and negotiations with the Working Party. On November 10, 2011, the members of the Working Party approved the accession package and sent it on for consideration by the Ministerial Conference. The Ministerial Conference approved the package and, on December 16, 2011, formally invited Russia to join the WTO. The lower house of the Russian parliament—the State Duma—and the upper house—the Federal Council—approved the protocol of accession on July 10 and July 18, 2012, respectively. President Putin signed the measure into law on July 21, and Russia formally joined the WTO on August 22, 2012. PNTR was a major issue in Russia's accession to the WTO. Because Title IV still applied to Russia at the time of its WTO accession, the United States invoked nonapplication of WTO rules, procedures, and agreements in its trade with Russia. As a result, many of the commitments that Russia made in joining the WTO might not have applied to the United States. (Under the 1992 U.S.-Russia bilateral trade agreement, Russia was obligated to apply nondiscriminatory tariff treatment to imports from the United States.) On November 16, and on December 6, 2012, respectively, the House passed (365-43) and the Senate passed (92-4) H.R. 6156 (365-43). The President signed the bill into law on December 14, 2012. The law removed the application of Title IV to trade with Russia and authorized the President to grant PNTR to Russia by proclamation. It also contained other provisions that required: the USTR report annually to the Senate Finance Committee and the House Ways and Means Committee on Russia's implementation of its WTO commitments, including sanitary and phytosanitary (SPS) standards and IPR protection and on acceding to the WTO plurilateral agreements on government procurement and information technology; the USTR report to the two committees within 180 days and annually thereafter on USTR actions to enforce Russia's compliance with its WTO commitments; the USTR and the Secretary of State report annually on measures that they have taken and results they have achieved to promote the rule of law in Russia and to support U.S. trade and investment by strengthening investor protections in Russia; the Secretary of Commerce to take specific measures against bribery and corruption in Russia, including establishing a hotline and website for U.S. investors to report instances of bribery and corruption; a description of Russian government policies, practices, and laws that adversely affect U.S. digital trade be included in the USTR's annual trade barriers report (required under Section 181 of the Trade Act of 1974); and the negotiation of a bilateral agreement with Russia on equivalency of SPS measures. The law also authorizes PNTR for Moldova. In addition, it contained the Magnitsky Rule of Law Accountability Act of 2012, which imposes sanctions on individuals linked to the incarceration and death of Russian lawyer Sergei Magnitsky. | U.S.-Russian trade is governed by Title IV of the Trade Act of 1974, which sets conditions on Russia's normal trade relations (NTR), or nondiscriminatory, status, including the "freedom-of-emigration" requirements of the Jackson-Vanik amendment (Section 402). Changing Russia's trade status to unconditional NTR or "permanent normal trade relations status (PNTR)" requires legislation to lift the restrictions of Title IV as they apply to Russia and authorize the President to grant Russia PNTR by proclamation. On November 16, 2012, the House passed (365-43), and on December 6, 2012, the Senate passed (92-4) H.R. 6156, which does just that, among other things. The legislation also included provisions—the Magnitsky Rule of Law Accountability Act of 2012—that impose sanctions on individuals linked to the incarceration and death of Russian lawyer Sergei Magnitsky. H.R. 6156 also authorized PNTR status for Moldova. President Obama signed the legislation into law on December 14, 2012. PNTR for Russia became an issue for the 112th Congress because, on August 22, 2012, Russia joined the WTO after having completed a 19-year accession process. The WTO requires each member to accord newly acceding members "immediate and unconditional" most-favored-nation (MFN) status, or PNTR. In order to comply with WTO rules, the United States had to extend PNTR to Russia. |
The United States looks to Europe for partnership on an extensive range of global issues. In terms of international politics, security, and economics, Americans and Europeans tend to share broadly similar values, and often tend to pursue common or compatible goals. Many observers assert that the collective weight and influence of Europe and the United States, when projected through common transatlantic positions and complementary actions, fundamentally increases the odds that both sides will be able to achieve mutually desirable outcomes in world affairs. More than five decades after the Treaties of Rome (1957) launched a process of European integration, the European Union (EU) has come to play an increasingly important role in the life of its 27 member countries. Reflective of this evolution, significant aspects of policy making have been gradually shifting from national capitals to the EU institutions based in Brussels. Although the United States continues to maintain strong and active bilateral relations with the individual countries of Europe, and the transatlantic defense relationship remains centered in the North Atlantic Treaty Organization (NATO), some observers assert that much of the transatlantic partnership is increasingly set in the context of U.S. relations with the EU. Members of Congress and other U.S. policymakers working on transatlantic and global issues have sought to better understand the nature and structure of EU foreign policy and the EU policy-making process. The work of the U.S. Congress encompasses a wide range of activities and issues that have a European dimension, including numerous security and economic concerns. Thus, whether the topic is police training in Afghanistan or the Balkans; anti-piracy missions off the Horn of Africa; counterterrorism and terrorist financing; Iran sanctions; efforts to end the armed conflict in Syria; political approaches to Russia or China; free trade agreements with South Korea; assistance to developing countries; responses to change in North Africa; or any one of many more issues that could be listed, Members of the 113 th Congress often have an interest in examining whether U.S. and EU legislation, initiatives, funding, operations, and political communication are complementary or contradictory. Members of Congress tend to examine such issues in the context of Congress's own legislative activities, oversight activities vis-à-vis policies of the U.S. Administration, or in the context of direct interaction with European legislators and officials. Many Members of Congress also remain interested in assessing the ways in which developments in EU foreign and security policy might affect the United States and its interests over the longer term. Possible avenues for exploring such interest include examining the EU's global role in the context of evolving U.S. foreign policy priorities, the relationship between the EU and NATO, and the dynamics of the U.S.-EU-NATO relationship. The institutional complexity of the EU often presents a challenge to understanding the context and significance of its external policies (policies governing relations with other regions and non-member countries). Since the Treaty on European Union (also commonly known as the Maastricht Treaty) established the modern EU in 1992, EU external policies have been formulated and managed under one of two separate institutional processes: The Common Foreign and Security Policy (CFSP), which includes a Common Security and Defense Policy (CSDP), is intergovernmental in nature: the 27 member state governments, acting on the basis of unanimous agreement in the European Council (the heads of state or government) and the Council of the European Union (also called the Council of Ministers), are the key actors. External policies in areas such as trade, foreign aid, and EU enlargement are shaped and executed under a supranational or "community" decision-making process involving all three of the main EU institutions—the European Commission is arguably the most significant actor in these areas, although the member states (represented in the European Council and the Council of Ministers) and the European Parliament also have important decision-making roles. The Lisbon Treaty, the EU reform treaty that took effect in December 2009, introduced changes designed to improve the coherence and effectiveness of EU external policies, primarily by enhancing the coordination between these two strands. The treaty set out to remedy three main weaknesses that analysts had identified with regard to EU external policies and the EU policy-making process. First, while consensus does exist on many issues, achieving political agreement among 27 member countries can be inherently difficult. Differences between the member states can leave the EU with a thinly developed policy or with no common policy at all. A lack of consensus and direction can hinder the development of longer-term strategic approaches to an issue or region. The absence of a common policy can breed confusion if the EU "speaks with many voices" as national leaders express their own views and preferences. Second, critics regularly asserted that EU foreign policy tended to suffer from insufficient institutional coordination and coherence. Too often, it is argued, the intergovernmental and supranational strands of external policy had not been linked in a meaningful or complementary way. According to this view, the EU has punched below its global weight because it did not fully leverage the considerable array of policy instruments at its disposal. Third, prior institutional arrangements—namely, the former prominence of the rotating six-month national presidencies in external affairs—were susceptible to shifting priorities, with results sometimes detrimental to policy continuity. One key Lisbon Treaty innovation designed to address these points was the creation of a new position: High Representative of the Union for Foreign Affairs and Security Policy. The position comes with the additional title of Vice President of the European Commission. (It is therefore represented in EU documents as the HR/VP.) This is the job that has been held since 2009 by former EU Trade Commissioner Catherine Ashton (her five-year term will end in late 2014). She performs the external policy duties previously divided between three officials: the High Representative for CFSP (formerly Javier Solana), the foreign minister of the rotating presidency country, and the Commissioner for External Relations. As such, the High Representative position seeks to be an institutional bridge linking together and coordinating the intergovernmental and "community" dimensions of EU external policy. A new EU diplomatic corps, the European External Action Service (EEAS), was officially launched in December 2010 to support the work of the High Representative in coordinating and implementing EU foreign policy. The structure of the EEAS likewise reflects a concept of institutional merger between the European Commission and the Council of Ministers: one-third of the personnel of the EEAS is drawn from the Commission, one-third from the secretariat of the Council of the European Union, and one-third is seconded from the national diplomatic services of the member states. The Lisbon Treaty also created a new "permanent" President of the European Council, an individual serving a once-renewable, two-and-a-half-year term, to manage the activities of the group, promote the formation of consensus, and speak on its behalf. The president is appointed by agreement among the member states. This is the position held since 2009 (and until 2014) by former Belgian Prime Minister Herman Van Rompuy. From the time it was founded in the 1950s, the EU has regarded itself as a civilian power. NATO was the forum where many of the original EU members could focus on questions of Cold War defense and security. Meanwhile, the early decades of the EU were preoccupied with the technical aspects of deep economic integration. This type of integration represented a new form of cooperation between sovereign states that was the very antithesis of the power politics that twice led to the devastation of Europe between 1914 and 1945. The end of the Cold War, however, sparked debates within the EU about the desirability of developing a stronger foreign policy identity. After some early steps in that direction, Europe's inability to mount a strong political or military intervention in the Balkan Wars of the 1990s lent renewed urgency to such efforts while also stimulating initiatives to build an EU security and defense capability. The 1992 Treaty on European Union outlines the broad set of principles that guide the EU's external policies and actions. Under the treaty, the EU aims to (a) safeguard its values, fundamental interests, security, independence, and integrity; (b) consolidate and support democracy, the rule of law, human rights and the principles of international law; (c) preserve peace, prevent conflicts and strengthen international security, in accordance with the purposes and principles of the United Nations Charter, with the principles of the Helsinki Final Act and with the aims of the Charter of Paris, including those relating to external borders; (d) foster the sustainable economic, social and environmental development of developing countries, with the primary aim of eradicating poverty; (e) encourage the integration of all countries into the world economy, including through the progressive abolition of restrictions on international trade; (f) help develop international measures to preserve and improve the quality of the environment and the sustainable management of global natural resources, in order to ensure sustainable development; (g) assist populations, countries and regions confronting natural or man-made disasters; and (h) promote an international system based on stronger multilateral cooperation and good global governance. The European Security Strategy (ESS), released in 2003, is another important touchstone for understanding the basic philosophy of EU foreign policy. The ESS sets out three broad strategic objectives for EU policymakers: First, most immediately, the EU should take necessary actions to address a considerable list of global challenges and security threats, including regional conflicts, proliferation of weapons of mass destruction, terrorism, state failure, organized crime, disease, and destabilizing poverty. (The 2008 Report on the Implementation of the European Security Strategy adds piracy, cyber security, energy security, and climate change to the list.) Second, the EU should focus particularly on building regional security in its neighborhood: the Balkans, the Caucasus, the Mediterranean region, and the Middle East. Third, over the longer term, the EU should seek the construction of a rules-based, multilateral world order in which international law, peace, and security are ensured by strong regional and global institutions. In outlining broad approaches to pursuing these objectives, the ESS also captures a number of fundamental philosophical elements. The document asserts that the threats and challenges it describes cannot be adequately addressed by military means alone, but require a mixture of military, political, and economic tools. Conflict prevention and threat prevention lie at the root of the EU's preferred security strategy—the EU therefore ultimately seeks to address the root causes of conflict and instability by strengthening governance and human rights, and by assisting economic development through such means as trade and foreign assistance. Analysts assert that these approaches play to one of the EU's main strengths: a considerable repertoire of civilian, "soft power" tools. Its preference for an international system based on multilateralism also reflects the strengths of the EU. The EU's own internal development in the relations between its member states demonstrates a highly evolved system of multilateral, cooperative policy making. Many assert that this mindset has become ingrained in EU thinking. Although extensive multilateralism suggests a degree of pragmatism and compromise with partners, the EU at the same time seeks to maintain a foreign policy that is distinctly principles-based and normative in its emphasis on democracy and human rights. Building on earlier efforts to coordinate member states' foreign policies, the 1992 Treaty on European Union formally established the EU's Common Foreign and Security Policy. CFSP deals with international issues of a political or diplomatic nature, including issues with a security or military orientation—"high politics." Under the EU treaties, these types of political and security issues remain the prerogative of the member state governments—conceptually, in the case of CFSP, "common" means 27 sovereign governments choosing to work together to the extent that they can reach a consensus on any given policy issue. The EU institutions representing the member state governments—the European Council (the heads of state or government) and the Council of the European Union (also called the Council of Ministers)—play the defining role in formulating CFSP. The European Council is the EU's highest level of political authority. It meets twice every six months (an "EU Summit"), and more often if warranted by exceptional circumstances. It is the responsibility of the European Council to "identify the strategic interests and objectives of the Union" with regard to its external action—the European Council supplies political direction and defines the priorities that shape CFSP. Decisions are made on the basis of consensus. The President of the European Council is tasked with managing its work, facilitating consensus, and helping to ensure policy continuity, while also serving as the group's spokesman. The High Representative also takes part in the work of the European Council and may submit CFSP proposals for consideration. Although the Lisbon Treaty is somewhat ambiguous in the way it assigns representation duties to both positions, the President of the European Council may be considered the voice of CFSP at the heads of state or government level, and the High Representative may be considered the "day-to-day" voice of CFSP at the ministerial level. The President of the European Commission is also a member of the European Council. The Council of Ministers is the other primary forum for developing political consensus and direction, and it is where most of the formal mechanics of CFSP decision making are carried out. The foreign ministers of the 27 member states typically meet once a month (the Foreign Affairs Council configuration of the Council of Ministers). Here again, unanimous agreement among all member states is required to adopt a CFSP decision—any one foreign minister may veto a measure. The Foreign Affairs Council is chaired by the High Representative—as president of the Foreign Affairs Council, she seeks to facilitate consensus among the group. With the support of the European External Action Service, she is then responsible for managing, implementing, and representing CFSP decisions. The High Representative and the Foreign Affairs Council are also supported by the Political and Security Committee (PSC), a Council structure composed of ambassadors from the member states. The PSC monitors and assesses international affairs relevant to CFSP, provides input into CFSP decision making, and monitors the implementation of CFSP. The work of the PSC is closely associated with the High Representative and the EEAS. CFSP is composed of numerous elements. The terminology involved in describing these elements can quickly become confusing because phrases that have a specific meaning in EU parlance overlap with expressions that are also used—and that may have a different meaning—in everyday language. The EU's 1997 Treaty of Amsterdam first identified four main CFSP instruments: Principles and Guidelines , which provide general political direction; Common Strategies , which set out objectives and means; Joint Actions , which address specific situations; and Common Positions , which define an approach to a particular matter. CFSP elements produced before December 2009 are officially referenced under the phrasing of the Treaty of Amsterdam. The Lisbon Treaty reconceptualizes CFSP instruments into four types of Decisions : (1) on the strategic objectives and interests of the EU, (2) on common positions, (3) on joint actions, and (4) on the implementing arrangements for common positions and actions. Elements of CFSP produced after December 2009 are therefore officially termed Decisions . Principles and Guidelines (or Decisions on the strategic objectives and interests of the EU), decided at the highest political level, shape the framework of EU policies and actions. The conclusions and results documents published after a meeting of the European Council or the Foreign Affairs Council are the main ways of promulgating strategic decisions agreed by EU leaders and governments in the area of CFSP. Between such meetings, the High Representative may also simply release a CFSP statement on behalf of the EU that expresses a consensus viewpoint about an international development. The key strategy documents adopted by the European Council in recent years—such as the European Security Strategy itself, the EU Strategy Against Proliferation of Weapons of Mass Destruction (2003), the EU Counterterrorism Strategy (2005), and the EU Internal Security Strategy (2010)—also fall into the category of Principles and Guidelines (or Decisions on the strategic objectives and interests of the EU). These types of high-level political direction may trigger subsequent activity that formalizes the status of agreed concepts or applies them more specifically and concretely. Common Positions and Joint Actions (or Decisions on common positions or joint actions) take political agreement a step further, committing member states to their provisions after formal adoption by the Council of Ministers. Conceptually, these instruments occupy something of a gray zone between legislation and political cooperation. Some observers regard them as binding legal instruments effectively comparable to the rest of EU law. Others, citing the lack of legal enforcement mechanisms and the weakness of EU court jurisdiction in these areas, argue that they are a separate category of instrument apart from the majority of EU law. In any case, member states are bound by treaty to "support the Union's external and security policy actively and unreservedly in a spirit of loyalty and mutual solidarity and shall comply with the Union's action in this area." Common Positions often reiterate the EU's objectives and define a collectively agreed diplomatic approach to a particular region or country. For many observers in the United States, the EU's position on Cuba may be the most widely known act of this type, but the EU has also adopted Common Positions with regard to countries such as Zimbabwe, Belarus, and North Korea. As this abbreviated list suggests, the EU generally uses these types of CFSP Decisions to address a problematic situation, often involving a foreign government that fails to respect principles of human rights, democracy, rule of law, or international law. In addition, rather than dealing with a single country or region, a Common Position might address a cross-cutting topic such as conflict prevention and resolution, nonproliferation and arms control, or terrorism. In relevant cases, sanctions are often included as part of a broader Common Position . As of February 2013, the EU had sanctions in place against governments, organizations, or individuals of 27 countries, plus al-Qaeda and other terrorist groups. Although the EU generally looks to a United Nations Security Council mandate to impart legitimacy for sanctions, in almost all cases the Council of Ministers must adopt a formal instrument for the EU to put sanctions in place. As is the case with EU sanctions on Syria, for example, there may now also be a stand-alone CFSP Decision on "restrictive measures" in some instances. Joint Actions often consist of launching or extending an out-of-area civilian or military operation under the Common Security and Defense Policy (CSDP). (This process and CSDP missions are discussed in greater detail in " The Common Security and Defense Policy " section below.) Past Joint Actions have also included the appointment of EU Special Representatives (EUSRs), senior diplomats assigned to a sensitive country or region in order to give the EU extra political clout. A Joint Action might also provide financial or other support to the activities of an international organization engaged in efforts such as nonproliferation (the International Atomic Energy Agency, for example) or peace building (the Organization for Security and Cooperation in Europe, for example). The EU has created institutional structures and instruments to develop and implement a Common Foreign and Security Policy, and the member states of the EU have integrated their foreign policies to a remarkable degree on many issues. When the EU speaks as one, it can speak with a strong voice. The development of CFSP over the past two decades has allowed the EU to evolve beyond being a merely economic actor, and its role in international politics and security issues has added an important new layer to its identity. At the same time, the main challenge to CFSP continues to be forming and maintaining consensus positions among 27 sovereign countries. To some extent, this challenge may simply be an inherent and intractable condition of the EU. In CFSP, the 27 national capitals still matter greatly. Countries may have different perspectives, preferences, and priorities, or may simply disagree about the best policy course. The bitter divisions within Europe over the 2003 invasion of Iraq remain a striking illustration of this type of divergence, but others may be cited—five EU member countries do not recognize the independence of Kosovo, for example. Consensus can also be a matter of degree, varying in depth from an agreement on general policy parameters and objectives down to specific policy details. Disagreement on one level of policy may not preclude a common approach at another level. With regard to the situation in Syria since 2011, for example, the EU has maintained a clear political approach backed by an extensive and steadily expanding array of sanctions, and by the provision of non-lethal assistance to opposition forces. In 2013, however, member states France and the UK have reportedly pushed for altering the EU arms embargo to allow for the arming of opposition troops but have been unable to achieve consensus in this area given the objections of other member states. Some analysts assert that CFSP lacks comprehensive strategic approaches in key areas. This is also often a function of the need for consensus. The EU is often criticized, for example, for lacking a clearly defined strategic approach to Russia, or to China. Although EU members certainly share many perceptions and objectives with regard to these countries, the nature of such relations is complex, and there is a significant degree of variance. Some EU members weigh trade and commercial concerns differently against concerns such as democracy and human rights. Some view engagement as the best way to encourage desired reforms and behaviors, while others prefer different tactics. Viewpoints fall along a continuum from pragmatism to a stricter pursuit of ideals, and a consistent, comprehensive, and meaningful strategy can often be elusive. Some analysts observe that the absence of an EU strategy in such cases might discourage member states from forming a strong national position—member states may be reluctant to unilaterally get out ahead of the EU and instead wait for a wider consensus to gel. The "EU" at-large—its institutions and its representatives—is generally criticized for these shortcomings, and institutional factors have certainly played some role. Despite the improvements of the Lisbon Treaty, however, the EU can still only provide mechanisms to facilitate consensus when it comes to CFSP. Ultimately, the High Representative works with the mandate provided by the member states: she can encourage consensus, but she cannot force it. CFSP remains a common policy, not a single policy—the EU is not a sovereign state, and its member countries will continue to have their own national foreign ministries and their own national foreign policies. Integration is a process. Regular consultation is designed to achieve a broad foundation of convergence over time, even if there are short-term divergences. Some analysts argue that Europe must continue to strengthen CFSP if it is to remain a relevant player in the world. Although several of the bigger EU countries remain international heavyweights in their own right, analysts assert that, absent their membership in a strong and unified EU, these countries could someday find themselves to be global middleweights with increasingly diminishing influence. By the same token, although smaller member states occasionally fear that their voices are being drowned out within the EU, they are arguably even less likely to be heard from outside the EU. As the institutions introduced by the Lisbon Treaty mature, analysts assert that the EU must now concentrate more than ever on developing and fleshing out the substance of CFSP. One of the top immediate priorities for the High Representative and the EEAS is to work on the development of strategic partnerships with key countries such as the United States, Canada, Japan, China, Russia, India, Brazil, and Mexico. The Common Security and Defense Policy (CSDP) is the operations arm of CFSP. The member countries formally agreed to begin work on an integrated EU security and defense policy in 1999. Despite its military and defense elements, it is important to note that the activities of CSDP are not exclusively military in nature—in fact, in practice, CSDP operations have most often consisted of civilian activities such as police and judicial training ("rule of law") and security sector reform. Nearly 15 years after it was launched, CSDP has become largely oriented toward such activities, as well as peacekeeping, conflict prevention, crisis management, post-conflict stabilization, and humanitarian missions, rather than conventional military combat operations. Nevertheless, European policymakers have sought to establish a more robust CSDP by enhancing and coordinating EU countries' military capabilities. Under CSDP, the EU has set a series of targets for improving capabilities and increasing deployable assets, including plans for a rapid reaction force and multinational "EU Battlegroups." Such forces are not a standing "EU army," but rather a catalogue of troops and assets drawn from existing national forces that member states can make available for EU operations. Some analysts have suggested that pooling assets among several member states and developing national niche capabilities might help remedy European military shortfalls amid tight defense budgets. In 2004, the EU established the European Defense Agency (EDA) to help coordinate defense-industrial and procurement policy in order to stretch European defense spending. An effective CSDP also calls for an autonomous EU capability to conduct external operations. Many European officials stress that CSDP is not intended to rival or compete with NATO, but rather is meant to be a complementary alternative. The Lisbon Treaty confirms the primary role of NATO in its members' mutual defense and reiterates that CSDP does not seek to compromise members' commitments to NATO. The existence of CSDP gives the EU an ability to act in cases where EU intervention may be more appropriate or effective, or in situations where NATO or the United Nations choose not to become involved. Many of the key actors and institutions involved in CSDP are the same as those responsible for the wider CFSP: the European Council and the Council of Ministers play the key roles in strategic guidance and decision making, and the High Representative is pivotal in consensus building and implementation. The PSC plays a major role in exercising political control and strategic direction of CSDP operations. In addition, EU defense ministers occasionally join meetings of the Foreign Affairs Council in order to round out discussions about security and defense issues, and an EU Military Committee (EUMC), composed of the member states' Chiefs of Defense (CHOD) or their military representatives, provides input to the PSC on military matters. A number of specialized support structures have been established to conduct the operational planning and implementation of CSDP: a Crisis Management Planning Directorate (CMPD) to integrate civilian and military strategic planning; a Civilian Planning Conduct Capability (CPCC) office to run civilian missions; a Joint Situation Centre (SitCen) for intelligence analysis and threat assessment; and an EU Military Staff (EUMS) tasked by the EUMC to provide military expertise and advice to the High Representative. These structures were formerly part of the Secretariat of the Council of Ministers—following the enactment of the Lisbon Treaty, they are now part of the External Action Service under the direction of High Representative Ashton. As of February 2013, there are 16 active CSDP missions: 4 military operations and 12 missions of a civilian nature. Four of these active missions, one military and three civilian, have been launched since the summer of 2012; all four new missions are in Africa (Mali, Niger/Sahel, South Sudan, and Horn of Africa). An additional 12 CSDP missions—4 military and 8 civilian—have been concluded in recent years. EU missions are generally undertaken on the basis of a U.N. mandate or with the agreement of the host country. The countries of the former Yugoslavia and the former Soviet Union have been a focal point of EU external activities for several related reasons. First, geographical proximity: following Europe's much criticized failures with regard to the Balkan Wars of the 1990s, European policymakers now feel a responsibility for "taking care of their own backyard." Second, the legacies of history: the EU's efforts to engage with and assist these countries, many of which are current or potential EU membership candidates, are also driven by a sense of historical responsibility and the vision of a European continent that is entirely "whole, free, and at peace." Third, self-interest: instability in this region, including but not limited to concerns such as transnational crime, can threaten to spill over into the EU itself. The European Union Rule of Law Mission in Kosovo (EULEX) is a civilian rule-of-law mission that trains police, judges, customs officials, and civil administrators in Kosovo . EULEX was launched in 2008 and, with some 1,250 staff as of October 2012, is the largest EU civilian operation ever undertaken. The military operation European Union Force (EUFOR) Althea is a peace-enforcement mission in Bosnia-Herzegovina that was launched in December 2004 with an initial troop strength of approximately 7,000. Althea took over responsibility for stabilization in Bosnia-Herzegovina when NATO concluded its Stabilization Force (SFOR) mission there. As of March 2013, Althea's troop strength stands at 600. With no U.S., NATO, or Organization for Security and Co-operation in Europe (OSCE) observer missions operating in Georgia following its 2008 conflict with Russia, the EU Monitoring Mission (EUMM) represents the only official international monitoring presence in the country. EUMM was launched in September 2008, shortly following the conflict. With about 300 staff , EUMM is tasked with monitoring implementation of the ceasefire agreements, promoting stability and normalization, and facilitating communication between all parties on the ground. The EU also conducts a border assistance mission to Ukraine and Moldova (EUBAM), which was launched in 2005. EUBAM's approximately 200 staff provide technical assistance and advice to improve security and customs operations along the Ukraine-Moldova border. The first-ever CSDP mission undertaken by the EU was a civilian police training mission (EUPM) in Bosnia-Herzegovina that was launched in 2003. EUPM concluded at the end of June 2012, with approximately 35 personnel. The EU has concluded three CSDP missions in Macedonia . The EU's first military mission, Concordia, was a military support and peacekeeping operation of approximately 350 staff, conducted in 2003 after the EU took over responsibility from NATO mission Allied Harmony (2001-2003). After the conclusion of Concordia, the EU conducted a civilian police training mission (EUPOL Proxima) in Macedonia from 2003 to 2005, followed by a short police advisory team (EUPAT) operation in 2005-2006. These efforts consisted of about 200 personnel for Proxima and 30 for EUPAT. In 2004-2005, the EU carried out a rule-of-law-mission in Georgia , EUJUST Themis. Initiated at the request of the Georgian government, Themis, which was the EU's first ever CSDP rule-of-law mission, helped Georgian authorities reform the country's criminal legislation and criminal justice process. The EU has been especially active in Africa, conducting 14 CSDP missions on that continent since 2003. Owing largely to humanitarian concerns, geographical proximity and the potential spillover effects of instability, and historical ties rooted in former colonial relationships, Europe maintains a substantial political interest in Africa. This interest has often translated into a perceived responsibility to intervene or assist in problematic situations. These missions often go largely unnoticed in the United States, but some observers note that they have contributed to international security in a number of situations where the United States has not been involved. In February 2013, the EU launched a military training operation in Mali (EUTM Mali), with an initial mandate of 15 months. EUTM Mali was undertaken in the context of a French military operation that began in January 2013 to re-take territory in northern Mali from Islamist rebel groups linked to al-Qaeda. The objective of the EU mission is to train and advise Malian armed forces in order to restore nationwide law and order under constitutional, democratic authorities. Headquartered in the city of Bamako, and with training activities taking place 60 kilometers away in the city of Koulikoro, EUTM Mali is to consist of approximately 200 instructors plus an additional 300 support staff and force protection personnel. Mission personnel are not intended to take part in combat operations. The EU launched a civilian training mission called EUCAP SAHEL Niger in July 2012. With about 50 staff, the mission aims to increase the capacity of the Nigerien police and security forces to combat terrorism and organized crime, with the broader objective of reinforcing political stability, governance, and security in Niger and the Sahel region . The EU also began a civilian mission to strengthen airport security in South Sudan (EUAVSEC South Sudan) in September 2012. EUAVSEC will have up to 64 personnel. European Union Naval Force (EUNAVFOR) Somalia (Operation Atalanta) is a maritime anti-piracy mission off the coast of Somalia that was launched in 2008 and has a force strength of approximately 1,400 as of October 2012. Atalanta is a naval task force typically consisting of four to seven ships and two or three patrol aircraft at a time, with the operation headquarters located at Northwood, United Kingdom. Operation Atalanta is complemented by two additional CSDP missions. In 2010, the EU launched EUTM Somalia, a military training mission for Somali security forces. The mission is based in Uganda and has approximately 125 personnel as of January 2013. In July 2012, the EU launched a new civilian mission (EUCAP NESTOR) that aims to build the maritime capacity of five countries in the region ( Djibouti, Kenya, Seychelles, Somalia, and Tanzania ) and train a Somali coastal police force. Headquartered in Djibouti, the mission consists of about 175 personnel. Two small civilian CSDP missions operate in the Democratic Republic of Congo (DRC) . The EU launched a security sector reform mission (EUSEC RD Congo) in June 2005, which gives advice and assistance regarding army reforms and modernization. As of December 2012, EUSEC RD Congo and EUPOL RD had 48 staff. The EU has also conducted a police training mission in DRC since 2005. The current operation (EUPOL RD Congo) was launched in July 2007 and had 47 staff as of October 2012. The EU has concluded three missions in DRC . Operation Artemis, consisting of approximately 2,000 troops, took place June-September 2003 and sought to stabilize the security situation and improve humanitarian conditions in the Bunia region. EUFOR RD Congo was a military mission conducted in the second half of 2006 to support the United Nations Organization Mission in the DRC (MONUC) in securing the country for elections. The mission consisted of several hundred EU military personnel deployed in Kinshasa, plus a battalion-sized unit on standby in neighboring Gabon, totaling approximately 2,400 troops. EUPOL Kinshasa was a police training mission in DRC from 2005 to 2007. It was concluded in 2007 and replaced by the ongoing EUPOL RD Congo. EUFOR Tschad/RCA was a military mission launched in January 2008 to stabilize the security and humanitarian situation in eastern Chad and northeastern Central African Republic . EUFOR Tschad/RCA was a temporary bridging mission ahead of the deployment of the U.N. Mission in the Central African Republic and Chad (MINURCAT), which assumed responsibility in early 2009. EUFOR Tschad/RCA was the largest CSDP military mission in Africa to date, with approximately 3,700 troops taking part. From 2005 to 2007, the EU conducted a hybrid civilian-military mission in support of the African Union's mission in Sudan/Darfur (AMIS). The AMIS support mission, consisting of several dozen EU personnel, included military observers, equipment, and transportation, as well as military planning, training, and technical assistance. The mission also included civilian police training and assistance. It concluded at the end of 2007 when AMIS transferred responsibility to a new United Nations/African Union combined operation in Darfur (UNAMID). From 2008 to 2010, the EU conducted a small security sector reform mission in Guinea-Bissau (EU SSR Guinea-Bissau). The mission, consisting of eight advisors, helped local authorities reform legal frameworks related to the country's military, police, and justice system. This mission ended unsuccessfully when political developments in Guinea-Bissau ran counter to the EU's reform goals. The EU has launched a number of missions to support its goals of fostering peace and stability in the greater Middle East region. Active CSDP missions in the region involve three cases that demonstrate three different levels of European consensus and involvement: one case (Afghanistan) where European countries are deeply engaged, but mostly through NATO; another case (Israel-Palestinian conflict) where the EU has a far-reaching political consensus that defines a common approach; and a third case (Iraq) where the EU was unable to form a political consensus, but in which it has chosen to engage at a smaller-scale technical level. The EU has a police mission in Afghanistan (EUPOL) that mentors and trains Afghan police. The mission, launched in June 2007, has about 350 staff as of September 2012. EUPOL seeks to coordinate European and international efforts in what is regarded as a key area for Afghanistan's development and self-sufficiency. The EU Police Mission in the Palestinian Territories (EUPOL COPPS) was launched in 2006. This civilian mission, which had about 70 EU staff operating in the West Bank as of July 2012, seeks to improve the law enforcement capacity of the Palestinian civil police force while advising Palestinian authorities on criminal justice and rule-of-law issues. In 2005, the EU launched a small border-assistance mission to monitor the Rafah crossing point between Gaza and Egypt (EUBAM Rafah). That mission has been suspended since the 2007 takeover of Gaza by Hamas and remains on standby pending a formal request by the regional stakeholders to reactivate and redeploy. The EU Integrated Rule of Law Mission for Iraq (EUJUST LEX – Iraq) was launched in 2005. The mission, consisting of about 66 EU staff as of November 2012, trains Iraqi police, prison officials, and judges. In 2005-2006, the EU deployed a civilian monitoring mission to Aceh-Indonesia (AMM). AMM helped monitor implementation of the 2005 peace agreement between the Indonesian government and the Free Aceh Movement, including weapons decommissioning, military and police force relocation, and the human rights situation. AMM began with 80 personnel and was reduced to 35 when the situation stabilized ahead of local elections, at which point the mission was concluded. Perceptions about the results of CSDP thus far are mixed. Many analysts assert that CSDP operations have made a positive, if modest, contribution to international security. There has been a long, slow learning curve in numerous instances, and many of the missions have been relatively small. Many CSDP missions do not receive much attention in Washington, DC, but some observers note that the EU's efforts have contributed to burden sharing and collective security by taking responsibility for matters that might otherwise have fallen to the United Nations, NATO, the United States, or regional institutions. The EU has comparative advantages as an actor in some cases, and it has developed the institutional support structures needed for launching and conducting a wide range of civilian and rule-of-law missions, as well as some types of military missions. The fact that the majority of CSDP operations have been civilian missions reflects what many analysts consider to be the EU's strengths. EU member states' substantial civilian capacities in areas such as rule of law and police training are essential elements in situations where governance development is a key priority. Although the organization and deployment of civilian missions has not always been smooth and ideal, these types of civilian capabilities are very much in demand, and some observers are continually pushing the EU to do more with regard to such missions. As the EU seeks to implement its strategic security vision and take on a more active global role, some analysts view civilian operations involving governance building or crisis management as a logical fit and expect that such missions will be central in defining the future of CSDP. Nearly 15 years after it was launched, however, CSDP has not dramatically increased European military capabilities. Most European militaries face flat or declining national defense budgets, and shortfalls continue to exist in terms of key capabilities such as strategic air- and sealift. Despite notable efforts at force transformation in many countries, a relatively low percentage of European forces are deployable for expeditionary operations. On a more positive note, CSDP military missions have generally achieved their modest goals, and some progress has been made in areas such as the development of the EU Battlegroups. Members of Congress and other U.S. policymakers have long had concerns about European defense budgets and capabilities, on the one hand, and transatlantic cooperation and burden sharing, on the other. Such concerns have been further exacerbated by the impact of the Eurozone crisis, which has caused many countries to adopt austerity programs. A potential theme of continuing interest to the 113 th Congress might be how the economic downturn in Europe, as illustrated in the Eurozone debt crisis and a general trend toward budgetary austerity, could affect the transatlantic partnership with regard to international security and military affairs. Some analysts assert that European countries should consider much bolder defense initiatives. Stretching defense budgets further with combined procurement programs or coordinated investment in research and development remain the consensus starting points, but some analysts have also advocated deeper European defense integration involving pooling and sharing assets or foregoing certain national capabilities in favor of "niche" capability specialization. The Lisbon Treaty establishes the possibility of "permanent structured cooperation," in which subgroups of member states may choose to move ahead on their own in the development of particular defense capabilities. At the same time, national defense is one of the core elements of state sovereignty. Although EU member states view pooling, coordination, and integration as important ways to maximize defense capabilities, national governments can be expected to insist on retaining the decisive role when it comes to controlling their military forces and assets. CSDP also plays into wider assessments about changing European worldviews and threat perceptions. Many Europeans continue to believe that traditional military threats remain a concern that necessitate the maintenance of military power for territorial self-defense or, when necessary, in an out-of-area context. Increasingly, however, many others in Europe do not regard traditional military threats as a primary security concern. Instead, European threat perceptions tend to emphasize the broad threats posed to societies by challenges rooted in economics, demographics, climate, environment, migration, and terrorism. The utility of military force in addressing such threats is limited, and it is therefore accorded a relatively diminished role in the EU's strategic thinking. Instead, the future roles of European militaries might center on stabilization, peacekeeping, and crisis management. As a corollary to U.S. concerns about European defense budgets and capabilities, some U.S. officials and Members of Congress have been concerned that these trends in perception and strategy could be leading Europe to focus disproportionately on soft power, leaving the United States to do the heavy lifting and assume the costs of providing "hard" power. In a climate of budget austerity across much of Europe, arguments about the diminishing role of military power could tie in conveniently with efforts to cut military forces that are deemed too expensive. In any case, like the United States, the EU is seeking to develop new tools and mechanisms, and to find a way to use all of its assets in a coherent and comprehensive manner to address the global challenges it faces. Bolstering CSDP and bringing it together with the rest of the EU's policy tools in a more complementary fashion is a top objective for the EU; facilitating this process was one of the primary purposes of changes introduced by the Lisbon Treaty. In contrast to the intergovernmental nature of CFSP and CSDP, many common external policies are formulated and managed under the EU's supranational "community" process. In areas such as trade, aid, neighborhood policy, and enlargement negotiations—what some observers call the "technical" aspects of external relations—the member states have agreed to pool their sovereignty and decision making at the level of the EU institutions. Accordingly, EU external policies are most integrated and firmly established in these areas. In general, for issues in these areas the member states mandate the European Commission to act as the policy initiator or the lead negotiator with an outside country. External agreements and legislative or funding proposals must be approved by the member states in the Council of Ministers and by the European Parliament. Approved measures are then implemented and managed by the European Commission. The Commission is divided into departments called directorates-general (DG). Each covers a portfolio of issues, and each is headed by a commissioner. The DGs are, in effect, the EU's executive departments and agencies, and the commissioners are comparable to U.S. department secretaries or agency heads. There are four Commission DGs with a distinctly external focus: trade, humanitarian aid, development, and enlargement. Although the work of many other DGs (e.g., energy or transportation) often involves significant external dimensions, these four core areas are considered the external relations family of directorates within the European Commission. The High Representative is responsible for coordinating the external dimensions of the commission's activities—she absorbs the former job of Commissioner for External Relations, and the former DG for External Relations has been folded into the European External Action Service. The High Representative is also responsible for coordinating the Commission's external policies with CFSP and CSDP. The President of the European Commission, José Manuel Barroso, is the highest authority in representing its policies. As with Van Rompuy in the intergovernmental sphere, Barroso may be considered the voice of the EU's "community" policies at the heads of state or government level. As is also the case with regard to CFSP, the High Representative is the key voice of Commission external policies at the ministerial level, although the other commissioners carry comparable weight within their areas of responsibility. The European Commission's directorate-general for trade oversees the development and implementation of a common trade policy for what is the world's largest trade bloc. Even excluding internal trade between the member states, the EU accounted for about one-sixth of global merchandise trade (imports plus exports) in 2011, valued at approximately €3.22 trillion (approximately $4.1 trillion). Considered as a single entity, the EU is the largest trade partner (goods imports plus goods exports) for the United States, China, Russia, Brazil, and India. It is also the largest trade partner for a variety of regional groupings, including the 79 countries of the Africa, Caribbean, and Pacific (ACP) group; the 21 countries of the Asia-Pacific Economic Cooperation (APEC) forum; the 12 members of the Commonwealth of Independent States (CIS); the 10 "Mediterranean Dialogue" countries; the 7 countries of the Western Balkans; and the 6 Gulf Cooperation Council (GCC) countries. The member states and institutions of the EU have agreed to detailed frameworks and sets of principles that affirm humanitarian aid and development assistance as key elements of external policy. The EU is the world's largest aid donor (Commission funds plus bilateral member state contributions), accounting for more than 40% of official global humanitarian assistance and over half of official global development assistance. The European Commission's Humanitarian Aid and Civil Protection directorate-general (DG ECHO) manages the delivery of emergency EU assistance in crisis situations created by armed conflict or natural disaster. The European Commission spends an average of €1 billion (about $1.28 billion) per year through DG ECHO. The initial DG ECHO budget for 2013 is €856 million (approximately $1.1 billion), with more than half programmed for sub-Saharan Africa. The EuropeAid Development and Cooperation directorate-general designs EU development policies and delivers assistance geared toward longer-term issues such as poverty, hunger, health, education, and governance. In 2011, the Commission disbursed about €9.2 billion (approximately $11.8 billion) in official development assistance, with more than 40% of the total going to Africa. The EU and its member states spent a combined €53.5 billion (approximately $68.7 billion) on ODA in 2011. In 2004 and 2007, two historic rounds of enlargement into Central and Eastern Europe increased the size of the EU from 15 to 27 member states. The Commission's directorate-general for enlargement conducts accession negotiations with countries that have applied for EU membership and that meet basic conditions for democracy, human rights, and rule of law. Fulfilling the EU's accession criteria and adopting the massive body of EU law involve a lengthy and demanding reform process with political, legal, and technical requirements covering 35 "chapters" (subjects). Croatia has recently completed the process and is expected to join the EU as its 28 th member country on July 1, 2013. There are currently five official membership candidates: Iceland, Macedonia, Montenegro, Serbia, and Turkey. Three countries—Albania, Bosnia-Herzegovina, and Kosovo—are currently considered potential candidates. In 2004, the EU launched the European Neighborhood Policy (ENP) to develop deeper political and economic ties with neighboring countries not (or not yet) considered potential members. Under ENP, 12 countries of North Africa, the Caucasus, and the Middle East have agreed to bilateral action plans containing targets for political and economic reforms. The program allows the EU to advocate for the adoption of common political and economic values. In return, ENP participants may receive enhanced trade and economic ties with the EU, as well as aid and technical assistance. ENP also encompasses three regional initiatives—the Eastern Partnership, the Union for the Mediterranean, and the Black Sea Synergy—designed to complement the bilateral action plans. Trade, aid and development assistance, the enlargement process, and neighborhood policy are important instruments in the EU's external policy approach. These tools allow the EU to exert influence and promote its values beyond the territory of its member states in the ways many observers say it is most comfortable and adept—by fostering interdependence through deepening economic ties; by seeking to bolster economic conditions and good governance, and linking each to the other; and by encouraging (or, with membership applicants, requiring) the adoption of EU norms and practices with regard to democratic government, laws, and economic policies. Having common policies in these areas allows the EU to exert a collective weight far greater than what any individual member state could muster on its own. Beyond the direct impact of trade and assistance relationships themselves, the EU is a major voice in global trade negotiations and the World Trade Organization (WTO), and a leading player in international aid forums. The enlargement process has demonstrated a substantial transformative power capable of driving far-reaching reforms in countries that aspire to EU membership, and ENP has made modest beginnings in establishing enhanced relations with neighborhood countries. Difficult questions loom over the future of enlargement and the role and effectiveness of neighborhood policy, however. Following the expansion of the EU from 15 to 27 members in 2004 and 2007, many Europeans have described a feeling of "enlargement fatigue" that has sapped enthusiasm for accepting additional members. Nevertheless, the working premise of most observers is that room would probably be made for Iceland if it wants to join, and for the countries of the Western Balkans, as soon as they meet the criteria. Some of those countries could take a decade or more to achieve membership, but this scenario could result in an EU with as many as 35 member countries. Some analysts suggest that this picture could represent an end point for EU enlargement: Turkey's bid faces highly problematic obstacles; countries such as Ukraine, Moldova, and Belarus appear to be remote prospects at this time; and countries such as Norway and Switzerland seem to remain uninterested in joining. Should the enlargement process reach a stopping point, or at least enter a prolonged pause, the EU would likely lose the ability to use the incentive of membership as a key tool for influencing its neighborhood. Some observers view the European Neighborhood Policy as a potential way to exert influence in the EU's "Near Abroad" short of offering the prospect of membership. Although one potential objective of ENP could be to start paving the way for eventual EU membership, another interpretation is that ENP could form the kernel of enhanced relationships—"privileged partnerships"—with neighboring countries that are unlikely to become members anytime soon, if ever. ENP was launched in 2004, making for a short time frame on which to judge it, but results have been modest at best. In view of developments in North Africa and some former Soviet countries over the past several years, some critics have lamented the lack of influence the EU (particularly the Union for the Mediterranean and the Eastern Partnership) has had in these situations. In a reassessment of the ENP instruments, the EU has been seeking to develop a more values-oriented, conditionality-based ENP, with the terms linked more tightly to democratic reforms. Under the theme "money, mobility, markets," the EU has added funds for support to the countries of the so-called "Arab Spring," created new partnerships and initiatives to improve access to the EU for partner countries' citizens, and sought to improve partner countries' access to the EU market, including through the negotiation of Deep and Comprehensive Free Trade Agreements. Although it has no formal role in CFSP decision making, the European Parliament has a degree of influence on EU foreign policy. This influence has increased following the enactment of the Lisbon Treaty. Even before adoption of the Lisbon Treaty, representatives of the Council of Ministers consulted the EP on CFSP issues, paying regular visits to the institution to keep Members of the European Parliament (MEPs) informed of CFSP and CSDP decisions. This exchange continues under the Lisbon Treaty, including by the President of the European Council and the High Representative. The EP also indirectly influences member state debates on CFSP through its own discussions and activities: observers assert that the EP has become an increasingly prominent forum for debate on international issues. The EP may issue resolutions that express its view or urge a course of action on an international issue. In September 2012, the EP issued a resolution containing an extensive overview and assessment of CFSP under the Lisbon Treaty. The EP has a foreign affairs committee that monitors the conduct of EU foreign policy, with two subcommittees (human rights and security and defense). The EP may also set up special committees to investigate specific issues for a limited period of time, such as the 2006 special committee to examine the alleged role of EU member states in hosting reported secret CIA detention facilities and aiding CIA flights related to the rendition of terrorism suspects. The EP has 41 delegations (ranging in size between 20 and 50 MEPs) that maintain parliament-to-parliament contacts and relations with representatives of many countries and regions around the world. For example, the EP has interparliamentary delegations for relations with the United States and the NATO Parliamentary Assembly, as well as with Russia, Iran, Israel, the Palestinian Legislative Council, China, India, and the Korean Peninsula. The EP won significant concessions during the debates over setting up the External Action Service. Due to the EP's role in the oversight and approval of the EU budget, the EP's assent was required regarding the structure, staffing, and budget of the EEAS. The EP won the right to scrutinize the non-military parts of the CFSP/CSDP budget (previously, the particulars of these expenses were exempt from EP oversight). The EP also won the right to hold U.S. Senate-style confirmation hearings for some of the EU ambassadors designated to prominent postings. The EP has a central, formal role in EU "community" decision making. Under the Lisbon Treaty, the number of issue areas in which the EP acts as a co-legislator along with the Council of Ministers has expanded considerably. As a result, the EP must give its consent on all external agreements negotiated by the European Commission. This power includes trade deals (such as the EU-South Korea Free Trade Agreement passed by the EP in February 2011) and agreements such as the U.S.-EU SWIFT agreement on tracking terrorist financing and the U.S-EU airline security agreement on sharing Passenger Name Record (PNR) information. The EP has openly sought to assert itself as a more powerful actor within the EU's "institutional triangle." In cases such as the EU-Korea FTA, SWIFT, and PNR, observers discern a trend in which MEPs seek to convey that the EP's positions must now be taken into account during (and not after) the negotiation of international agreements or the drafting of new legislative proposals. The evolution of EU external policies and capabilities ties into a related discussion about the changing structure and dynamics of transatlantic relations. In Europe, "unfinished business" remains in the Balkans, Caucasus, and former Soviet states, and the United States will continue to cooperate closely with Europe on these issues. Overall, however, many analysts have observed that the focus of U.S. foreign policy has been gravitating increasingly to the Middle East and Asia over the past decade. Indications of a "Pacific pivot" and strategic re-balancing toward East Asia by the Obama Administration have recently attracted attention to this theme. Such trends, some argue, have made Europe in and of itself less of a U.S. foreign policy priority. Instead, the political and security aspects of the transatlantic relationship are now mostly about what Europe and the United States can do together to address global challenges of joint interest and concern. Many of these challenges pertain to new types of threats that have emerged since the end of the Cold War, threats that require new capabilities to address. At the same time, some analysts perceive an increasingly multipolar world order in which countries such as China, India, Brazil, and Russia are moving alongside the United States and Europe as centers of power. Given these trends, U.S. policymakers might ask what kind of an EU they would like to see, and what role they might like to see the EU play in the world. The EU is occasionally viewed as a potential counterweight, but many U.S. policymakers tend to view it more as a counterpart, a partner with whom cooperation might help achieve common ends. Many observers argue that a more united EU capable of acting decisively in world affairs is a better U.S. partner that can help achieve common goals. On the other side of the coin, they assert, a disunited Europe tends to be an ineffective and less relevant actor in dealing with major world issues. Some analysts have suggested that an overdependence on the United States prevents Europe from acting as an equal partner—both sides might be better off with a Europe, speaking and acting as one, that takes a more robust, assertive, and independent approach to international security issues. On the other hand, skeptics question what happens when a united Europe disagrees with the United States. Some such observers prefer to keep U.S. engagement with Europe oriented toward a bilateral, country-by-country basis, arguing that such an approach is a better way to pursue U.S. interests on a range of issues. Such observers also assert that each bilateral relationship remains indispensible, countering suggestions that some national capitals could become increasingly less relevant to the United States if EU policy making continues to shift to Brussels. Discussions about CSDP inevitably raise the issue of EU-NATO relations. Despite the fact that they have 21 member countries in common, NATO and the EU continue to have difficulty establishing a more cooperative and coordinated working relationship. In the past, U.S. officials expressed concern that the development of CSDP and EU defense structures would result in a wasteful duplication of scarce defense resources and lead to the separation of the United States from the European security architecture. While some remain skeptical, CSDP has become increasingly viewed as a helpful means to build European capabilities and permit expanded EU engagement in global challenges. In 2003, the EU and NATO agreed to the "Berlin Plus" arrangement, allowing EU-led military missions access to NATO assets and planning capabilities, and thereby preventing the duplication of resources and structures. The struggle with generating more European defense capabilities has also been playing out in NATO—despite the adoption of an updated Strategic Concept in November 2010, this struggle is a significant part of still ongoing debates about the future role and purpose of the institution. Some analysts assert that NATO and the EU need to work in a more complementary fashion to permit a more efficient and effective overall use of Euro-Atlantic civil and military resources. The NATO Strategic Concept states that "NATO and the EU can and should play complementary and mutually reinforcing roles in supporting international peace and security." The document directs NATO to "fully strengthen the strategic partnership with the EU, in the spirit of full mutual openness, transparency, complementarity and respect for the autonomy and institutional integrity of both organizations" and to "broaden our political consultations to include all issues of common concern, in order to share assessments and perspectives." Disagreements between Turkey (a member of NATO but not the EU) and Cyprus (a member of the EU but not NATO) are often cited as a primary obstacle to deeper cooperation and information sharing. Some observers also point to bureaucratic rivalry and competition between the two institutions, and conflicting views regarding their roles. These blockages have been known for some time, although solutions at the political level continue to remain elusive. Some observers have suggested establishing a division of labor between the "hard" military tasks that lie at the core of NATO and the "soft" peacekeeping and civilian-oriented missions that play to the strengths of the EU, but others decisively reject the idea of such rigid mandates. On the other hand, some observers note that cooperation between the two institutions is already relatively functional at the working level. Setting aside efforts for a grand institutional fix, and assuming the continuation of political circumstances more or less as they stand, many observers have urged the two institutions to identify and leverage mutually beneficial synergies. This push is reflected in the most recent Strategic Concept, which calls on NATO and the EU to "enhance our practical cooperation in operations throughout the crisis spectrum, from coordinated planning to mutual support in the field" and to "cooperate more fully in capability development, to minimise duplication and maximise cost-effectiveness." Together, the EU and NATO represent the institutional toolbox that the Euro-Atlantic nations may draw on to address global challenges. Institutional structures and arrangements are imperfect, but having this toolbox presents the Euro-Atlantic community with options to choose from. The most suitable flag to fly—EU, NATO, or other—depends on an interplay between the capabilities offered by each institution and the political circumstances of a given situation or mission. According to analysts, the security strategy documents released in recent years by the United States, the EU, and NATO, as well as by France, Germany, and the United Kingdom, demonstrate a convergence of perceptions about the international security environment. This trend in the direction of a shared security strategy may present opportunities to recast the dynamics of the U.S.-EU-NATO relationship in ways that enable the Euro-Atlantic partners to better meet the challenges they face. In other words, by bridging the remaining gaps between the institutions' respective worldviews, a shared security strategy might help accelerate the development of complementary military and civilian capabilities that address the evolving set of interrelated external and domestic security threats faced by all EU and NATO member countries. For the time being, NATO remains the center of Euro-Atlantic defense cooperation, especially from the viewpoint of U.S. policymakers. Some analysts argue that the EU must still move ahead and develop its own military headquarters and planning capabilities in order for CSDP to become a more credible and relevant option. (In July 2011, however, the UK definitively blocked a proposal to consolidate the command structure for EU military missions under a single permanent operational headquarters.) Although unlikely in the near term, the development of CSDP into a robust military actor able to conduct high-end combat operations would affect the future of NATO in many ways. Conversely, a stagnant or ineffective CSDP would also have important long-term implications for the transatlantic security relationship. As Members of Congress and the U.S. Administration examine the U.S. role in NATO and U.S. basing arrangements in Europe in the years ahead, broad developments in CSDP might be an area of related interest. For all of the criticisms that may be directed at European foreign and security policy, Europe is likely to remain the United States' closest global partner into the foreseeable future. None of the world's other powers, established or rising, can claim to share Europe's multi-faceted compatibility with the United States, and for many Americans "going it alone" is not an attractive option. In the emerging geopolitical and security environment suggested by current trends, the transatlantic partnership is unlikely to be well served by "muddling through" each problem on a case-by-case basis. Both Americans and Europeans have an interest in establishing a stable and enhanced U.S.-EU-NATO dynamic that is as efficient and effective as possible. U.S. policymakers may not be able to determine the choices made by Europeans, but they can express U.S. preferences in support of solutions for overcoming resource constraints so that strategy and capabilities adequately match threats and challenges. | The United States often looks to Europe as its partner of choice in addressing important global challenges. Given the extent of the transatlantic relationship, congressional foreign policy activities and interests frequently involve Europe. The relationship between the United States and the European Union (EU) has become increasingly significant in recent years, and it is likely to grow even more important. In this context, Members of Congress often have an interest in understanding the complexities of EU policy making, assessing the compatibility and effectiveness of U.S. and EU policy approaches, or exploring the long-term implications of changing transatlantic dynamics. The EU As a Global Actor Seeking to play a more active role in global affairs, the EU has developed a Common Foreign and Security Policy (CFSP) and a Common Security and Defense Policy (CSDP). On many foreign policy and security issues, the 27 EU member states exert a powerful collective influence. On the other hand, some critics assert that on the whole the EU remains an economic power only, and that its foreign and security policies have little global impact. Some of the shortcomings in the EU's external policies stem from the inherent difficulties of reaching a complete consensus among the member state governments. Moreover, past institutional arrangements have often failed to coordinate the EU's full range of resources. Elements of EU External Policy The Common Foreign and Security Policy is based on unanimous consensus among the member states. CFSP is a mechanism for adopting common principles and guidelines on political and security issues, committing to common diplomatic approaches, and undertaking joint actions. Many analysts argue that Europe's relevance in world affairs increasingly depends on its ability to speak and act as one. The EU is currently conducting 16 operations under its Common Security and Defense Policy. To establish a more robust CSDP, EU member states have been exploring ways to increase their military capabilities and promote greater defense integration. These efforts have met with limited success thus far. Civilian missions and capabilities, however, are also central components of CSDP; the majority of CSDP missions have been civilian operations in areas such as police training and rule of law. External policies in technical areas such as trade, humanitarian aid, development assistance, enlargement, and neighborhood policy are formulated and managed through a "community" process at the level of the EU institutions. (The European Neighborhood Policy seeks to deepen the EU's relations with its southern and eastern neighbors while encouraging them to pursue governance and economic reforms.) These are the EU's most deeply integrated external policies. Given events in North Africa, the Middle East, and some of the former Soviet states, EU policymakers have been rethinking how such external policy tools might be used to better effect. The United States, the EU, and NATO Although some observers remain concerned that a strong EU might act as a counterweight to U.S. power, others maintain that an assertive and capable EU is very much in the interest of the United States. The focus of the transatlantic relationship has changed since the end of the Cold War: it is now largely about the United States and Europe working together to manage a range of global problems. According to some experts, U.S.-EU cooperation holds the greatest potential for successfully tackling many of today's emergent threats and concerns. Nevertheless, NATO remains the dominant institutional foundation for transatlantic security affairs. U.S. policymakers have supported efforts to develop EU security policies on the condition that they do not weaken NATO, where the United States has a strong voice on European security issues. Despite their overlapping membership, the EU and NATO have struggled to work out an effective cooperative relationship. Analysts suggest that sorting out the dynamics of the U.S.-EU-NATO relationship to allow for a comprehensive and effective use of Euro-Atlantic resources and capabilities will be a key challenge for U.S. and European policymakers in the years ahead. |
From 1953 to 1975, initiatives to reform Senate Rule XXII at the start of a new Congress were biennial rituals. They were instigated mainly by Senators in each party frustrated by the chamber's inability to enact certain legislation, such as civil rights measures, due to filibusters. The biennial focus on amending Rule XXII at the beginning of a Congress declined somewhat with the revisions made to Rule XXII in 1975—cloture was lowered from two-thirds of the Senators present and voting to three-fifths of the Senators chosen and sworn—and the changes made in 1979 and 1986 involving the length of post-cloture debate. However, senatorial interest in changing Rule XXII at the start of a new Congress—called the "constitutional option" by some—reemerged in the 2000s. At the beginning of the 112 th , 113 th , and 114 th Congresses—in 2011, 2013, and 2015, respectively—a number of reform-minded Senators unsuccessfully urged the Senate to adopt its rules on "opening day" by majority vote (as the House does on its first day) without having to mobilize a supermajority vote. For example, on January 6, 2015, a reform Senator stated: "It has been the tradition at the beginning of many Congresses that a majority of the Senate has asserted its right to adopt or amend the rules. Just as Senators of both parties have done in the past, we do not acquiesce to any provision of Senate rules—adopted by a previous Congress—that would deny the majority that right." Rule XXII mandates that prolonged debate on amendments to Senate rules can be brought to an end by a two-thirds vote of the Senators present and voting. Reform Senators have generally viewed the opening of a new Congress as a special constitutional time that permits the Senate to change its procedures by majority vote unencumbered by chamber rules adopted by a previous Congress. They cite the U.S. Constitution (Article I, Section 5) as their authority: "Each House may determine the Rules of its Proceedings," which implicitly means by majority vote, state the reformers. The two-thirds supermajority vote to invoke cloture on amendments to the chamber's rules effectively prevents the Senate from exercising its constitutional right to "determine the Rules of Its Proceedings." The reformers noted their "Catch-22" dilemma: How can the Senate amend Rule XXII when the practical effect of that rule is to prevent its amendment? Opponents reject the so-called constitutional option. They point out that the Senate has adopted rules, and the Constitution says nothing about the vote required to adopt those rules. They also emphasize that the Senate is a continuing body with continuing rules (the "continuing body" doctrine ). Their argument is essentially that a Senate majority (even a simple majority) can always amend the chamber's rules at any time during the two-year life of a Congress so long as the existing rules are observed, such as Rule XXII. Proponents of reform stress that the Constitution supersedes Senate rules. While they agree that a majority can amend Senate rules at any time, their concern is Rule XXII's two-thirds requirement to bring debate to a close on amendments to the chamber's standing rules. Such a high threshold has been viewed by some as an unconstitutional infringement on the right of a majority to amend Senate rules. To bolster their contention, reformers sometimes cite a 1957 advisory opinion by the President of the Senate, Vice President Richard Nixon. In response to a parliamentary inquiry, Nixon said: Any provision of Senate rules adopted in a previous Congress which has the expressed or practical effect of denying the majority of the Senate in a new Congress the right to adopt the rules under which it desires to proceed is, in the opinion of the Chair, unconstitutional. The Chair emphasizes that this is only his opinion, because under Senate precedents, a question of constitutionality can only be decided by the Senate itself, and not by the Chair. [U]ntil the Senate at the initiation of a new Congress expresses its will otherwise, the rules in effect in the previous Congress in the opinion of the Chair remain in effect, with the exception that the Senate should not be bound by any provision in those previous rules which denies the membership of the Senate the power to exercise its constitutional right to make its own rules. Given what appears to be renewed interest among a number of current lawmakers to amend Senate rules with only majority support at the start of a new Congress, it might be useful to proponents and opponents of this approach to review several considerations that suffused many of the earlier attempts (1953-1975). First a brief summary of ways to alter Senate rules. A conventional way to amend the chamber's rules is to have resolutions altering the standing rules referred to the Committee on Rules and Administration for hearings, markups, and possible floor consideration. Or the Rules and Administration Committee on its own authority could report to the floor legislation that amends the standing rules. Unanimous consent is another way to modify Senate rules. Still another is by statute, enacted pursuant to the chamber's constitutional rule-making authority. The Senate also can establish standing orders that are regulations or directives that are equivalent to a standing rule but are not incorporated into the standing rules. An example of a standing order is to designate the Senate Parliamentarian, upon his or her retirement, as "Senate Parliamentarian Emeritus." In addition, there is the so-called "nuclear option," which is "essentially a variant of the 'constitutional option.' The difference is that this parliamentary maneuver would be applied [during] a congressional session" rather than at the beginning of a new Congress. The term "nuclear" could be applied to both options in this specific sense: the success of either the constitutional or nuclear option might trigger a parliamentary meltdown, an explosion of dilatory and obstructive tactics by Senators who vehemently oppose limitations on their ability to debate at considerable length various measures or matters. The "nuclear option" involves the creation of a new Senate precedent that has the effect of preventing filibusters of specific measures or matters. In general, precedents are established in the following manner: Any ruling by the Chair in response to a point of order made by a Senator is subject to appeal. If no appeal is taken, the ruling of the Chair stands as the judgment of the Senate and becomes a precedent for the guidance of the Senate in the future.... [If there is an appeal, then unless] the Chair is supported by a majority vote of the Senate, the decision of the Chair is overruled. This decision of the Senate becomes a precedent for the Senate to follow in its future procedure until altered or reversed by a subsequent decision of the Chair or by a vote of the Senate. With respect specifically to the nuclear option, "some would hold that what would render proceedings 'nuclear' is not simply that they would establish new precedential interpretations of the rules, but that they would do so through proceedings that ... involve violations of procedural standards previously established and already in effect at the time the Senate is considering the proposed new interpretation." A key feature of precedential change is that the text of a formal rule remains unchanged, such as Rule XXII, but the new precedent effectively alters all or parts of its application and interpretation in chamber proceedings. As former GOP Senator Judd Gregg of New Hampshire emphasized, "In the parliamentary process, precedent is what controls." Attempts to amend Rule XXII involve two fundamental values that are in conflict: the right to debate versus the right to decide. The two can be reframed as minority protection versus majority rule. It can be quite difficult to reach an appropriate balance between these values when the Senate has before it controversial and contentious issues. There are no hard and fast rules regarding the length and thoroughness of debate. Many of today's complex, interconnected, and many-sided issues—cybersecurity, privacy, and so on—typically require extensive debate and involve the jurisdictional interests of several committees. In brief, barring broad consensus among Senators, it is usually difficult to amend Senate rules that affect the chamber's deliberative character. Noteworthy is that even the threat of extended debate—which today might be viewed as a "silent" filibuster—can stall action on various issues. Given a crowded Senate agenda, it may not be practical for majority party leaders to call up measures and spend considerable time (a scarce and precious resource) to try to end an expected talkathon. It is also not easy to determine the goals or motives of a Senator who engages in unending debate: Is it to thwart senatorial action on "bad" ideas, to highlight an urgent national issue, or to encourage the Senate to modify a measure? The point is that it is often difficult to define what constitutes a filibuster. As former Senator Robert C. Byrd, D-WV, the longest serving Senator in history, once said: "I will be able to perceive [a filibuster], because I know one when I see it." If an effort is made at the start of the 115 th Congress (2017-2018) to amend Senate rules by majority vote—the so-called constitutional option—what key concerns might Senators on either side of the issue bear in mind? Earlier attempts to alter Rule XXII suggest several considerations for Senators contemplating use of the constitutional option at the start of a new Congress. They are the support of the presiding officer, which could be the President of the Senate; the assistance of the majority leader; the mobilization of a determined and united majority; skillful use of procedural moves and countermoves; the length of "opening day"; the continuing body doctrine; and procedures to be followed pending approval of new rules. The historical record indicates that rulings from the Chair can either help or hinder the objectives of Senate reformers. In 1957, 1959, and 1961, Senate President Nixon propounded several advisory opinions that benefited the reformer's cause. Nixon said on more than one occasion, as noted earlier, that any Senate rule is not applicable at the start of a Congress if it restricts the constitutional right of a majority of Senators to end debate in order to amend Senate rules. Although Nixon's opinions did not have precedential value, they certainly provided encouragement to and inspired confidence among the reform Senators in what they realized would be an uphill parliamentary struggle. In 1963, by contrast, Democratic Senator Clinton Anderson of New Mexico wanted Vice President Lyndon Johnson to submit the cloture reform motion to the Senate for a vote, but not for debate. That was not to be. Johnson submitted the following question to the Senate: "Does a majority of the Senate have the right under the Constitution to terminate debate at the beginning of a session and proceed to an immediate vote on a rule change notwithstanding the provisions of existing Senate rules?" Johnson's decision assisted the anti-reformers in defeating the Anderson forces. (Constitutional questions, since 1804, are submitted to the Senate for resolution. They are debatable and not decided by presiding officers, unless a presiding officer opts to break this long-standing precedent.) Vice Presidents Hubert Humphrey and Nelson Rockefeller, on the other hand, made official rulings that promoted the preferences of the reformers. Take the 1969 case involving Vice President Humphrey, a strong reform supporter. Strategic pre-planning between the Vice President and the reformers created the parliamentary conditions for changing Rule XXII. Briefly, their opening day strategy, which did not succeed, included the following basic features: Reformers introduced a resolution to reduce the number of Senators required to invoke cloture. A reformer offered a motion to proceed to the resolution. Opponents launched a talkathon against the motion to proceed to the proposed change. Reformers filed cloture on the motion to proceed to the reform resolution. The Vice President ruled that if a majority, but less than the required two-thirds specified in Rule XXII, voted in favor of cloture, that would constitute invoking cloture on the motion to proceed to the reform resolution. Furthermore, once cloture was invoked under these circumstances, an appeal would not be debatable. On a vote of 51 ayes to invoke cloture and 47 nays, cloture was declared to be invoked on the motion to proceed. An anti-reform opponent immediately appealed the ruling of the Vice President on the ground that cloture under Rule XXII requires two-thirds of the Senators present and voting to invoke, not a majority. If the Senate voted down the appeal and sustained the Chair's ruling, this decision would have established a new precedent, permitting a majority to amend Senate rules at the opening of a new Congress. The Vice President's ruling was overturned by the Senate by a vote of 45 yeas to 53 nays. Reformers made no motion to table (kill) the appeal because they knew that the majority leader and minority leader had persuaded six Members to switch their votes from favoring majority cloture to overturning the Chair's ruling. During the lengthy debate in 1975 on amending Rule XXII at the opening of the new 94 th Congress, then Majority Whip Robert Byrd harkened back to the 1969 effort to amend Rule XXII by majority vote. As I have said more than once, at any time a majority of Senators in this body are determined to invoke cloture, if they have the support of the leadership—certainly, if they have the support of the joint leadership—and if they have a friendly presiding officer in the Chair, they can do it. Using the example I cited yesterday in debate, going back to 1969, when a Presiding Officer ruled that at the beginning of a new Congress, a majority of Senators, voting to invoke cloture, could invoke cloture. I wish to say again that in such a situation in the future, if 51 Senators were to vote to uphold the ruling of the Chair, we would have majority cloture. Note that unlike the requirement of a "friendly presiding officer" referenced by Senator Byrd in the above quotation, on November 21, 2013, the presiding officer ruled correctly on a point of order but was then overturned on appeal by the Senate. The November case concerned an historic use of the nuclear option, which is discussed below. The majority leader is in charge of scheduling the business of the Senate and also enjoys priority of recognition from the Chair. As a result, his support of (or opposition to) the reformers' objectives could be determinative of the final outcome. Majority leaders from GOP Senator Robert Taft of Ohio (1953-1955) to Democratic Senator Mike Mansfield of Montana (1961-1977)—were generally helpful in ensuring that reformers had adequate time to make their case for altering Rule XXII. Majority Leader Taft set aside two days for the consideration of Senator Clinton Anderson's proposal to revamp all the Senate's rules by majority vote at the start of a new Congress. Alternatively, Taft might have quickly made a motion to table Anderson's resolution with little or no debate. Instead, he allowed the Senate to consider Anderson's proposal for two days, a time period that was satisfactory to the reformers. Majority Leader Mansfield, who supported certain changes to Rule XXII, provided ample time to debate those proposals. For example, Senator Mansfield made the issue of extended debate the top priority of the Senate, even to the extent of preventing chamber consideration of legislative and executive business. Although Senator Mansfield favored amendments to Rule XXII, he opposed strongly any hint of majority cloture. He also protected the reformers from unknowingly acquiescing to Senate rules from the previous Congress. Regularly, he ensured that "opening day" extended over several days and weeks. Mansfield also adjourned at times, rather than recessed the Senate, to expedite action on reform resolutions required to lay over a legislative day before being eligible for floor consideration. Majority Leader Lyndon Johnson (1955-1961) was not especially sympathetic to changing Rule XXII, either as a Senator or Vice President. However, he did broker in 1959 major changes to Rule XXII. First, cloture could be invoked by two-thirds of those voting, a quorum being present, rather than two-thirds of the entire membership. Cloture could also be filed on a motion to consider a change in the standing rules, which was prohibited in earlier versions of the rule. In addition, a continuity of rules provision was added to Rule V: "The rules of the Senate shall continue from one Congress to the next Congress unless they are changed as provided in these rules." Senator Johnson persuaded traditional opponents of filibuster reform—Southern Democrats and conservative Republicans—that unless they supported these changes, proponents might rewrite Rule XXII in a manner inimical to their political and policy interests, such as allowing majority cloture on civil rights measures. A major factor that influences the fate of filibuster reform proposals, as with other major legislation, is the mobilization of a cohesive and determined majority willing to battle for their procedural aims. As Senator Byrd noted, given friendly rulings from the Chair and the support of the party leaders, a majority of Senators can achieve their goal of amending Senate rules on opening day, or at any time if they are and remain united. Unity is vital because it is the means to achieve the desired end: amending Senate rules on "opening day" by majority vote. Even so, unity can be hard to maintain because many Senators are cross-pressured with respect to debate limitations. Some Senators, even in the majority, want to preserve the filibuster because it enhances their personal power to influence chamber proceedings. Opponents of major changes to Senate Rule XXII seem certain to engage in an array of dilatory practices to block the reformers' plans. For example, they could appeal rulings of the Chair unfavorable to their objectives or object to unanimous consent requests. The aim: to stall action on proposals to amend Senate rules. Protracted floor proceedings might require the constant presence of various reform Senators to defend and protect their goals. Rulings favorable to reform Senators could be affirmed by tabling (killing) opponents' appeals. In today's hyper-partisan and 24/7 media environment, opponents and proponents of amending Rule XXII seem likely to enlist the support of outside groups, think tanks, and other allies to achieve their broad aims: either advancing or blocking filibuster reforms. Most major legislative battles, including Senate rules changes, require a procedural and strategic plan. Among various considerations are the following: Is the presiding officer likely to be someone who favors cloture reform and coordinates with the reformers to ensure that appeals of the Chair's rulings would not be debatable? Who will floor manage the proposal to amend Senate rules on opening day? What is the sentiment of the Senate Parliamentarian? Does the Vice President share the partisan affiliation of the Senate's majority party? What is the Vice President's view of the reformers' objectives? Would he preside on opening day during the reform debate or would he depart soon after he performs various administrative or ceremonial duties, such as administering the oath to newly elected Senators? If the Vice President is absent, what is the view of the President pro tempore on this entire matter? Importantly, how many Senators are expected to support the reform initiative and will they actively participate on the floor to explain and advocate for the proposed reform(s)? Listed below is a selected, brief sketch of several procedural plans employed by reformers during the 1967 to 1975 period. Senator George McGovern 's 1967 Approach. In 1967, citing the Constitution, Senator McGovern introduced his reform resolution, which was filibustered. Later, he offered a compound motion (again citing the Constitution) to close debate by majority vote on the motion to proceed after two hours (equally divided between proponents and opponents), after which the Chair would then place before the Senate, with no further debate, the vote on the motion to proceed to consider his reform resolution. A point of order was raised against McGovern's two-part motion on the grounds that it was out of order. Senator McGovern's motion to table the point of order failed, followed by a successful Senate vote to sustain the point of order. Additional procedural developments occurred, including an unsuccessful attempt by Majority Leader Mansfield to conclude debate on the motion to proceed to McGovern's reform resolution. The Church-Pearson Approach. In 1971, after the fourth failed cloture vote on the Church-Pearson motion to proceed to the filibuster reform resolution, GOP Senator Jacob Javits of New York appealed the Chair's ruling that cloture had failed because it did not attract sufficient votes (though it had attained a majority of 55). His appeal was tabled. Senator Javits also argued that the Chair should have simply declared that debate had gone on long enough and put the question on the procedural motion or on the reform resolution itself without further debate or intervening motions. A majority vote would decide the outcome. The Chair did not act on that "nuclear" suggestion, which would have contravened long-standing Senate precedents. The Approach of Senators Walter Mon dale and James Pearson . In 1975, Senator Pearson offered a compound motion that would (1) end debate on the motion to proceed, and (2) permit a vote, without further debate, on the motion to proceed. A point of order was raised against this procedure. President of the Senate Rockefeller said that, if the point of order was tabled, that would establish the propriety of the motion. The point of order was tabled—a victory for reformers—but the motion was divided and became ensnared in parliamentary maneuvers. Senator Mondale then offered another compound motion designed to force majority action on the motion to proceed to the reform resolution. Points of order were raised against Mondale's motion, but they were tabled, a victory for reformers. However, as personal and procedural tensions escalated in the chamber, the Senate reversed course and, upon reconsideration, sustained a point of order against the compound motion used by the reformers to accomplish their goals. In the end, the Senate adopted changes to Rule XXII acceptable to most Members, including the reform advocates. On November 21, 2013, Majority Leader Reid—asserting that the Senate's constitutional advice and consent responsibility had become "deny and obstruct"—employed a nuclear approach to allow a majority of the Senate to end debate on presidential nominees, except those for the Supreme Court. The procedure employed by Senator Reid could also provide a parliamentary road map for Senators today who support the "first day" approach to changing Senate procedure. A brief word on the background at the time and then the procedural step-by-step used by Senator Reid to effectuate the nuclear option. Support for the nuclear option had been building for months, if not years, among some Senate Democrats. The issue that served as the catalyst for the November action was Senate refusal to confirm within a few weeks' time three judicial nominees to the U.S. Court of Appeals for the District of Columbia. Each nominee failed to win the 60 affirmative votes to end prolonged debate. Lack of success in winning confirmation of the three judicial nominees proved to be the spark that ignited use of the nuclear option. After supporters of each nominee failed to muster the required 60 votes to invoke cloture, Leader Reid would "enter" a motion to reconsider. A motion to reconsider is in order on the day of the vote or the next two session days. Typically, after a vote on a question, a Senator would move to table the motion to reconsider. "Entering" means that Senator Reid did not want an immediate vote on reconsideration. Instead, he would wait for a more favorable time to offer that motion, which was November 21. The nuclear precedent was established in this manner. On October 31, 2013, after the Senate failed to invoke cloture on the nomination of Patricia Millet to serve on the D.C. Circuit Court of Appeals, Senator Reid entered a motion to reconsider that vote. On November 21, 2013, Senator Reid moved to proceed to the "entered" motion to reconsider the vote by which cloture on the Millett nomination was not invoked. The motion to proceed to the "entered" motion to reconsider was adopted by a 57 to 40 vote. The Senate then proceeded to reconsider the failed cloture vote on the Millett nomination. His motion was adopted by a vote of 57 yeas to 43 nays. However, the motion did not receive the 60 votes that would have been required under Rule XXII to invoke cloture. Senator Reid then raised a point of order that a vote on cloture under Rule XXII for all nominations, except for Supreme Court nominees, is a majority vote. (Notice the sweep of Senator Reid's point of order: it covered all executive and judicial nominees except those for the Supreme Court.) The President pro tempore, Senator Patrick Leahy of Vermont, overruled Senator Reid's point of order, pursuant to existing rules and precedents. Senator Reid immediately appealed Leahy's ruling. The Chair put the appeal to a vote without debate. The appeal was treated as non-debatable due to its connection to a non-debatable question (cloture). The Chair was overruled by a vote of 48 yeas to 52 nays. As the President pro tempore stated: "The decision of the Chair is not sustained." This vote established a new majority cloture precedent for most presidential nominees. Senate Minority Leader McConnell quickly tested the viability of the new precedent. He raised a point of order that nominees are fully debatable under Senate rules unless 60 votes are obtained to invoke cloture. "Therefore, I appeal the ruling of the Chair." "The Chair has not yet ruled," said Senator Leahy. He added, however, that "under the precedent set by the Senate today, November 21, 2013, the threshold for cloture on nominations, not including the Supreme Court, is now a majority. That is the ruling of the Chair." Senator McConnell appealed the ruling of the Chair. On this vote, the Chair's ruling was upheld by a vote of 52 yeas to 48 nays. The Chair immediately presented to the Senate the pending cloture motion to end debate on the Millett nomination. Cloture was invoked by a vote of 55 yeas to 43 nays, short of the 60 previously required but sufficient for "majority cloture" under the new precedent. A number of formal rules and precedents could be invoked when Senators try to call up a reform resolution on "opening day." Prior practice during the 1953 to 1975 period indicates that seven observations merit mention about procedural rules and practices that might be triggered during the first day period. Whether the referenced rules would be observed is uncertain because the Senate might set them aside by unanimous consent. The first procedure to take cognizance of is Rule V. It requires a Senator who offers an amendment to the standing rules to first provide one calendar day's written notice "specifying precisely the rule or part" to be amended "and the purpose thereof." Second, a Member who introduces the reform resolution on opening day usually asks that it be read, and then requests unanimous consent for its immediate consideration. Another Senator would likely object, perhaps citing Rule V's written notice requirement. Absent unanimous consent, the reform resolution would then be assigned to a special section of the Senate's Calendar of Business entitled "Resolutions and Motions, under the Rule." The reform resolution is referred to this section under the terms of Rule XIV: "When objection is heard to immediate consideration of a resolution or motion when submitted, it shall be placed here [the appropriate section of the Calendar ], to be laid before the Senate, on the next legislative day, for consideration, unless by unanimous consent the Senate shall direct otherwise." If a Senator did not take these steps, any submitted resolution would be referred to the Committee on Rules and Administration. Third, notice the inclusion of "legislative day" in Rule XIV. Senate rules and precedents distinguish between a "calendar day" and a "legislative day." A calendar day is the commonly understood 24-hour period of time. A "legislative day" refers to the period when the Senate convenes after an adjournment and ends when it next adjourns. For example, if the Senate adjourns on July 10 but then recesses at the end of each session day until July 24, the legislative day still remains July 10. However, as soon as the Senate adjourns, the calendar day and the legislative day become the same. Whether the Senate recesses or adjourns at the end of a session day is the prerogative of the majority. Thus, the majority could prevent a reform resolution from being called up for chamber consideration by recessing, rather than adjourning, the Senate for many days, weeks, or months. Fourth, a reform resolution, having met the "written notice" and "legislative day" requirements, would be presented to the Senate by the Chair at the beginning of the new legislative day. The first two hours (incongruously called the "morning hour") is a period where routine "morning business" is transacted, such as the introduction of bills and joint resolutions. Simple resolutions coming over from the previous day may also be called up for consideration during the morning hour period, but only after, under Rule VII, the disposal of all other routine business. If consideration of the reform resolution is not concluded within the "morning hour" period, it would be returned to the Calendar of Business unless the Senate agreed to a unanimous consent request to continue debate or a Senator offered a debatable motion to proceed to consider the reform resolution. Lastly, history demonstrates that proposed amendments to Rule XXII can give rise to complex procedural hardball tactics by both proponents and opponents. However, it can also be the case that the formal rules are ignored or waived and informal understandings and unanimous consent requests shape the deliberations surrounding attempts to amend Rule XXII. As Nevada Senator Harry Reid, the Democratic leader, observed: "[W]e as a body can do anything we want to do. That is the way the Senate operates. We have the ability to change the rules in a [matter] of minutes and move on to change what is before this body." Senators who oppose amendments to Rule XXII understand that reformers should have fair and reasonable opportunity to make their case for change because pro-revision advocates have the procedural means to raise the issue frequently and to frustrate chamber action on many other measures or matters. There is no consensus on the length of "opening day" reform proceedings. Days, weeks, and several months have not been uncommon. (Recall that by recessing rather than adjourning, the majority leader can extend "opening day" for many weeks. ) Opponents of reform often made critical comments about the length of opening day, and reminded the anti-filibuster Senators that Senate rules could be changed at any time during a legislative session. From the reformers' perspective, "opening day" was viewed as their best opportunity to avoid the supermajority hurdles of Rule XXII. They cite the Constitution and House practice to support their position. Regularly, change-oriented Members commonly sought assurances from the Chair that the conduct of other Senate business would not constitute their acquiescence to Senate rules from the previous Congress. A basic goal of the reformers was to establish the principle that at the start of each new Congress the Senate could adopt its own rules by majority vote, unfettered by entrenched rules of prior Congresses, such as Rule XXII. This doctrine suffused every attempt at Senate rules reform at the start of a new Congress. Each side made reasoned arguments during debate. The Senate is a continuous body in some respects—two-thirds of the Members carry over, more than the majority quorum under the Constitution required to conduct official business; impeachments carry over from one Congress to the next; treaties remain before the Senate from one Congress to the next; simple and concurrent resolutions bind the Senate from one Congress to the next; and Senate committees remain constituted from the previous Congress minus Members who were not reelected. Senate Rule V, not to mention the long-standing tradition since the Second Congress, stipulates that the chamber's rules continue from Congress to Congress unless changed according to Senate rules. Reform Senators contend that just because two-thirds of the Senate carry over and constitute an official quorum does not mean that a new Senate cannot alter the standing rules by majority vote. The Senate is also a discontinuous institution. For example, all measures die at the end of a Congress. As a reform Senator stated about the doctrine, "So whether one holds to the view that the Senate is a continuing body or does not hold to that view, that question is not involved in the question of whether we have a right to change the rules" at the start of a Congress by majority vote. Senate rules that thwart this possibility are contrary to the Constitution. In rebuttal, opponents argue that such a precedent would grant sweeping authority to a mere transient majority, a circumstance that would be contrary to the traditions and rules of the Senate. This topic concerned which of many parliamentary manuals would govern Senate procedures pending approval of new Senate rules? Supporters of change largely contended that the Senate would observe existing Senate rules with revisions targeted only at provisions that inhibit majority rule. Reformers pointed out that the House has no difficulty in adopting new rules at the start of every new Congress, following so-called "general parliamentary law," and that the Senate is surely as competent as the other chamber. (General parliamentary law refers to "that body of precedent which traditionally serves as guidance for proceedings pending the adoption of formal rules." ) GOP Senator Strom Thurmond of South Carolina, an opponent of reform, identified nine parliamentary manuals ( Robert's Rules of Order , for example) as possibilities. "The Senate could easily spend several months debating and deciding on temporary rules. After that would come the more difficult and more time consuming task of debating and agreeing on each of the permanent rules." Several reform Senators disputed the views of Senator Thurmond. "Over in the other body of Congress," remarked GOP Senator Jacob Javits of New York, "this whole job [of amending and adopting the rule book] was done in 3 minutes. The House does it every 2 years.... They have made it work for decades." Democratic Senator Hubert Humphrey of Minnesota pointed out that reasonable Senators "know that most of the rules would be reenacted time after time, as is the case in the House of Representatives." Legislating in the contemporary Senate can be a difficult enterprise. The chamber's rules and precedents grant significant procedural powers to each Senator regardless of party, geography, ideology, or seniority. In the Senate, the policymaking advantage usually goes to those who wish to delay or obstruct legislative action. History demonstrates that senatorial delay can be a virtue as the Senate can block or "cool" hastily conceived measures that emanate from the House of Representatives, the White House, or from other quarters. The Senate, in short, is an institution largely structured to promote deliberation—both to educate and persuade as well as to induce gridlock—and to protect minorities from majorities willing to steamroll measures or matters quickly through the Senate. A Senator or group of Senators can also use the possibility of a filibuster to extract important information from a reluctant executive branch agency or department. The daily life of today's Senate is often replete with filibusters, threats of extended debate, and cloture votes. As one Senator explained: You have to think of the Senate as if it were 100 different nations and each one had the atomic bomb and at any moment any one of you could blow up the place. So that no matter how long you've been here or how short you've been here, you always know you have the capacity to go to the leader and threaten to blow up the entire institution. And, naturally, he'll deal with you. Understandably, Senators have struggled for decades over when or whether Senate rules, procedures, or traditions require change. The procedural quandary is that most Senators value the benefits to them as individuals provided by unlimited debate (or the threat thereof). Yet the Senate has often reformed and revised its rules and procedures in big and little ways. Consider the filibuster and Rule XXII, and how each has changed over time. For example, as a former Senate parliamentarian noted, "For nearly 50 years after its adoption [in 1917], Rule XXII served a purpose more symbolic than real. From 1917 to 1927, cloture was voted on 10 times but it was adopted only four times. From 1931 to 1964, cloture was successful only twice." Today, filibusters, filibuster threats, and cloture votes are commonplace and employed on major and minor issues—with cloture votes often occurring multiple times on the same measure or nomination—and throughout various policymaking stages. Moreover, it is largely the case that the contemporary Senate has morphed into a 60-vote institution—the new normal for approving measures or matters—a fundamental transformation from earlier eras. Rule XXII is the focus of so much attention because it is the only formal rule to limit debate in the Senate. Debates surrounding amendments to Rule XXII focus on such matters as protecting minority rights, the uniqueness of the Senate compared to the other body, or who is advantaged or disadvantaged from proposed amendments to Rule XXII. Typically, revisions to Rule XXII occur when several conditions are met, such as a determined and unified majority long frustrated in achieving their goals by today's 60-vote hurdle required for cloture; a leader or set of leaders who craft a successful procedural and political strategy for achieving change, including persuading colleagues that their loss of some personal power will be more than offset by the Senate's enhanced ability to govern; and a public relations, or messaging, strategy that explains the necessity of the change and to rebut criticisms from those who might oppose the revision, whether colleagues, pundits, journalists, or outside groups. Other political and procedural forces are also relevant, such as the election of change-oriented lawmakers or crises of one sort or another (e.g., the sinking of U.S. merchant ships by German submarines that led to the 1917 adoption of Rule XXII). That the Senate undergoes change constantly is a given. It responds to events, issues, and crises in different ways and speeds. The election of new Members every two years brings to the Senate additional energy, issues, and ideas. Procedural change, whether formal or informal, is commonplace. Yet a basic philosophical conflict suffuses many reform initiatives: preserving the Senate's important functions and traditions—for example, cooling popular passions with due deliberation—while enhancing its policymaking performance, oversight capacity, and longer-term focus. As Senator Robert Byrd explained to a class of newly elected Members, the Senate's "purpose was and is to examine, consider, protect, and to be a totally independent source of wisdom and judgment on the actions of the lower house and the executive. As such, the Senate is the central pillar of our Constitutional system." A final observation: It is understandable that there are many difficulties in managing the contemporary Senate where bipartisanship, collegiality, and compromise are sometimes in short supply. One consequence is that the Senate has evolved from an institution where the filibuster (or its threat) was an infrequent occurrence, to be used on significant matters only, to a new institutional reality where 60 votes are required to approve scores of measures and matters, major or minor. History suggests that this development would change when the sentiments and votes of enough Senators are favorable to another approach, perhaps encouraged by politically active constituents and outside groups and organizations. Meanwhile, the many demographic, geographical, and ideological differences in the nation mean that determination, patience, and sheer hard work are fundamental to negotiating, reconciling, and resolving partisan, policy, and procedural disagreements among Senators and between the two parties. Illinois Senator Everett McKinley Dirksen, a renowned Republican minority leader (1959-1969), made an apt comment about the art of governance in the mid-1960s that also applies to today's Senate: "There are 100 diverse personalities in the U.S. Senate. O Great God, what an amazing and dissonant 100 personalities they are! What an amazing thing it is to harmonize them. What a job it is." | From 1953 to 1975, proposals to reform Rule XXII at the start of a new Congress were biennial rituals. They were instigated by Senators in each party frustrated by the chamber's inability to enact social and civil rights legislation because of the opposition of other Members. The biennial focus declined somewhat when the Senate in 1975 amended Rule XXII to reduce the number of Senators required to invoke cloture from two-thirds of the Senators present and voting to three-fifths of the Senators chosen and sworn (60 of 100). In 1979 and 1986, the Senate also amended Rule XXII by reducing the length of time for post-cloture debate. However, senatorial interest in revising Rule XXII on "opening day" reemerged in the 2000s. At the start of three recent Congresses—in 2011, 2013, and 2015—a number of reform-minded Senators unsuccessfully urged the Senate (as the House does on its first day) to adopt its rules by majority vote without having to muster a supermajority vote. Rule XXII mandates that prolonged debate on amendments to Senate rules can be brought to an end by a two-thirds vote of the Senators present and voting—67 of 100 Members if all Senators vote, a likely outcome on an issue that affects the institution's long-standing deliberative character. Reform-minded Senators have generally viewed the opening of a new Congress as a special constitutional time that permits the Senate to amend its procedures by majority vote unencumbered by chamber rules adopted by a previous Congress. They cite the U.S. Constitution (Article I, Section 5) as their authority: "Each House may determine the Rules of its Proceedings," which implicitly means by majority vote, state the reformers. Opponents reject this assertion and point out that the Senate has adopted rules, and the Constitution says nothing about the vote required to adopt those rules. Moreover, the Senate is a continuing body with continuing rules. This report's prime purpose is to discuss seven considerations that Senators on either side of the issue might bear in mind if an effort is made at the start of the 115th Congress (2017-2018) to amend Senate rules by majority vote. Seven specific considerations are discussed: the role of the presiding officer, who could be the President of the Senate; the assistance of the majority leader; the mobilization of a determined and united majority; skillful use of procedural moves and countermoves; the length of "opening day"; the continuing body doctrine; and procedures to be followed pending approval of new rules. The report concludes with several observations about legislating in the Senate. |
Disaster-damaged roads and public transportation systems are eligible for federal assistance under two U.S. Department of Transportation (DOT) programs, the Emergency Relief (ER) Program administered by the Federal Highway Administration (FHWA) and the Public Transportation ER Program administered by the Federal Transit Administration (FTA). The two programs have different histories and legal and regulatory authorities, but they share a similar intent and face some of the same issues. For example, there are concerns with both programs about the extent to which federally funded activities should go beyond restoring infrastructure to predisaster conditions, including so-called resilience projects. This report begins by discussing FHWA assistance for the repair and reconstruction of highways and bridges damaged by disasters (such as the 2017 Hurricanes Harvey, Irma, and Maria) or catastrophic failures (such as the collapse of the Skagit River Bridge in Washington State in 2013). This includes information on the use of ER funds on disaster-damaged federally owned public-use roadways, such as National Park Service roads and U.S. Forest Service roads, under an affiliated program, the Emergency Relief for Federally Owned Roads Program. This is followed by a discussion of FTA's assistance program, established in 2012, which has provided assistance to public transportation systems on two occasions, once after Hurricane Sandy in 2012 and again after the 2017 hurricanes. For over 80 years, federal aid has been available for the emergency repair and restoration of disaster-damaged roads. The first legislation authorizing such use of federal funds was the Hayden-Cartwright Act of 1934 (48 Stat. 993). This act, however, provided no separate funds, and states subject to disasters had to divert their regularly apportioned federal highway funds from other uses to repairing disaster-damaged roads. The Federal-Aid Highway and Highway Revenue Act of 1956 (70 Stat. 374 and 70 Stat. 387) was the first act that authorized separate funds for the ER program. From 1956 through 1978, funding for the program was drawn 40% from the Treasury's general fund revenues and 60% from the Highway Trust Fund (HTF). The HTF is supported primarily by taxes paid by highway users, mainly on gasoline and diesel fuel. Starting in 1979, the ER program was funded 100% from the HTF. In 1998 Congress made the annual $100 million HTF authorization permanent. However, beginning in 2005, while Congress continued the $100 million permanent authorization from the HTF, it authorized supplemental appropriations from the general fund. On December 4, 2015, the ER program was reauthorized through FY2020 in the Fixing America's Surface Transportation Act (FAST Act; P.L. 114-94 ). ER funds may be used for the repair and reconstruction of federal-aid highways and roads on federally owned lands that have suffered serious damage as a result of either (1) a natural disaster over a wide area, such as a flood, hurricane, tidal wave, earthquake, tornado, severe storm, or landslide; or (2) a catastrophic failure from any external cause (for example, the collapse of a bridge that is struck by a barge). Historically, however, the vast majority of ER funds have gone for repair and reconstruction following natural disasters. As is true with most other FHWA programs, the ER program is administered through state departments of transportation in close coordination with FHWA's division offices in each state. The decision to seek financial assistance under the program is made by state departments of transportation, not by the federal government. Local officials who wish to seek ER funding must do so through their state departments of transportation; they do not deal directly with FHWA. As state departments of transportation normally deal with FHWA division office staff on many matters, they typically have working relationships that facilitate a quick coordinated response to disasters. For roads and bridges on federally owned lands, ER assistance is managed via a related program, called Emergency Relief for Federally Owned Roads. This program addresses disaster damage to facilities such as National Park Service roads, U.S. Forest Service roads, and tribal transportation facilities. FHWA dispenses these funds through the various federal land management agencies, not the states. Aid is restricted to facilities that are open to the general public for use with a standard passenger vehicle. FHWA pays 100% of the cost of approved repairs, but the program is designed to pay for unusually heavy expenses and to supplement the agencies' repair programs, not to cover all repair costs. Tribal, state, and other government entities that have the authority to repair or reconstruct eligible facilities must apply through a federal land management agency. The program is managed by FHWA's Office of Federal Lands Highways. The ER program has a permanent annual authorization of $100 million in contract authority to be derived from the HTF. These funds are not subject to the annual obligation limitation placed on most highway funding by appropriators, which generally means the entire $100 million is available each year, although the funding could be subject to sequester. Because the costs of road repair and reconstruction following disasters typically exceed the $100 million annual authorization, the FAST Act authorizes the appropriation of additional funds on a "such sums as may be necessary" basis, generally accomplished in either annual or emergency supplemental appropriations legislation. For a listing of ER appropriations since 1998, see the Appendix . These funds are available until expended. As is true with other FHWA programs, ER is a reimbursable program. A state receives payment only after making repairs and submitting vouchers to FHWA for reimbursement of the federal share. However, once the state's eligibility for ER funds has been confirmed by FHWA, it can incur obligations knowing that it will receive reimbursement. The ER funding structure of having a modest annual authorization supplemented by appropriations addressed the fact that small disaster events occur every year but large disasters do not. However, the $100 million annual authorization has not changed since 1972. To equal the current purchasing power of $100 million in FY1972 would require an authorization in the neighborhood of $500 million to $600 million. Because the value of the $100 million permanent authorization has diminished over time, the program has become increasingly dependent on supplemental appropriations. Over the last 10 fiscal years, $7.3 billion in supplemental appropriations have been provided in six appropriations acts. Roughly 12% of the total amount made available was provided by the permanent annual authorization; the other 88% was provided in appropriations acts. Consequently, an issue for Congress in the upcoming reauthorization of the FAST Act, which expires in FY2020, is whether to raise the permanent annual authorization to account for its loss of value since 1972 or to continue to rely heavily on supplemental appropriations to fund emergency repairs to highways. Emergency repairs to restore essential travel, minimize the extent of damage, or protect remaining facilities, if accomplished within 180 days after the disaster, may be reimbursed with a 100% federal share. Permanent repair projects, such as rebuilding a bridge or a segment of damaged road, are reimbursed at the same federal share that would normally apply to the federal-aid highway facility. For Interstate System highways the federal share would be 90%, and for most other highways, including Federal Lands Access Program facilities, the share would be 80%. If the total expenses a state incurs to deal with disaster-damaged roads in a fiscal year exceed the state's total federal-aid highway formula funds for that year, the share becomes "up to 90%" for any federal-aid road. The requirement that the state provide a share of the funding for permanent repairs applies whether or not the repairs are completed during the first 180 days after the disaster. Congress has on occasion authorized FHWA to pay 100% of ER program expenses for repair and reconstruction projects related to particular disasters. Legislation for that purpose was enacted following the 2005 Gulf Coast hurricanes and the collapse of the I-35W Bridge in Minneapolis in 2007. More recently, a provision in the Bipartisan Budget Act of 2018 ( P.L. 115-123 ) provided for a 100% federal share for damage caused by Hurricanes Irma and Maria in Puerto Rico in 2017. The ER program divides all repair work into two categories: emergency repairs and permanent repairs. Only repairs on federal-aid highways or federally owned roads and bridges that have suffered damage during a declared disaster or catastrophic failure are eligible for ER assistance. The intent of ER assistance is to restore highway facilities to conditions comparable to those before the disaster, not to increase capacity or fix non-disaster-related deficiencies. However, current law broadly defines "comparable facility" as one that "meets the current geometric and construction standards required for the types and volume of traffic that the facility will carry over its design life." Thus, for example, ER funds could be used to rebuild an older disaster-damaged road or bridge that had narrow lanes with wider lanes that meet current FHWA guidelines. FHWA's ER handbook also directs that "design and construction of repairs should consider the long-term resilience of the facility." FHWA defines resilience as the "capability to anticipate, prepare for, respond to, and recover from significant multi-hazard threats with minimum damage to social well-being, the economy, and the environment." In regard to bridges, ER funds are not to be used if the construction phase of a replacement structure has already been included in the state's approved transportation improvement program at the time of the disaster or if the bridge had been permanently closed to vehicular traffic prior to the disaster. Contracts supported by ER funding must meet all conditions required by 23 C.F.R. Part 633A, which regulates highway contracts involving federal funding. All contractors receiving ER funds must pay prevailing wages as required under the Davis-Bacon Act. ER-funded contracts must abide by Disadvantaged Business Enterprises requirements, Americans With Disability Act requirements, "Buy America" regulations, and prohibitions against the use of convict labor (23 U.S.C. §114). Repair projects funded under the ER program are subject to the requirements of the National Environmental Policy Act (NEPA) of 1969. The impact, however, is generally limited because work funded by the ER program generally must occur within the federal-aid highway right-of-way. This means that emergency repairs are normally classified as categorical exclusions under 23 C.F.R. Section 771.117 (c)(9), as are projects to permanently restore an existing facility "in kind" to its predisaster condition. "Betterments" (e.g., added protective features, added lanes, added access control) may, in some cases, require NEPA review. States must apply and provide a comprehensive list of all eligible project sites and repair costs within two years of the disaster or catastrophic event. State and local transportation agencies can begin emergency repairs during or immediately following a disaster to meet the program goals to "restore essential traffic, to minimize the extent of damage, or to protect the remaining facilities." Prior approval from FHWA is not required. Once the FHWA division administrator finds that the disaster work is eligible, properly documented costs can be reimbursed retrospectively. To be eligible for a 100% federal share, emergency repair work must be completed within 180 days of the disaster, although FHWA may extend this time period if there is a delay in access to the damaged areas, for example due to flooding. Examples of emergency repairs are regrading roads, removal of landslides, construction of temporary road detours, erection of temporary detour bridges, and use of ferries as an interim substitute for highway or bridge service. Debris removal is generally the responsibility of the Federal Emergency Management Agency (FEMA). Debris removal from tribal transportation facilities, federal land transportation facilities, and on other federally owned roads open to public travel is eligible for funding under the Emergency Relief for Federally Owned Roads program. The emergency repair provisions in the ER program are designed to permit work to start immediately, ahead of a finding of eligibility and programming of a project. In some instances, state departments of transportation have been able to let initial ER-funded contracts on the day of a disaster event. Permanent repairs go beyond the restoration of essential traffic and are intended to restore damaged bridges and roads to conditions and capabilities comparable to those before the event. Generally, where the damaged parts of the road can be repaired without replacement or reconstruction, this is done. Current law includes a limitation that the total cost of an ER project cannot exceed the cost of repair or reconstruction of a comparable facility. ER funds may be used for temporary or permanent repair of a repairable bridge or tunnel. If a bridge is destroyed or repair is not feasible, then ER funds may participate in building a new, comparable bridge to current design standards and to accommodate traffic volume projected over its design life. In some cases betterments may be eligible, but they must be shown to be economically justified based on a cost/benefit analysis of the future savings in recurring repair costs. Permanent repair and reconstruction contracts not classified as emergency repairs must meet competitive bidding requirements. A number of techniques are available to accelerate projects, including design-build contracting, abbreviated plans, shortened advertisement periods for bids, and cost-plus-time (A+B) bidding that includes monetary incentive/disincentive clauses designed to encourage contractors to complete projects ahead of time. For example, the contract for the replacement of the I-35W Bridge in Minneapolis, which collapsed in August 2007, used incentives for early completion. The new bridge was built in 11 months and was completed three months ahead of schedule. Because the program is funded primarily through supplemental appropriations the amounts available for distribution can vary greatly from year to year. The amount available at any one time, however, is limited. FHWA manages the distribution of these limited funds through a process of allocations and withdrawals as well as procedures to manage funding shortfalls. There are two processes used to apply for ER funds following a disaster: quick release and the standard method. Allocations for quick-release funding often occur individually, whereas standard allocations are periodically distributed to all eligible states nationwide at one time. The FHWA Emergency Relief Manual describes the "quick release" method for developing and processing a state request for ER funding as a method that provides limited, initial ER funds for large disasters quickly. Quick Release applications are processed based on preliminary assessment of damage and a damage survey typically does not accompany the application. Quick release funds are intended as a "down payment" to immediately provide funds for emergency operations until the standard application may be submitted and approved. A total of $140 million of quick-release funding has been allocated for road damage from Hurricanes Harvey, Irma, and Maria,; see Table 1 . Other examples of quick-release allocations include the $1 million Wisconsin received on July 2, 2018; the $2 million Michigan received on July 3, 2018; and the $3 million Kentucky received, on July 16, 2018, all for repairs to flood-damaged roads. FHWA holds some funding in reserve to assure that there will always be funds available for quick-release needs. The amount reserved is at the discretion of the FHWA Administrator with the concurrence of the Secretary of Transportation. The standard application method is more deliberate, requiring site inspections and a damage survey summary report be submitted to the division office. This process is mostly used for permanent repairs. The standard allocations address both recent and backlogged project needs from past disasters. Money is usually allocated twice each fiscal year. In FY2018, FHWA released two nationwide allocations of ER funds totaling $1.35 billion, in addition to $226 million for disaster-damaged roads on federal lands. Allocations to repair damage from the 2017 hurricanes appear in Table 1 . In the wake of the 2017 hurricanes, the Bipartisan Budget Act of 2018 provided a supplemental appropriation of $1.4 billion for the ER program. The language providing additional appropriations did not specify which disasters the funds were to be used for. The act did include a special provision raising the federal share to 100% for ER funds made available to Puerto Rico to respond to damage cause by Hurricanes Irma and Maria. Table 1 presents the allocations of ER funding attributable to these disaster events through June 8, 2018. Once funding is allocated for a disaster event, FHWA can enter into project agreements and incur obligations (which legally commit the federal government to pay the federal share). If funds are unavailable, the request is added to a list of nationwide unfunded requests. Typically, requests for allocations exceed the available ER funding. For example, as of August 12, 2018, FHWA had an unallocated balance of $831 million available to respond to unfunded requests of $2.5 billion. Because FHWA may not commit to funding beyond its authorized and appropriated amounts, FHWA adjusts the distribution of funds to stay within the program's means. When the unallocated balance is insufficient to cover the reserved quick release funds and the upcoming biannual nationwide distribution, the distributions are provided on a proportional basis. Each state's allocation would be computed based on a ratio of total available funding to total needs. FHWA cannot make the allocations whole unless Congress makes additional ER funding available. FHWA also has the option of skipping or delaying a standard nationwide distribution, allowing time for its funds to be replenished via the annual $100 million authorization or further supplemental appropriations. During a funding shortfall, ER projects can be funded using a state's regular formula funds under the Federal-Aid Highway Program. That funding would then be reimbursed when and if ER funds become available. This, however, could lead to delays in the funding of other planned projects as the state awaits reimbursement from ER funds. FHWA reviews the unobligated and unexpended balances of funds that have been allocated on a monthly basis and coordinates the withdrawal of excess ER funds. Withdrawn funds are then available for reallocation. The agency also tracks recovery of insurance proceeds every six months. These proceeds are then available for allocation. Government Accountability Office (GAO) reports in 2007 and 2011 expressed concern about the financial sustainability of the ER program. Both reports found that the scope of the ER program had expanded beyond its original goal of restoring damaged facilities to predisaster conditions, described as "mission creep." The reports also raised questions about FHWA's ability to recapture unused funds that it had allocated to states. More recently, a 2012 GAO report found that FHWA officials in some states were reluctant to recoup funds from inactive ER highway projects over concerns about "harming their partnership with the state." In addition, "FHWA has shown a lack of independence in decisions, putting its partners' interests above federal interests," GAO said. A broader issue, which may influence the states' reluctance to agree with the withdrawal of unused allocations, is the "available until expended" nature of the ER funding. Federal-Aid Highway formula funds are generally available for obligation for only four years. This difference could encourage some states to commit their limited matching state funds to non-ER projects first for fear of having their Federal-Aid Highway funding expire. For states with constrained transportation budgets, delaying ER-funded projects could make sense from a budgetary perspective. Congress could consider placing a time limit on the availability of ER funds for obligation to encourage states to prioritize the obligation of funds to ER projects. Since the release of the reports, legal and procedural changes have mitigated some of GAO's concerns. FHWA has updated the Emergency Relief Manual to clarify eligibility and procedural issues. States' applications for ER funding must now include a comprehensive list of all eligible project sites and repair costs by not later than two years after the event. The definition of "comparable facility" has broadened and clarified the non-betterment repairs that are eligible for ER funding. In 2016, FHWA issued an order, "Emergency Relief Program Responsibilities," providing procedures for administration of the ER program, to further "strengthen the administration and oversight of the ER program to ensure the effective use of limited ER funding for eligible projects." The effectiveness of these changes could be of congressional oversight interest. The resilience of U.S. highway infrastructure has been a growing issue both within the context of broad concerns about the impacts of climate change as well as regional concerns such as fears of an earthquake generating a tsunami in the Cascadia subduction zone, off the Pacific Northwest coast. The existing ER program is primarily a reactive program. Resilience measures on damaged facilities are eligible for ER funding if they are consistent with current standards and are not considered betterments or intended to save the program money in the long run. The ER Manual states that "while ER funds are primarily provided for repair activities following a disaster; design and construction of repairs should consider the long term resilience of the facility." The current program does not allow expenditure of emergency relief funds to improve the resilience of facilities not damaged by a natural disaster or catastrophic event. States may, however, also use their regularly apportioned federal-aid highway funds for resilience projects on undamaged facilities or to upgrade projects that do not meet the ER program economic justification criteria. If it wished, Congress could also encourage attention to surface transportation infrastructure resilience in a number of ways, including the following: Retaining the current programmatic structure, but broadening "betterment" eligibilities to allow for more funding for resilience measures than allowed under current law, perhaps by considering benefits other than direct savings to the ER program. Congress could provide additional funds through the appropriations process to facilitate increased resilience measures following disasters. Expanding the resilience mission and funding of the two existing ER programs. The mission could, for example, be expanded to more fully cover climate change risk to undamaged surface transportation infrastructure. The additional amounts could be made available in annual or supplemental appropriations bills as needed. This could, however, increase demands for ER funds and again raise concerns about "mission creep." Creating a stand-alone program dedicated to preventive retrofitting or rebuilding of at-risk road and transit infrastructure. The program could be authorized permanently or as part of the normal surface transportation authorization of funds from the HTF. This could, however, widen the existing gap between HTF revenues and outlays. Encouraging the states to use their federal formula funds for resilience efforts by providing an increased federal share for resilience projects. In January 2018, the Department of Transportation Office of Inspector General (IG) released a review of FHWA's "guidance and processes for incorporating resilience improvement into emergency relief projects to rebuild damaged highway infrastructure." The report found that FHWA's ER program guidance did not define "resilience improvement" or inform states how to incorporate resilience improvements into ER-funded projects. The report also found that FHWA had no process to track efforts by state transportation departments to include resilience improvements in their ER-funded projects. The IG recommended that FHWA 1. revise the ER Manual to include a definition of "resilience improvement" and to identify procedures states should use to incorporate resilience into ER projects; 2. develop best practices for improving the resilience of ER projects and share them with the Division Offices and the state departments of transportation; and 3. develop and implement a process to track the consideration of resilience improvements for ER projects and their costs. FHWA concurred with recommendations 1 and 2. With respect to recommendation 3, FHWA agreed to track the consideration of resilience improvements but argued against a requirement that resilience costs be tracked, given that such improvements might be incorporated as part of a project's design and construction standards, making resilience improvement costs hard to separate out. Implementation of the recommendations could be of oversight interest to Congress. The Public Transportation Emergency Relief Program (49 U.S.C. §5324; 49 C.F.R. §602), established in Section 20017 of the Moving Ahead for Progress in the 21 st Century (MAP-21; P.L. 112-141 ), is administered by the Federal Transit Administration (FTA) and is similar in intent to FHWA's ER program. FTA's program provides federal funding on a reimbursement basis to states, territories, local government authorities, Indian tribes, and public transportation agencies for damage to public transportation facilities or operations as a result of a natural disaster or other emergency and to protect assets from future damage. In the past, funding for these purposes was provided by FEMA or through appropriations administered by FTA following a specific disaster. For example, in response to the September 11, 2001, terrorist attacks, which caused severe damage to rapid transit lines in New York City, about $4.7 billion was provided in emergency supplemental appropriations for transit, some of which was administered by FTA. The Public Transportation ER program provides federal support for both capital and operating expenses. Capital expenses include projects for repairing and replacing transit facilities that have been damaged, as well as projects to protect facilities from future damage, known as resilience projects. Sometimes a capital project can involve both damage restoration and resilience elements. Operating expenses include evacuation activities, rescue operations, and temporary transit service before, during, or after an emergency event. Operating costs are eligible for reimbursement for one year beginning on the date a disaster is declared, although the Secretary of Transportation may extend that period to two years after determining a compelling need. Unlike the FHWA's ER program, FTA's ER program does not have a permanent annual authorization. All funds are authorized on a "such sums as necessary" basis and require an appropriation from the Treasury's general fund. The federal share for most capital and operating projects under the program is 80%, but the Secretary of Transportation may increase this share up to 100%. Emergency funding will not be provided when project costs are reimbursed by another federal agency, such as FEMA, have been funded through insurance proceeds, or are already funded in an existing FTA grant. Since its enactment in 2012, there have been two appropriations to the Public Transportation ER program. Funds were appropriated as part of the Disaster Relief Appropriations Act ( P.L. 113-2 ) in January 2013 in response to Hurricane Sandy, which struck the United States in October 2012. Funds were also appropriated as part of the Bipartisan Budget Act of 2018 ( P.L. 115-123 ) in response to Hurricane Harvey, which struck the United States in August 2017, and Hurricanes Irma and Maria, which struck the United States in September 2017. Hurricane Sandy affected 12 states and the District of Columbia; New York and New Jersey, states with some of the largest public transportation systems in the country, were the hardest hit. The Disaster Relief Appropriations Act of 2013 provided $10.9 billion for FTA's Public Transportation ER Program for recovery, relief, and resilience projects and activities in areas impacted by Hurricane Sandy. Approximately $10.4 billion remained available after sequestration under the Budget Control Act of 2011 ( P.L. 112-25 ), and $185 million was transferred from FTA to the Federal Railroad Administration. FTA allocated the remaining approximately $10.2 billion according to several funding categories: $5.2 billion for response, recovery, and rebuilding costs incurred by affected agencies; $1.3 billion for locally prioritized resilience projects at designated transportation agencies in the New York metropolitan area; $3.6 billion for competitive resilience projects that will protect or otherwise increase the resilience of public transportation equipment and facilities to future hurricanes and storms in the areas affected by Hurricane Sandy; and $76 million for oversight and administration. According to FTA, approximately $7.1 billion of the Hurricane Sandy funding had been obligated by March 31, 2018. Congress appropriated $330 million for FTA's Public Transportation ER Program in response to Hurricanes Harvey, Irma, and Maria on February 9, 2018. Damage to transit systems associated with Hurricane Harvey was concentrated in Texas, particularly flooding in Houston, and the damage associated with Hurricane Irma was concentrated in Puerto Rico and Florida. Hurricane Maria's effects on transit systems were concentrated in Puerto Rico. On May 31, 2018, FTA announced its allocation of these funds by purpose and location ( Table 2 ) . Because the Public Transportation ER program does not have a permanent annual authorization, FTA cannot provide funding immediately after a disaster or emergency. Transit agencies, therefore, typically rely on FEMA for funding their immediate needs. GAO observes that this could make it more difficult for some transit agencies to respond immediately after a disaster, and that the reliance on FEMA can cause transit agencies to be confused about which agency to approach for help if FTA funds do later become available. An existing memorandum of understanding between FEMA and FTA seeks to coordinate their roles and responsibilities, but FTA cannot define its role with certainty ahead of an appropriation. Consequently, as GAO has noted, "FTA and FEMA will have to determine their specific roles and responsibilities on a per-incident basis." Adding a quick-release mechanism to FTA's ER program, similar to that in FHWA's ER program, would allow FTA funds to be approved and distributed within a few days of a disaster. FHWA's ER program has an annual authorization of funds from the HTF, and FTA's program could similarly be authorized an amount from the mass transit account of the fund. Such an authorization, however, would place a new claim on resources of the HTF, adding to the current gap between revenues and outlays. GAO has observed that FTA's ER program has fewer limits and more flexibility than the emergency relief programs administered by FEMA and, to some extent, FHWA. The FTA's ER program, for example, does not have a limit on the amount that can be spent on resilience projects, and it also allows damaged assets to be replaced with those that are improved or upgraded. As FTA notes, "it may not always be feasible or advisable to replace damaged assets with identical facilities, vehicles, or equipment. As a result, projects to repair, replace, or reconstruct assets may include improvements and upgrades as necessary to meet current safety and design standards." Although there may be advantages to including upgrades and resilience with Public Transportation ER funds, including these elements requires Congress to appropriate larger amounts than might otherwise be necessary. It could also be a way for transit agencies to fund betterments and new facilities that have little direct connection to the goals of repairing damages and making the transit systems resilient to future storm events. GAO found that some Hurricane Sandy funding awards were for projects that were probably outside the scope of the program. Consequently, GAO recommended a better alignment of program purposes with project evaluation and selection, and an examination of funded projects for duplication with other efforts to improve resilience. | The U.S. Department of Transportation (DOT) provides federal assistance for disaster-damaged roads and public transportation systems through two programs: the Emergency Relief Program (ER) administered by the Federal Highway Administration (FHWA) and the Public Transportation Emergency Relief Program administered by the Federal Transit Administration (FTA). These programs are funded mainly by appropriations that have varied considerably from year to year. Over time the amounts are substantial. Since 2012, the Highway ER Program has received $5.4 billion; FTA's ER program has received $10.7 billion, all but $330 million of which was in response to Hurricane Sandy. Roads and bridges that are federal-aid highways or are public-use roads on federal lands are eligible for assistance under FHWA's ER Program. Following natural disasters (such as Hurricanes Harvey, Irma, and Maria in 2017, which damaged highways in Florida, Texas, Puerto Rico, and the U.S. Virgin Islands), or catastrophic failures (such as the 2013 collapse of the Skagit River Bridge in Washington State), ER funds are made available for both emergency repairs and restoration of eligible facilities to conditions comparable to those before the disaster. Although emergency relief for highways is a federal program, the decision to seek ER funding is made by a state government or by a federal land management agency. Local governments are not eligible to apply. The program is funded by a permanent annual authorization of $100 million from the Highway Trust Fund (HTF) along with general fund appropriations provided by Congress on a "such sums as necessary" basis. Appropriated ER funds have averaged roughly $730 million annually since FY2009. FHWA pays 100% of the cost of emergency repairs done to minimize the extent of damage, to protect remaining facilities, and to restore essential traffic during or immediately after a disaster. Emergency repairs must be completed within 180 days of the disaster event. Permanent repairs go beyond the restoration of essential traffic and are intended to restore damaged bridges and roads to conditions and capabilities comparable to those before the event. The federal share for permanent repairs is generally 80% for non-Interstate roads and 90% for Interstate Highways. All ER funding is distributed through state departments of transportation or federal land management agencies such as the National Park Service. Certain "quick release" funds are allocated to help with initial emergency repair costs and may be released prior to completion of detailed damage inspections and cost estimates. Other allocations to the states follow a more deliberate process of completing detailed damage reports, developing cost estimates, and processing competitive bids. Unlike the long-standing ER program in highways, the Public Transportation ER Program dates to 2012. The Public Transportation ER program provides federal funding on a reimbursement basis to public transportation agencies, states, and other government authorities for damage to public transportation facilities or operations as a result of a natural disaster or other emergency and to protect assets from future damage. The Public Transportation ER program provides federal support for both capital and operating expenses. Unlike the FHWA's ER program, FTA's ER program does not have a permanent annual authorization. All funds are authorized on a "such sums as necessary" basis and are available only pursuant to an appropriation from the general fund of the U.S. Treasury. In the absence of an appropriation, transit agencies must rely on funds from the Federal Emergency Management Agency (FEMA). Since its creation in 2012, there have been two appropriations to the Public Transportation ER program. More than $10 billion was appropriated in 2013 to respond to Hurricane Sandy and $330 million was appropriated in 2018 to respond to Hurricanes Harvey, Irma, and Maria. Two recurring issues drawing congressional attention are funding levels and funding of activities that go beyond restoring transportation facilities to predisaster conditions, such as making damaged highways more resilient to natural disasters. FTA's ER program has fewer limits and more flexibility than the emergency relief programs administered by FEMA and FHWA; thus it too faces questions about expenditures that go beyond repairing damage from a disaster. The lack of a permanent annual authorization for FTA means FTA cannot provide funding immediately after a disaster or emergency, and transit agencies must rely on FEMA for a quick response. |
Child welfare programs are intended to prevent child abuse and neglect, and to protect and improve the lives of children who have experienced maltreatment. As the U.S. Constitution has been interpreted, states exercise the greatest responsibility for administering these services. At the same time, the federal government plays a significant role in shaping these services by providing funding for services and by linking those federal funds to certain requirements. For FY2007, Congress provided more than $7.6 billion in funding dedicated to child welfare purposes and the bulk of this federal child welfare funding (98% or $6.5 billion of the funds made available for FY2007) was provided for state child welfare agencies. These funds are distributed based on the amount of eligible foster care or adoption assistance claims submitted by states (under Title IV-E of the Social Security Act), or via statutory formula for child welfare-related activities, including screening and investigation of child abuse and neglect reports; family support, preservation, and reunification services; adoption promotion and support services; and independent living services and other support for current and former foster care youths. (A portion of the funds are also made available to the highest court in each state to fund improvements in the handling of child welfare-related court proceedings.) Child welfare funds distributed to all states are administered by the Children's Bureau, within the Administration for Children and Families (ACF) of the Department of Health and Human Services (HHS). In addition to providing non-federal matching funds, states must meet a set of program requirements in order to receive these federal child welfare dollars. Viewed together, these statutory program requirements comprise federal child welfare policy, and are the fundamental basis on which state compliance with federal child welfare requirements rests. State compliance with the majority of these requirements is checked as part of the Child and Family Services Review (CFSR), which was designed by HHS to meet the conformity review requirements mandated by Congress in 1994 ( P.L. 103-432 , as enacted at Section 1123A of the Social Security Act). The 109 th Congress enacted six bills that amended federal child welfare policies included in Title IV-B or Title IV-E of the Social Security Act. Most of these included changes to state plan requirements. The amendments made by these bills are briefly discussed below. (The bills are listed in order of their enactment.) As enacted, this bill ( S. 1894 , P.L. 109-113 ) permits states to claim Title IV-E foster care support on behalf of otherwise eligible foster children whose foster care maintenance payments are provided to foster parents or institutional foster care providers via a for-profit foster care placement agency. Prior law stipulated that if a state sought to claim federal Title IV-E support on behalf of a foster child, the child's maintenance payments could only be made by a public or non-profit agency. This omnibus budget reconciliation measure ( S. 1932 , P.L. 109-171 ) includes changes intended to clarify which children are eligible for federal foster care and adoption assistance support. It also places certain limitations on the ability of states to make claims for federal reimbursement of the costs of administering the foster care program (including limits on the length of time a child may be considered a "candidate" for foster care and new rules or restrictions on administrative claims related to foster children placed in unlicensed relative homes or other settings that are "ineligible" under Title IV-E). Separately, the legislation raised the mandatory funding authorization for the Promoting Safe and Stable Families program (Title IV-B, Subpart 2 of the Social Security Act), and authorized two new grants intended to improve court handling of child welfare proceedings and appropriated $100 million ($20 million in each of FY2006-FY2010) for those grants. This bill ( H.R. 5403 , P.L. 109-239 ) amended Title IV-B and Title IV-E to encourage the expedited placement of foster children into safe and permanent homes across state lines. The law establishes a federal 60-day deadline for completing an interstate home study (necessary to determine the suitability and safety of the home) and a 14-day deadline for a state that requests this interstate home study to act on the information in the study. (For any home study begun before October 1, 2008, states may have up to 75 days to complete the study if they can document certain circumstances beyond their control that prevented a study's completion in 60 days.) The new law also authorizes $10 million in each of FY2007-FY2010, for incentive payments (valued at $1,500 each) to states for every interstate home study that is completed in 30 days. (As of August 2007, no funds have yet been appropriated for these payments.) Further, the law prohibits states from restricting the ability of a state agency to contract with a private agency to conduct interstate home studies, and for children who will not be reunited with their parents, it encourages (or in some cases requires) identification and consideration of both in-state and out-of-state placement options as part of currently required case review and planning activities for children in foster care. Separately, the bill requires courts (as a condition of receiving certain funding intended to improve their handling of child welfare proceedings) to notify any foster parent, pre-adoptive parent, or relative caregiver of a foster child of any proceedings to be held regarding the child, and emphasizes the right of these individuals to be heard at permanency planning proceedings. Finally, it would require that youth leaving foster care custody because they have reached the age of majority must be given a free copy of their health and education record. This omnibus bill ( H.R. 4472 , P.L. 109-248 ) establishes additional federal requirements related to criminal background checks of prospective foster and adoptive parents and also requires states to check child abuse and neglect registries for information about prospective foster or adoptive parents. The criminal records checks must include a check of national crime databases (i.e., an FBI check), and must be done before the placement of any foster child can be finally approved with prospective foster or adoptive parents. Under prior law, the kind of criminal record check (for example, state vs. FBI vs. local) was not specified, and the federal requirement for these checks extended only to children for whom a state intended to make federal Title IV-E foster care or adoption assistance claims. As was true with prior law, if a criminal record check reveals certain felony convictions of a prospective foster or adoptive parent, a state may not claim Title IV-E foster care or adoption assistance for a foster child placed in his or her home. However, this does not prohibit the state from placing a foster child in this same home if the state does not make Title IV-E claims on the child's behalf. For most states, these criminal record check requirements became effective with the first day of FY2007. However, prior law allowed states to "opt out" of the federal criminal records check procedures, and P.L. 109-248 permits those "opt out states" to have until the first day of FY2009 to come into compliance with the new requirements. As of July 2006, HHS reported that there were eight opt-out states: Idaho, Oklahoma, Oregon, California, New York, Massachusetts, Ohio, and Arizona. Many child abuse and neglect cases are not the subject of criminal court proceedings, and information on these cases does not appear in a criminal records check. As of the first day of FY2007, P.L. 109-248 requires all states to check any child abuse and neglect registry they maintain for information about a prospective foster or adoptive parent (and any adult living in their household). The check must be made before approving placement of a foster child in the home (and without regard to whether the state plans to claim Title IV-E support for the child). States must also request (and all states must comply with) information from any other state's child abuse and neglect registry where the prospective foster or adoptive parent, or other adult, has lived in the past five years. There are no federal stipulations about how states must use the information from these registries. Finally, P.L. 109-248 requires HHS, in consultation with the Justice Department, to create a national registry of substantiated cases of child abuse or neglect. Information in this national registry is to be accessible only to public entities (or agencies of those public entities) that needs the information "to carry out its responsibilities under law to protect children from child abuse and neglect." Separately, the law requires HHS to "conduct a study on the feasibility of establishing data collection standards for a national child abuse and neglect registry" and to make recommendations and findings on the costs and benefits of such data collection standards; data collection standards currently employed by states, tribes or other political subdivisions; and data collection standards that should be considered to establish a model of promising practices. The law authorized $500,000 in appropriations to carry out the study. (As of August 2007, no funds have been specifically appropriated for this purpose.) A report of this study is to be submitted to Congress by the end of July 2007. This bill ( S. 3525 , P.L. 109-288 ) extends, through FY2011, annual funding authorization of $545 million for the Promoting Safe and Stable Families Program (Title IV-B, Subpart 2). For each of FY2006-FY2011 it provides that no less than $40 million of those funds are to be used for two purposes: to support monthly caseworker visits and to improve outcomes for children affected by methamphetamine or other substance abuse. Further the new law requires states to report on their actual use of funds under Title IV-B of the Social Security Act, increases the funding set-aside from the Safe and Stable Families program for tribal child and family services, and allows access to these funds for more tribes. Separately, the bill amended the Child Welfare Services program (Title IV-B, Subpart 1 of the Social Security Act) to re-organize and update its provisions and to limit funding authorization for the program to FY2007-FY2011. Beginning with FY2008 the law limits the use of program funds for administrative purposes and also provides new restriction on the amount of these program funds that states may use for foster care maintenance payments, adoption assistance payments, or child care. Among several new state plan requirements for this program, P.L. 109-288 requires states to establish standards for the content and frequency of caseworker visits of children in foster care (providing that within a specified time frame 90% of children in foster care must be visited at least monthly and that most of these visits must occur in the place where the child lives). Additionally states are required to have procedures to respond to and maintain child welfare services in the wake of a disaster and must also describe in their state plan how they consult with medical professionals to assess the health of and provide medical treatment to children in foster care. P.L. 109-288 also extended the authorization for five years (FY2007-FY2011) of the Mentoring Children of Prisoners program and includes authority for a project to demonstrate the effectiveness of vouchers as a method of delivering these services. Further it extends for the same five years grants to eligible state highest courts to assess and improve their handling of child welfare proceedings (under the Court Improvement Program). This omnibus ( H.R. 6111 , P.L. 109-432 ) makes several changes related to new provisions enacted in the Deficit Reduction Act of 2005 ( P.L. 109-171 ) and which are related to foster care and Medicaid. Section 6036 of P.L. 109-171 generally prohibited a state from receiving federal Medicaid reimbursement for individuals who do not provide satisfactory documentary evidence of citizenship or nationality. Section 405(c) of P.L. 109-432 specifically exempts foster children (both Title IV-E eligible and those who are not eligible) from the Medicaid documentation requirement. This change is made effective as if it was included in the Deficit Reduction Act ( P.L. 109-171 ) which was enacted in February 2006. P.L. 109-432 also amended Title IV-E to require states to have in effect procedures for verifying the citizenship or immigration status of each child in foster care (whether or not the state claims Title IV-E support for the child). Finally, P.L. 109-432 also amended Section 1123A of the Social Security Act to specifically require that state compliance with this new federal requirement be checked as part of periodic conformity reviews (e.g. the Child and Family Services Review). These changes are to be effective as of June 20, 2007 (6 months after the enactment of P.L. 109-432 ). State plan requirements generally apply to the state, or the state administering/supervising agency, and usually are contained in the statute as a list of items that must be included in the state's program plan. The plan requirements vary a great deal in their scope and kind and are difficult to categorize consistently. In this report they are grouped within a specific program (or section of the law) and by a rough kind/subject division. This division is somewhat arbitrary and not a part of federal statute. However, it is used in this report as a way to group basic concerns of federal child welfare policy and to better understand what is required of states. The kind/subject divisions used are: Planning Services: Administration, Organization and Coordination ârequirements that direct how the state must administer, coordinate, or organize the program (e.g., what state agency must administer the program, and with what other programs it must be coordinated). Data Collection and Reportingâ requirements specifying the nature of data to be collected and/or reported to the federal government, and those related to cooperation with program evaluations or audits. Ensuring Safe and Appropriate Placement Optionsâ requirements designed to ensure diversity of prospective foster and adoptive parents, prohibit discrimination in placements, allow for cross-jurisdictional placements and otherwise serve to ensure safe and appropriate placements for children. Child Protections, Services, and Programs to Be Provided ârequirements that specify treatment of each child, and services and programs to be provided. This report lists state eligibility requirements for federally funded child welfare programs within these kind/subject divisions. Three of these programs are authorized under the Child Abuse Prevention and Treatment Act (CAPTA): Basic State Grants, Community-Based Grants for the Prevention of Child Abuse and Neglect, and Children's Justice Act Grants. The remaining programs are a part of the Social Security Act: Child Welfare Services, the Promoting Safe and Stable Families Program, Foster Care and Adoption Assistance, the John Chafee Foster Care Independence Program, and Education and Training Vouchers (for youth who age out of or are expected to age out of foster care). Some of the state plan elements are simply given in the statute as requirements for the state to meet (e.g., describe services to be offered); others ask that the state assure or provide the Governor's certification that it is meeting a certain requirement (e.g., federal funds are not used to supplant existing non-federal funds for services with purpose similar to the federal program). This report does not distinguish between these different forms of requirement. Federal funds for child welfare programs under the Social Security Act and for CAPTA's Basic State Grants and Community-Based Grants for the Prevention of Child Abuse and Neglect are administered by the Children's Bureau within the U.S. Department of Health and Human Services (HHS). The Children's Bureau at HHS also awards CAPTA's Children Justice Act grants but does so in consultation with the Department of Justice. Tables 1 , 2 , and 3 list elements required of states seeking Basic State Grants, Children's Justice Act Grants, or Community-Based Grants for the Prevention of Child Abuse and Neglect under CAPTA. Tables 4, 5, 6 , and 7 contain state plan requirements for child welfare programs authorized under the Social Security Act. Finally, Table 8 contains definitions critical to understanding state plan requirements for child welfare programs under the Social Security Act. For instance, a state is required to have a "case plan" for each child and to operate a "case review system." These and other related terms are given detailed definition in the law. Terms appearing in boldface in Tables 4, 5, 6 and 7 are defined by the statute and the term, and its definition, are included in Table 8 . The information included in this report is intended as an accessible reference guide to state requirements, rather than a legal interpretation of those requirements. Requirements are believed to be current through changes made by the 109 th Congress. Table 1 lists state plan requirements to receive CAPTA's Basic State Grants. Section 106 of CAPTA provides grants to states for improvements to public child protective services. Funding is authorized on a discretionary basis. No matching funds are required. FY2007 funding: $27 million . Table 2 lists requirements related to Children's Justice Act Grants. The program authority for these grants is included in Section 107 of CAPTA, however funding for the grants is made available via a set-aside from the Crime Victims' Fund. Grants are made to help states (and tribes) improve the handling, investigation and prosecution of child abuse and neglect casesâparticularly those involving child sexual abuse and exploitationâand to improve the handling of cases of suspected child maltreatment related deaths, and, finally, (as added by P.L. 108-36 ) to improve handling of those cases involving children with disabilities or serious health-related problems who are victims of child maltreatment. No matching funds required. FY2007 funding: $20 million . Table 3 shows requirements related to CAPTA's Community-Based Grants for the Prevention of Child Abuse and Neglect. Title II of CAPTA authorizes grants (1) to support community-based efforts aimed at the prevention of child abuse and neglect, including support of networks of coordinated resources and activities that strengthen and support families; and (2) to foster an understanding and knowledge of diverse populations to be effective in preventing and treating child abuse and neglect. States must designate a lead entity to administer this money (which may or may not be a public agency) by making grants to community-based programs. Funding is authorized on a discretionary basis and a state must match at least 20% of the federal allotment under this program with non-federal dollars. The size of a state's program allotment is determined, in part, by the amount of non-federal funds obtained (leveraged) for these purposes by the lead entity. FY2007 funding: $42 million . Table 4 lists requirements related to funding of Child Welfare Services authorized under Title IV-B, Subpart 1 of the Social Security Act. The program provides matching grants to states (75% federal share) for (as amended by P.L. 109-288 ) five broad purposes: (1) to protect and promote the welfare of all children; (2) to prevent the neglect, abuse, or exploitation of children; (3) to support at-risk families through services which allow children, where appropriate to remain safely with their families or return to their families in a timely manner; (4) to promote safety, permanence, and well-being of children in foster care and adoptive families; and (5) to provide training, professional development and support to ensure a well-qualified child welfare workforce. Funds are authorized on a discretionary basis (through FY2011) at $325 million annually. FY2007 funding: $287 million . Table 5 lists requirements for funding under Title IV-B, Subpart 2 of the Social Security Act, the Promoting Safe and Stable Families Program. The program authorizes matching grants to states (75% federal share) for four kinds of services: family preservation, family support, time-limited family reunification, and adoption promotion and support. The statute also provides that certain amounts of the funds provided for this program are to be set aside each year to support tribal child and family services, grants to highest state courts to assess and improve their handling of child welfare proceedings, and funds for research, evaluation and technical assistance related to the service or activities funded by the program. In addition, P.L. 109-288 stipulates that for each of six years (FY2006-FY2011) $40 million of the funds are to be reserved for formula grants to states to support monthly caseworker visits of children in foster care and to provide discretionary grants to eligible applicants (regional partnerships, which much include the state child welfare agency) to respond to child welfare issues raised by parental/caretaker abuse of methamphetamine (or other substances). Program funds are authorized both on a discretionary basis (up to $200 million annually) and as a capped entitlement ($345 million annually) through FY2011. FY2007 funding: $434 million . Table 6 lists requirements under Title IV-E of the Social Security Act related to foster care maintenance payments and adoption assistance. These programs are authorized as open-ended entitlements; states may seek reimbursement for a specified percentage of the foster care maintenance payments, adoption assistance costs, and eligible administrative, training, and data collection costs for all eligible children. FY2007 appropriations: $6.5 billion (of which $4.5 billion is for foster care and $2.0 billion is for adoption assistance) . Table 7 lists requirements related to funding for foster care independence services authorized under Title IV-E of the Social Security Act. These include a variety of services designed to enable youth who are expected to "age-out" of foster care and those who have recently aged out of foster care to make a successful transition from state foster care custody to independent living. Funds for a wide variety of services to these youth (including education and training) are authorized as a capped entitlement; funds specifically provided for education and training vouchers only are authorized on a discretionary basis. The federal government provides funds under these programs on a matching basis (80% federal share). FY2007 CFCIP: $140 million; FY2007 vouchers: $46 million . Table 8 includes definitions critical to understanding state responsibilities to children in its care. Most of these definitions are included in Section 475 of the Social Security Act and apply to both Title IV-E and Title IV-B child welfare programs. For instance, children in state-supervised foster care, who are receiving services under Title IV-B or Title IV-E, must be part of a state operated case review system and have their own case plan . These, and related terms, are given detailed definition in the statute. Please note that some of the terms included below are defined within the extensive definition given to case review system. They are listed separately in Table 8 for clarity and ease of reference. | States have primary responsibility for administering child welfare funds. However, the federal government provides substantial child welfare funding that is contingent on states meeting certain program requirements. The greatest part of federal assistance dedicated to child welfare is included in Title IV-B and Title IV-E of the Social Security Act. Programs authorized under these parts of the law provide funds for a range of child welfare services, from family support and preservation to foster care, adoption support and independent living. State compliance with the plan requirements of Title IV-E and Title IV-B is determined primarily via the Child and Family Services Review, (which is authorized by Section 1123A of the Social Security Act). Separately, under the Child Abuse Prevention and Treatment Act (CAPTA), states receive funds to improve their child protective service systems; to develop and support community-based programs that support and strengthen families to prevent child abuse and neglect; and to improve the handling, investigation, and prosecution of child maltreatment cases. The 109 th Congress saw the enactment of six bills that amended federal child welfare policies in Title IV-B or Title IV-E of the Social Security Act. S. 1894 ( P.L. 109-113 ) and S. 1932 ( P.L. 109-171 ) changed program eligibility rules for the federal Title IV-E foster care and adoption assistance programs. Each of the remaining bills added to or otherwise amended the Title IV-B or Title IV-E state plan requirements. Under the Title IV-B programs, states are now required (or will be on a specified effective date) to (1) develop standards for the frequency and content of caseworker visits to children in foster care; (2) limit total funds spent for administrative purposes to no more than 10% of the program spending; (3) describe how they consult with medical professionals to assess the health and well-being of foster children and determine their appropriate treatment; (4) have procedures in place to respond to a disaster and to maintain child welfare services at such a time; and (5) to report on the actual use of federal funds received under Title IV-B ( S. 3525 , P.L. 109-288 ). Changes made to the Title IV-E Foster Care and Adoption Assistance programs require all states to (1) establish procedures for the "orderly and timely interstate placement of children," including compliance with specific time frames for conducting home studies requested prior to an interstate placement and for making a decision about the placement ( H.R. 5403 , P.L. 109-239 ); (2) comply with expanded federal procedures to check the criminal records of prospective foster or adoptive parents (as well as primarily civil child abuse and neglect registries) before approving placement of any foster child in a home ( H.R. 4472 , P.L. 109-248 ); and (3) have procedures for verifying the citizenship or immigration status of all children in foster care ( H.R. 6111 , P.L. 109-432 ). This report summarizes changes made in the 109 th Congress and then categorizes and describes state program requirements (and related definitions) linked to dedicated federal child welfare funds. As a whole, these program requirements constitute federal child welfare policy, and are the fundamental basis on which state conformity with federal law is based. This report will be updated as significant program requirement changes are enacted. |
First filed in 1996, Cobell v. Salazar involved the Department of the Interior's (DOI's) management of several money accounts. These money accounts, known as IIMs (an abbreviation for Individual Indian Monies) are monies which the federal government holds for the benefit of individual Indians rather than property held for the benefit of an Indian tribe. The conflict in the case emanated from the federal government's trust responsibility with respect to American Indians. One of the earliest formulations of the concept of the federal government as trustee for Indian tribes came from the U.S. Supreme Court in 1831, likening the relationship to that of "a ward to its guardian." In the capacity of trustee, the United States holds title to much of Indian tribal land and land allotted to individual Indians. Receipts from leases, timber sales, or mineral royalties are paid to the federal government for disbursement to the appropriate Indian property owners. The United States has fiduciary responsibilities to manage Indian monies and assets which have been derived from these lands and are held in trust. The case was premised on statutory duties imposed upon the federal agencies handling Indian monies as well as on the existence of property rights in funds and assets held in trust for Indians. The courts have recognized broad powers of Congress with respect to Indian affairs legislation and Indian property, but have also recognized that Indian property may not be taken for a public purpose without just compensation. This case was not a claim for just compensation; it was a claim for an accounting by the trustee (i.e., the United States) for receipts and disbursements representing the trust corpus held for the benefit of individual Indians. The Cobell litigation sprang out of the federal government's trust responsibility with respect to three groups of money accounts held in trust for individual Indian beneficiaries. These accounts are commonly referred to as the Individual Indian Money (IIM) accounts. They include (1) Land-based Accounts—established to receive revenues derived from the approximately 11 million acres held in trust by the U.S. for individual Indians; (2) Special Deposit Accounts (SDAs)—intended to be temporary accounts to hold funds that could not be immediately credited to the proper IIM account holder; and (3) Judgment and Per Capita Accounts—established to receive funds from tribal distributions of litigation settlements and tribal revenues. Congress has delegated to the Secretary of the Interior and the Secretary of the Treasury its responsibilities as trustee with regard to the IIM accounts. The Bureau of Indian Affairs (BIA) has general responsibility for trust land management and income collection. The BIA, Office of Trust Funds Management, and the Office of the Special Trustee all have trust obligations relating to IIM accounts. Most transactions involving IIM accounts require BIA approval. Therefore, one of BIA's most important duties is managing IIM funds derived from income-producing activities on allotment land, including grazing leases, timber leases, timber sales, oil and gas production, mineral production, and rights-of-way. The Office of Trust Fund Management (OTFM) is responsible for BIA's fiduciary duty to keep accurate financial records of these activities. OTFM also shares the banking aspect of DOI's trust responsibility with the Treasury Department. OTFM and BIA officers collect payments and deposit them into local banks where there is a Treasury General Account. The Treasury Department maintains a single "IIM account" for all IIM funds, rather than individual accounts, while OTFM is responsible for maintaining accounting records for the individual funds. Treasury also invests the funds at the direction of DOI. Finally the Office of the Special Trustee for American Indians is responsible for "trust reform efforts" as established under the Trust Fund Management Reform Act. The federal government—as holder of these accounts in trust for the Indian beneficiaries—has fiduciary obligations to administer the trust lands and funds arising from them for the benefit of the beneficiaries. The federal government has stipulated, however, that it does not know the exact number of IIM trust accounts that it is supposed to administer; nor does DOI know the correct balances for each IIM account. DOI has conceded that it is unable to provide an accurate accounting for a majority of IIM trust beneficiaries. The Treasury Department also has problems with trust fund management procedures. First, the Treasury Department has permitted the destruction of documents over six years and seven months old, and made no effort to ensure that documents related to accounting for IIM accounts are preserved. In addition, there can be a time lapse between the deposit of funds with the Treasury Department and the investment of those funds. There can also be a time lapse between the issuance of a check and when the payee presents the check, resulting in lost interest. Congressional oversight committees became concerned with IIM mismanagement in the late 1980s and began holding oversight hearings regarding the IIM accounts in 1988. Four years later, the House Committee on Government Operations produced a report highly critical of the Interior Department. In 1994, Congress enacted the Indian Trust Fund Management Reform Act (the Reform Act), recognizing the federal government's pre-existing trust responsibilities and further identifying some of the Interior Secretary's trust fund responsibilities, such as providing adequate accounting for trust fund balances; providing adequate controls over receipts and disbursements; providing accurate and timely reconciliations; preparing and supplying periodic statements of account performance and balances to account holders; and establishing consistent, written policies and procedures for trust fund management. Significantly, the original House bill ( H.R. 1846 ) would have made the accounting duty prospective only. When another similar bill was introduced to replace H.R. 1846 , that provision was left out. This new bill became the Reform Act, and the courts interpreting it in the Cobell litigation have determined that DOI owes a historical accounting duty going back to June 24, 1938. As the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit) stated, "the 1994 Act identified a portion of the government's specific obligations and created additional means to ensure that the obligations would be carried out." The Cobell litigation began in 1996, and its docket enumerated over 3,600 documents and over 20 federal district court and court of appeals opinions. The following attempts to distill the history of this litigation so that it focuses on the substantive issues regarding the IIM accounts. In 1996, a group of IIM account holders filed a class action suit to compel performance of trust obligations, alleging that the Secretaries of the Interior and the Treasury—as delegatees of the federal government's trust responsibilities—had breached the fiduciary duties owed to plaintiffs by mismanaging the IIM accounts. Two years later, the district court judge bifurcated the trial into two phases, with Phase 1 to focus on reforming the management and accounting of the IIM trust funds, and Phase 2 to address the historical accounting of those accounts. In 1999, United States District Judge Royce C. Lamberth issued a ruling as to Phase 1, holding that the Treasury and Interior Secretaries had breached their fiduciary duties to the IIM account holders. The transition to Phase 2 proved difficult because the defendants were unable to submit—in forms acceptable to the court—plans for reforming the account-management system and for providing a historical accounting. Two specific issues made it particularly difficult for DOI to provide an accounting in the Cobell litigation. The first of these issues was the fractionation of interests in many of the allotment lands. These interests have been fractionated over the years as they have been divided among the heirs of the original allottees, increasing exponentially with each generation and leading to incredibly small interests that are difficult to track. DOI estimates that there are currently over 1.4 million fractional interests subdividing 58,000 tracts of land. While DOI has stated that it can perform a transaction-by-transaction accounting of the judgment and per capita accounts and the SDAs, the problems presented by the land-based accounts have proven very difficult to resolve. DOI has argued that it should be able to use statistical sampling with respect to some of these accounts. The second difficult question is determining how far into the past a historical accounting should go. At various points in the litigation, the different parties argued for an accounting of transactions as far back as 1887 (date of the Allotment Act), 1938 (creation of the Secretary's authority to deposit tribal trust funds), and 1994 (date of the Reform Act). Resolving this problem would likely encompass a choice between what is fair and what is possible. One could have very different answers to these two questions, mainly because, as the litigation showed, DOI and Treasury records relating to the IIM accounts are at best incomplete. In January 2003, DOI provided a new historical accounting plan to Judge Lamberth that would cover all accounts open as of October 25, 1994, when the Reform Act was enacted. After reviewing DOI's plan, Judge Lamberth in September 2003 issued a controversial structural injunction giving the court broad oversight authority to ensure that (1) DOI carries out the accounting (the court adopted what is essentially a modified version of DOI's historical accounting plan, but did not allow DOI to use statistical sampling with respect to the land-based accounts); and (2) DOI reforms its system for managing the IIM accounts. Judge Lamberth also appointed a monitor to ensure compliance with the injunction order. One month later, Congress passed an appropriations rider stating that "nothing in [the Reform Act] or in any other statute, and no principle of common law, shall be construed or applied to require the Department of the Interior to commence or continue historical accounting activities with respect to the [IIM] Trust" until 2005 or when Congress more clearly delineates DOI's accounting obligations under the Reform Act. Congress took this action in direct response to Judge Lamberth's structural injunction order, stating that compliance could cost upwards of $6 billion and that diverting that amount of resources could be "devastating to Indian country." Two subsequent appropriations bills limited the funds available to DOI for the historical accounting to $58 million for FY2005 and FY2006. On December 10, 2004, the D.C. Circuit issued an opinion striking down almost all of Judge Lamberth's injunction. The court first held that, pursuant to Congress's directive contained in the aforementioned appropriations rider, DOI could not be compelled to perform any historical accounting. The court noted, however, that the directive would sunset on December 31, 2004, and the judges pointed out that they could not "address the issues that would be relevant if the district court [after December 31, 2004] reissued those provisions [compelling a historical accounting]." The court next largely overturned Judge Lamberth's injunction as to DOI's systemic reform. Looking to Supreme Court precedent, the D.C. Circuit held that judicial review under the Administrative Procedure Act (APA) is limited to specific agency actions, and that such review cannot be extended to "claims of broad programmatic failure." The court held that Judge Lamberth, in issuing his injunction, had impermissibly wandered into this latter area, which is more properly reserved for executive or legislative action. While the D.C. Circuit upheld Judge Lamberth's requirement that DOI submit a plan laying out how it will come into compliance with its fiduciary obligations, the court found that the other elements of Lamberth's order (e.g., the appointment of a monitor, the listing of and compliance with tribal laws) were not tied to specific findings of wrongdoing and suggested greater, and inappropriate, judicial intrusion into agency discretion. On February 23, 2005, Judge Lamberth—noting that the deadline contained in the appropriations rider had passed—issued another structural injunction with respect to the historical accounting. Once again, he adopted a modified version of DOI's historical accounting plan, but prohibited the use of statistical sampling and required an accounting going back to the Allotment Act of 1887. He refused to stay the order pending appeal, citing the plaintiffs' nine-year wait and "a delay directed by Congress in a bizarre and futile attempt at legislating a settlement in this case." On November 15, 2005, the D.C. Circuit vacated Judge Lamberth's injunction and historical accounting order and directed that, on remand, the district court, in evaluating DOI's plan for a statistical sampling to accomplish the accounting, should not ignore the general language of the Reform Act and subsequent congressional limitations on funding, suggesting that the Reform Act should not be seen as mandating "the best available accounting without regard to cost." The court of appeals would later remove Judge Lamberth from this case for abuse of discretion and bias. On January 30, 2008, Judge James Robertson, assigned to the case in December 2006, rejected DOI's historical accounting plan not because of its use of statistical sampling methodology, but on the basis of finding its scope legally inadequate in terms of years and accounts or funds to be covered. He then held that DOI's accounting for the funds was impossible "as a conclusion of law" because DOI could not "achieve an accounting that passes muster as a trust accounting" due to the inadequacy of funding provided by Congress. Judge Robertson ordered a hearing to develop a process for determining an appropriate remedy. On August 7, 2008, Judge Robertson issued a decision on the remedy issue in which he awarded plaintiffs $455.6 million in restitution. The figure represents the amount to be restored to plaintiffs as receipts not credited to their accounts. Claims for damages for funds which never were collected or for mismanagement of assets are not included in the figure and were not before the court in Cobell . To determine the amount of restitution, the court had to examine the models the parties had set forth for determining the difference between what Treasury had posted as receipts to the IIM accounts and what had been disbursed to individual accounts or account holders. Information accumulated from the years of attempts at arriving at a satisfactory and reliable means of reconstructing the records at DOI and Treasury aided the court in evaluating the models offered by the parties. The court, in formulating its remedy, decided not to accord plaintiffs the full benefit of evidentiary presumptions in their favor. This led the court to apply a modified burden of proof on the government's statistical model for calculating data that it could not produce. DOI had shown that only 77% of the monies collected for the IIM system had been posted to IIM accounts. Accepting the government's calculation of receipts but using their own formula for calculating a disbursement rate for each year, the plaintiffs claimed a shortfall of $3.6 billion over 122 years. To this they proposed adding approximately $43.4 billion as "benefit to the government" based on a formula they had devised which assumed that whatever was not disbursed to the account holders was available for general governmental expenses, relieving the government of a need to issue and pay interest on Treasury bonds. The government produced evidence explaining some of the shortfall between receipts and disbursements. A DOI expert testified that the discrepancy reflected the fact that not all the funds received into Treasury's IIM account are intended to be credited to individual Indian trust fund accounts. Some, such as tribal trust fund receipts or bid or lease deposits, are to be funneled on a pass-through basis to other recipients. Having admitted that 23% of IIM receipts had not been posted to IIM accounts and faced with the plaintiffs' charge that approximately $4 billion had not been disbursed to account holders, the government was required to explain the shortfall and put a figure on it. The explanation was essentially that the individual Indian trust beneficiaries were not entitled to all of the funds that Treasury deposited in the IIM account. The government attempted to demonstrate this point by using a statistical model that employed a "multiple imputation" technique to account for the multiplicity of variables imputed to the large range of missing data with respect to the accounts. With both the plaintiffs' and defendant's statistical models before him, Judge Robertson not only found the model offered by the plaintiffs to be defective, he also criticized their failure to offer specific evidence to discredit the defendant's model. According to his opinion, the plaintiffs' model could not be considered, among other reasons, because it was inconsistent in accepting the government's estimate of receipts, but not of disbursements, which reflected "a super-strong interpretation of the presumption against the breaching trustee that cannot be equitably applied to the trusts at issue here." Accordingly, Judge Robertson accepted the government's model, but provided a certain evidentiary advantage to the plaintiffs by selecting the "maximally conservative" estimate. Therefore, using the maximally conservative estimate as established by the government model, the court concluded that $455.6 million was the amount missing in the IIM trust and that only that amount would be awarded in restitution. The July 24, 2009, decision issued by the U.S. Court of Appeals for the District of Columbia vacated the holding in Judge Robertson's January 2008 decision that DOI did not have to conduct an accounting due to impossibility and remanded the case to the district court for further proceedings. The court of appeals concluded that the district court was correct to grant deference to DOI's methodology in conducting the accounting because "it 'a[rose] out of an administrative balancing of cost, time, and accuracy.'" However, the court of appeals also found that the district court's conclusion that "the proper scope of the accounting obligation … is the result … of a legal interpretation of the 1994 Act and other statutes governing the IIM trust" was not completely correct. Although the district court correctly concluded that the extent of the scope of the accounting is derived from statutory law, the court of appeals concluded that "the unique nature of this trust requires the district court to exercise equitable powers in resolving the paradox between classical accounting and limited government resources." Thus, the court of appeals concluded that the district court was incorrect in assuming it could not adjust the scope of the accounting in order to provide the best accounting possible with the limited resources made available by Congress. Rather, "the district court sitting in equity must do everything it can to ensure that Interior provides them an equitable accounting. The district court's holding of impossibility contradicts the requirement of an equitable accounting—one that makes most efficient use of limited government resources." After holding that DOI must conduct the best accounting possible with the money Congress appropriated for the task, the court of appeals then provided some guidance to the district court in order to help establish the proper scope of the accounting. The court of appeals first noted that "the district court should exercise its equitable power to ensure that Interior allocates its limited resources in rough proportion to the estimated dollar value of payments due to class members." The court of appeals also recommended that the district court "consider low-cost statistical methods of estimating benefits across class sub-groups." Finally, the court of appeals concluded that the district court erred in ordering an accounting for accounts closed before the 1994 Reform Act was passed because the act only contemplated an accounting of funds held in trust by the United States at the time of the act's passage. On December 7, 2009, the Secretaries of the Interior and Treasury reached a settlement agreement with the plaintiffs' class. However, under its own terms, the settlement would not be effective until authorized by Congress. The settlement agreement originally called for Congress to authorize it legislatively by December 31, 2009. The deadline, however, was extended eight times to February 28, 2010, April 16, May 25, June 15, July 9, August 6, October 15, and finally to January 7, 2011. After a number of failed attempts to approve the settlement, Congress finally authorized the settlement through the Claims Resolution Act of 2010 (CRA), which was signed by President Obama on December 8, 2010. The settlement agreement addressed the claims of two separate classes. One class, the "Historical Accounting Class," is defined as those Indian beneficiaries who had an open IIM account between October 25, 1994, and September 30, 2009, in which there was at least one cash transaction credited to it. The "Trust Administration Class" is defined as those individual Indian beneficiaries alive as of September 30, 2009, who have or had IIM accounts between roughly 1985 to the present (the time period when IIM accounts were kept in electronic databases) and individual Indians who, as of September 30, 2009, had recorded or other demonstrable ownership interest in land held in trust or restricted status, regardless of the existence of an IIM account or proceeds generated from the land. The settlement agreement released the federal government from claims related to the mismanagement of the IIM accounts of both the Historical Accounting Class and the Trust Administration Class. However, the settlement also specifically excluded from the release (1) claims related to the payment of the account balances of existing IIM accounts; (2) claims related to the payment of existing amounts in special deposits accounts, tribal accounts, or judgment fund accounts; (3) claims related to the breaching of trust or alleged wrongs after September 30, 2009; (4) claims for damages to the environment other than those claims expressly identified as Land Administration Claims; (5) claims for trespass; (6) claims against tribes, contractors, and other third parties; (7) equitable, injunctive, or non-monetary claims for boundary correction and appraisal errors; (8) money damages arising from boundary or appraisal errors that occur after September 30, 2009; (9) claims arising out of leases, easements, rights-of-way, and similar encumbrances existing as of September 30, 2009; (10) claims related to failure to assert water rights and quantification; and (11) health and mortality claims. The settlement also stated that no further monetary obligations shall attach to the federal government after the funds agreed upon in the settlement are dispensed. In return for this release of liability, the settlement established two funds. The first fund would receive $1.412 billion from the Judgment Fund and will be called the "Accounting/Trust Administration Fund." From this fund, each member of the Historical Accounting Class shall receive $1,000. After this payment is made, the next stage involves establishing the identities of the members of the Trust Administration Class and paying each member a pro rata amount. This amount involves a $500 base payment. In addition, each member of the class will receive a pro rata amount of the remaining monies in the Accounting/Trust Administration Fund. Any money remaining in this fund will be used to finance a program called "Funds for Indian Education Scholarships," which provides for the cost of post-secondary education for Indian students. The second fund, called the "Trust Land Consolidation Fund," would receive $2 billion. This fund, which will terminate in 10 years, will be used to acquire fractional interests in trust or restricted land pursuant to 25 U.S.C. §2201 et seq., which authorizes the Land Consolidation program. This program is the principal vehicle by which the federal government consolidates fractionated trust and restricted lands. Monies from this account will also be made available for the "Funds for Indian Education Scholarships." The CRA excludes amounts received by individual Indians pursuant to the settlement from inclusion as gross income for federal tax purposes. The settlement and CRA also left for the district court's consideration the amount of attorneys' fees and the amount of the incentive award for the named plaintiffs of the class. The district court approved the settlement on July 27, 2012. A few members of the class appealed the settlement to the U.S. Court of Appeals for the D.C. Circuit, which upheld the fairness of the settlement. After the Supreme Court denied a petition for certiorari and the appeal period expired, the settlement became final on November 24, 2012. | The settlement reached in Cobell v. Salazar was authorized by the Claims Resolution Act of 2010 on December 8, 2010. Under the terms of the settlement, the United States government will pay $1.4 billion to members of the class who sought to have a historical accounting of their IIM accounts (an abbreviation for Individual Indian Monies). An additional $2 billion will be provided by the government for the purpose of consolidating fractionated trust and restricted lands. First filed in 1996, Cobell v. Salazar involved the Department of the Interior's (DOI's) management of several money accounts. These money accounts, or IIMs, as distinguished from tribal trust funds, are monies which the federal government holds for the benefit of individual Indians. The conflict in the case traced to the federal government's trust responsibility with respect to American Indians. In the capacity of trustee, the United States holds title to much of Indian tribal land and land allotted to individual Indians. Receipts from leases, timber sales, or mineral royalties are paid to the federal government for disbursement to the appropriate Indian property owners. The United States has fiduciary responsibilities to manage Indian monies and assets which have been derived from these lands and are held in trust. However, several of the beneficiaries of these trust funds alleged that DOI mismanaged these funds and filed suit in order to obtain a proper accounting of these funds and to receive damages if warranted. After more than a decade of litigation over obligations associated with the management of the IIM accounts—consisting of over 3,600 documents and over 20 federal district court and court of appeals opinions—the parties ultimately reached a settlement on December 7, 2009. However, the settlement, which by its terms would create a Trust Administration Fund and a Land Consolidation Fund, required congressional authorization before it could go into effect. A year later, Congress authorized the settlement through the Claims Resolution Act of 2010 (CRA), which was signed by President Obama on December 8, 2010. The district court approved the settlement on July 27, 2011. After appeals to the U.S. Court of Appeals for the D.C. Circuit and petitions for certiorari to the Supreme Court were denied, the settlement became final on November 24, 2012. |
The Elementary and Secondary Education Act (ESEA) was last comprehensively reauthorized by the No Child Left Behind Act of 2001 (NCLB; P.L. 107-110 ). The authorization of appropriations for most programs authorized by the ESEA extended through FY2007. As Congress has not reauthorized the ESEA, there is currently no explicit authorization of appropriations for ESEA programs. However, because the programs continue to receive annual appropriations, appropriations are considered implicitly authorized. During the 114 th Congress, the House Education and the Workforce Committee reported the Student Success Act ( H.R. 5 ), which would provide for a comprehensive reauthorization of the ESEA. The bill was subsequently passed on the House floor on July 7, 2015. The Senate Health, Education, Labor, and Pensions (HELP) Committee reported the Every Child Achieves Act of 2015 (ECAA; S. 1177 ), which was subsequently passed on the Senate floor on July 16, 2015. H.R. 5 and S. 1177 would both make changes to the formulas used to allocate funds under Title I-A of the ESEA. Under S. 1177 , an Equity Grant formula would be added to the existing formulas used to distribute Title I-A funds to state educational agencies (SEAs) and local educational agencies (LEAs). S. 1177 would also modify the process by which Title I-A funds are allocated from LEAs to schools. Under H.R. 5 , a new option for distributing funds from the state level to LEAs and from LEAs to schools would be available. This option is often referred to as the "state option" or "Title I portability." H.R. 5 would also make changes to the determination of weighted child counts under two of the four Title I-A formulas included in current law. This report begins with a detailed discussion of the four Title I-A formulas used to determine grants under current law. It then discusses changes to these formulas proposed by S. 1177 and H.R. 5 . Table A-1 in Appendix A provides an overview of the key elements included in the four current formulas and the Equity Grant formula that would be added by S. 1177 . Title I-A of the ESEA authorizes aid to LEAs for the education of disadvantaged children. Title I-A grants provide supplementary educational and related services to low-achieving and other students attending pre-kindergarten through grade 12 schools with relatively high concentrations of students from low-income families. Title I-A has also become a vehicle to which a number of requirements affecting broad aspects of public K-12 education for all students have been attached as conditions for receiving Title I-A grants. It is the largest program authorized under the ESEA and was funded at $14.4 billion for FY2015. Under Title I-A, funds are allocated to LEAs via states using four different allocation formulas specified in statute: Basic Grants, Concentration Grants, Targeted Grants, and Education Finance Incentive Grants (EFIG). Annual appropriations bills specify that portions of each year's appropriation be allocated under each of these different formulas. In FY2015, an estimated 45% of Title I-A appropriations were allocated through the Basic Grant formula, 9% through the Concentration Grant formula, and 23% through each of the Targeted Grant and EFIG formulas. The current four-formula strategy has evolved over time, beginning with the Basic Grant formula when the ESEA was originally enacted. The Concentration Grant formula was added in the 1970s in an attempt to focus funding more effectively on LEAs with relatively large numbers or high percentages of formula children (i.e., low-income children or children in need). During consideration of ESEA reauthorization in the early 1990s, there was an attempt to replace the two existing formulas with a new formula that would target Title I-A funds better by providing more funding per formula child as the percentage or number of formula children in an LEA increased. Both the House and the Senate developed formulas intended to accomplish this goal (Targeted Grants and EFIG, respectively). A compromise on one new formula was not reached; nor was there agreement on eliminating the existing formulas. As a result, funds are allocated through four formulas under current law. For each formula, a maximum grant is calculated by multiplying a "formula child count," consisting primarily of estimated numbers of school-age children in poor families, by an "expenditure factor" based on state average per pupil expenditures for public K-12 education. In some formulas, additional factors are multiplied by the formula child count and expenditure factor. Then these maximum grants are reduced to equal the level of available appropriations for each formula, taking into account a variety of state and LEA minimum grant and "hold harmless" provisions. In general, LEAs must have a minimum number of formula children and/or a minimum formula child rate to be eligible to receive a grant under a specific Title I-A formula. Some LEAs may qualify for a grant under only one formula, while other LEAs may be eligible to receive grants under multiple formulas. Under three of the formulas—Basic Grants, Concentration Grants, and Targeted Grants—funds are initially calculated at the LEA level. State grants are the total of allocations for all LEAs in the state adjusted for state minimum grant provisions. Under EFIG, grants are first calculated for each state overall and then are subsequently suballocated to LEAs within a state using a different formula. Once funds reach LEAs, the amounts allocated under the four formulas are combined and used jointly. Basic Grants is the original Title I-A formula, authorized and implemented each year since FY1966. It is also the formula under which the largest proportion of funds are allocated (45% of FY2015 appropriations), and under which the largest proportion of LEAs participate, largely due to its low LEA eligibility threshold (see below). However, because all post-FY2001 increases in Title I-A appropriations have been provided to the Targeted Grant and EFIG formulas (see below), the proportion of Title I-A funds allocated under the Basic Grant formula has been declining steadily since FY2001. Compared to some of the other Title I-A formulas, the Basic Grant formula is relatively straightforward. Grants are based on two formula factors—each LEA's relative share, compared to the national total, of a formula child count multiplied by an expenditure factor—subject to available appropriations, an LEA minimum or hold harmless provision, and a state minimum. These formula factors and features are described below, followed by a mathematical expression of the formula. Population Factor (Formula Child Count) . The population used to determine Title I-A grants for the 50 states, the District of Columbia, and Puerto Rico consists of children ages 5-17 (1) in poor families, according to estimates for a recent income year for LEAs from the Census Bureau's Small Area Income and Poverty Estimates (SAIPE) program; (2) in institutions for neglected or delinquent children or in foster homes; and (3) in families receiving Temporary Assistance for Needy Families (TANF) payments above the poverty income level for a family of four (hereinafter referred to as TANF children). These children are commonly referred to as formula children. In FY2015, children in poor families accounted for about 97% of the total formula child count. Each element of the population factor is updated annually. Eligibility Threshold. To receive funding under Basic Grants, an LEA must have at least 10 formula children and these children must account for more than 2% of the children ages 5-17 in the LEA. The latter qualification is referred to as the formula child rate and is calculated by dividing the number of formula children in an LEA by the number of children ages 5-17 who reside in the LEA. Expenditure Factor. The state expenditure factor is determined using the state average per pupil expenditure (APPE) for public K-12 education. For Basic Grants, state APPE is subject to a minimum of 80% and a maximum of 120% of the national APPE. That is, if a state's APPE is less than 80% of the national APPE, the state's APPE is automatically raised to 80% of the national APPE. If a state's APPE is more than 120% of the national APPE, the state's APPE is automatically reduced to 120% of the national APPE. After adjustments, should they be needed, a state's APPE is multiplied by 0.40 as specified in statute. The expenditure factor is the same for all LEAs in the state. LEA Minimum Grant or "Hold Harmless" Level. If sufficient funds are appropriated, each LEA is to receive a minimum of 85%, 90%, or 95% of its prior-year grant, depending on the LEA's school-age child poverty rate. More specifically, the hold harmless rate is 85% of the previous-year grant if the LEA's formula child rate is less than 15%, 90% if the LEA's formula child rate is at or above 15% and less than 30%, and 95% if the LEA's formula child rate is at or above 30%. In order to benefit from the hold harmless provisions, an LEA must meet the eligibility requirements for Basic Grants. Minimum State Grant. Each state is to receive the lesser of (1) 0.25% of total Basic Grant appropriations if total Basic Grant funding is equal to or less than the FY2001 level (as has been the case each year since FY2001 thus far), and up to 0.35% of total Basic Grant appropriations in excess of the FY2001 amount, if any; or (2) the average of (i) 0.25% of the total FY2001 amount for state grants plus 0.35% of any amount above the FY2001 level, and (ii) 150% of the national average grant per formula child, multiplied by the number of formula children in the state. Initial LEA Grant. The initial grant for each LEA is calculated by multiplying the number of formula children in the LEA by the state expenditure factor. Ratable Reduction. After initial grants are calculated, if appropriations are insufficient to pay the initial amounts (as has been the case every year beginning with FY1967), these amounts are reduced by the same percentage (though not necessarily the same dollar amount) for all LEAs, subject to LEA hold harmless and state minimum provisions, until they equal the aggregate level of appropriations. Treatment of Puerto Rico, Outlying Areas, and the Bureau of Indian Education . Puerto Rico is treated the same as a state under the Basic Grant formula. Grants to schools operated or supported by the Bureau of Indian Education and the Outlying Areas (Guam, American Samoa, the Virgin Islands, and the Commonwealth of the Northern Mariana Islands), in addition to a competitive grant to the Outlying Areas plus certain Freely Associated States, are provided via reservation of 1% of total Title I-A appropriations. Further Adjustments by SEAs of LEA Grants as Calculated by ED. Among ESEA programs, a distinctive aspect of Title I-A is that after calculation of LEA grants by ED applying the methods discussed here, SEAs make a number of adjustments before determining the final amounts that LEAs actually receive. These adjustments include (1) reservation of 4% of state total allocations to be used for school improvement grants; (2) reservation of 1% of state total allocations under all formulas for ESEA Title I, Part A, plus funds allocated under the Migrant Education Program (Title I-C) and the Prevention and Intervention Programs for Children and Youth Who Are Neglected, Delinquent, or At-Risk (Title I-D), or $400,000, whichever is greater, for state administration; (3) optional reservation of up to 5% of any statewide increase in total Part A grants over the previous year for academic achievement awards to participating schools that significantly reduce achievement gaps between disadvantaged and other student groups or exceed adequate yearly progress standards for two consecutive years or more; (4) providing funds to eligible charter schools or to account for recent LEA boundary changes; and (5) optional use by states of alternative methods to reallocate all of the grants as calculated by ED among the state's small LEAs (defined as those serving an area with a total population of 20,000 or fewer persons). Basic Grant Allocation Formula Step 1: Preliminary Grant 1 = PF * EF or L_HH, whichever is greater In Step 1, the population factor (formula child count) is multiplied by the expenditure factor for each eligible LEA. If this amount is greater than the LEA's hold harmless level it is used in the subsequent calculation. If it is less than the LEA's hold harmless level, the hold harmless amount is used. Step 2: Preliminary Grant 2 = (Preliminary Grant 1 / ∑ Preliminary Grant 1) * APP or L_HH, whichever is greater In Step 2, to adjust grant amounts for insufficient appropriations, the amount for each LEA in Step 1 is divided by the total of these amounts for all eligible LEAs in the nation and multiplied by the available appropriation. This preliminary grant amount is used in the subsequent calculation unless it is less than the LEA's hold harmless level. In such instances, the hold harmless amount is used. Step 3: Preliminary Grant 3 = (Preliminary Grant 2 * S_MIN_ADJ * L_HH_ADJ) or L_HH, whichever is greater In Step 3, the amount for each LEA in Step 2 is adjusted through application of the state minimum grant provision and by a factor to account for the aggregate costs of raising affected LEAs to their hold harmless level, given a fixed total appropriation level. The state minimum grant adjustment is upward in the smallest states, where total grants are increased through application of the minimum, and downward in all other states, where funds are reduced in order to pay the costs of applying the minimum. The LEA hold harmless adjustment is downward for all LEAs except those at their hold harmless level. If appropriations are sufficient, no LEA will receive less than its hold harmless amount. It should be noted that in the grant allocation process, only Steps 1 through 3 are calculated by ED. Thus, all estimates produced by ED (and by CRS) are the grant amounts calculated in Step 3. Step 4: Final Grant = Preliminary Grant 3 * SCH_IMP_ADJ * S_ADMIN_ADJ * AWD_ADJ * OTR_ADJ In the final step of calculating LEA grants under all Title I-A allocation formulas, LEA grants as calculated in Step 3 are further adjusted by the state for the school improvement and state administration reservations, possible state reservations for achievement awards, and other possible adjustments (such as for grants to charter schools) discussed above. Where: PF = Population factor or formula child count EF = Expenditure factor L_HH = LEA minimum or hold harmless level APP = Appropriation S_MIN_ADJ = State minimum adjustment (proportional increase [in small states] or decrease [in other states] to apply the statewide minimum grant) L_HH_ADJ = LEA minimum or "hold harmless" adjustment (proportional decrease, in LEAs not benefitting from the LEA "hold harmless," to apply the LEA minimum grant) SCH_IMP_ADJ = Reservation by SEA for school improvement grants S_ADMIN_ADJ = Reservation by SEA for state administration AWD_ADJ = Possible reservation by SEA for achievement awards OTR_ADJ = Other possible adjustments by the SEA ∑ = Sum (for all eligible LEAs in the nation) The Concentration Grant formula is essentially the same as Basic Grants, with one substantial exception: it has a much higher LEA eligibility threshold. There are also differences in the LEA hold harmless and state minimum grant provisions. Although the Title I-A statute has included Concentration Grant formulas (with varying provisions and sometimes under different names) since 1970, the current version of the formula dates from 1988 ( P.L. 100-297 ). A relatively small proportion (9% of FY2015 appropriations) of Title I-A appropriations is allocated under the Concentration Grant formula. As with Basic Grants, Concentration Grants are based on each eligible LEA's share, compared to the national total, of a population factor multiplied by an expenditure factor, subject to available appropriations, an LEA minimum or "hold harmless," and a state minimum. These formula factors are described below, followed by a mathematical expression of the formula. Population Factor (Formula Child Count) . Same as Basic Grants (see above). Eligibility Threshold. To receive funding under Concentration Grants, an LEA must be eligible for a Basic Grant and have more than 6,500 formula children or a formula child rate greater than 15%. Expenditure Factor. Same as Basic Grants (see above). LEA Minimum Grant or "Hold Harmless" Level. The hold harmless rates for Concentration Grants are the same as those for Basic Grants with one exception. Unlike with Basic Grants and the other Title I-A formulas, LEAs that meet the eligibility requirements in one year to receive a Concentration Grant but fail to meet the requirements in a subsequent year will continue to receive a grant based on the hold harmless provisions for four additional years. Minimum State Grant. The Concentration Grant state minimum is a modified version of the Basic Grant minimum. Each state is to receive the lesser of (1) 0.25% of total Concentration Grant appropriations if total Concentration Grant funding is equal to or less than the FY2001 level (as has been the case each year since FY2001 thus far), and up to 0.35% of total Concentration Grant appropriations in excess of the FY2001 amount, if any; or (2) the average of (i) 0.25% of the total FY2001 amount for state grants plus 0.35% of the amount above this, and (ii) the greater of 150% of the national average grant per formula child, multiplied by the number of formula children in the state, or $340,000. , Initial LEA Grant. Same as Basic Grants (see above). Ratable Reduction. Same as Basic Grants (see above). Treatment of Puerto Rico, Outlying Areas, and the Bureau of Indian Education . Same as Basic Grants (see above). Further Adjustments by SEAs of LEA Grants as Calculated by ED. With one exception, these are the same as for Basic Grants. The exception is that in states where the state total number of formula children constituted less than 0.25% of the national total of such children as of the date of enactment of NCLB, SEAs may allocate Concentration Grants among all LEAs with a formula child count or rate that is greater than the state average for that year (not just LEAs meeting the 6,500 or 15% thresholds). Concentration Grant Allocation Formula. The mathematical expression of the Concentration Grant formula is the same as that for Basic Grants (above), with one exception. As discussed immediately above, in states where the number of formula children constituted less than 0.25% of the national total of such children as of the date of enactment of NCLB, the state total is to be allocated to LEAs based on the formula child counts in each LEA. These LEAs may include, at state discretion, either LEAs in the state meeting the Concentration Grant eligibility criteria described above, or all LEAs in the state with a formula child count or rate that is greater than the state average. In either case, in these states Step 3 of the grant allocation process is: LEA Grant = PF / ∑ PF * ALL or L_HH, whichever is greater Where: PF = Population factor or formula child count ALL = State total allocation L_HH = LEA minimum or "hold harmless" level ∑ = Sum (for all eligible LEAs in the state) Targeted Grants were initially authorized in 1994, but no funds were appropriated for them until FY2002, after the formula was slightly modified by NCLB. Beginning in FY2002, all increases in Title I-A appropriations have been allocated as either Targeted Grants or EFIG (below). Thus, Targeted Grants constitute a substantial and growing portion (23% of FY2015 appropriations) of total Title I-A grants. The allocation formula for Targeted Grants is essentially the same as that for Basic Grants, except for substantial differences related to how children in the population factor are counted. For Targeted Grants, the formula children are assigned weights on the basis of each LEA's formula child rate and number of formula children. As a result, the higher an LEA's formula child rate and/or number of formula children are, the higher grants per child counted in the formula it receives. There is also a somewhat higher LEA eligibility threshold for Targeted Grants than for Basic Grants (e.g., 5% formula child rate for Targeted Grants and 2% formula child rate for Basic Grants). Aside from these two differences, Targeted Grants, like Basic Grants, are based on each eligible LEA's share, compared to the national total, of a formula child count multiplied by an expenditure factor, subject to available appropriations, an LEA minimum or "hold harmless," and a state minimum. These formula factors are described below, followed by a mathematical expression of the formula. Population Factor (Formula Child Count) . The children counted for calculating Targeted Grants are the same as for Basic Grants (see above). However, for Targeted Grants LEA-specific weights are applied to these child counts to produce a weighted child count that is used in the formula. In general, children counted in the formulas are assigned weights on the basis of (1) each LEA's formula child rate (commonly referred to as percentage weighting), and (2) each LEA's number of formula children (commonly referred to as number weighting). Under both percentage weighting and number weighting, a weighted formula child count is produced. The higher of the two weighted formula child counts for a given LEA is then used in the formulas for determining grants. As a result, the higher an LEA's formula child rate and/or number are, the higher grants per formula child it receives. Of the LEAs for which ED calculates grants under the Targeted Grant formula, about 88% have higher weighted formula child counts based on their formula child rates than based on their number of formula children for FY2015. That is, 88% of LEAs receiving grants under the Targeted Grant formula use the percentage-based rather than the numbers-based weighting scale. The weights are applied under number weighting and under percentage weighting in a stepwise manner to all LEAs nationwide to produce two weighted child counts (one under each weighting system). Formula children in LEAs with the highest formula child rates have a weight of up to four, and those in LEAs with the highest numbers of such children have a weight of up to three, compared to a weight of one for formula children in LEAs with the lowest formula child rate and number of such children (see Table 1 , below). There are five ranges associated with each of the number and percentage weighting scales demarcated in current law. These steps, or quintiles, were based on the actual distribution of Title I-A formula children among the nation's LEAs according to the latest available data in 2001 (at the time that NCLB was being considered). Each quintile includes roughly 20% of all children included in the determination of FY2001 Title I-A grants. As previously discussed, the Targeted Grant formula child weights are applied in a stepwise manner, rather than the highest relevant weight being applied to all formula children in the LEA. For example, assume an LEA has 2,000 formula children and the total school-age population is 10,000; the formula child rate is 20%. The following calculations demonstrate how an LEA's weighted child count would be calculated under number weighting and percentage weighting in this example: Numbers Scale: Step 1: 691 * 1.0 = 691 The first 691 formula children are weighted at 1.0. Step 2: (2,000 - 691) = 1,309 * 1.5 = 1,963.5 For an LEA with a total number of formula children falling within the second step of the numbers scale, the number of formula children above 691 (the maximum for the first step) is weighted at 1.5. Total (Numbers Scale) = 691 + 1,963.5 = 2,654.5 The weighted formula child counts from Steps 1 and 2 are combined. Percentage Scale: Step 1: 15.58% * 10,000 = 1,558 * 1.0 = 1,558 The number of formula children constituting up to 15.58% of the LEA's total school-age population is weighted at 1.0. Step 2: (20% - 15.58%) = 4.42% * 10,000 = 442 * 1.75 = 773.5 For an LEA with a formula child rate falling within the second step of the percentage scale, the number of formula children above 15.58% of the LEA's total school-age population (the maximum for the first step) is weighted at 1.75. Total (Percentage Scale) = 1,558 + 773.5 = 2,331.5 The weighted formula child counts from Steps 1 and 2 are combined. Since the numbers scale weighted count of 2,654.5 exceeds the percentage scale weighted count of 2,331.5, the numbers scale count would be used as the population factor for this LEA in the calculation of Targeted Grants. Eligibility Threshold. To receive funding under Targeted Grants, an LEA must have at least 10 formula children (with no weights applied) and have a formula child rate of 5% or more. Expenditure Factor. Same as Basic Grants (see above). LEA Minimum Grant or "Hold Harmless" Level. Same as Basic Grants (see above). Minimum State Grant. Each state is to receive the lesser of (1) 0.35% of total state grants, and (2) the average of 0.35% of total state grants and 150% of the national average grant per formula child, multiplied by the number of formula children in the state. (In the latter calculation, formula child counts are not weighted.) Initial LEA Grant. Same as Basic Grants (see above) except that the formula child count for each LEA is weighted. Ratable Reduction. Same as Basic Grants (see above). Treatment of Puerto Rico, Outlying Areas, and the Bureau of Indian Education . Same as Basic Grants (see above), with the additional provision that for Puerto Rico, a cap of 1.82 is placed on the aggregate weight applied to the population factor under the Targeted Grant formula when calculating the weighted child count for Puerto Rico. Further Adjustments by SEAs of LEA Grants as Calculated by ED. Same as Basic Grants (see above). Targeted Grant Allocation Formula. Same as Basic Grants (see above), except that the population factor would be the weighted child count, as described above. As with the Targeted Grant formula, the EFIG formula was initially authorized in 1994, but no funds were appropriated for it until FY2002 after the formula was (in the case of EFIG) considerably modified by NCLB. Beginning in FY2002, all increases in Title I-A appropriations have been allocated as either EFIG or Targeted Grants. Thus, as with Targeted Grants, grants under EFIG constitute a substantial and growing portion (23% of FY2015 appropriations) of total Title I-A grants. The EFIG formula is, however, substantially different from the other Title I-A allocation formulas. First, under EFIG grants are initially calculated at the state level, unlike the other Title I-A formulas. As a result, a state grant amount is affected by the formula child count within the state relative to the formula child count in other states. Subsequently, LEAs within each state compete for grants against other LEAs in the state, and these grants are determined, in part, based on how an LEA's formula child count compares to that of other LEAs in the same state. Under the other three Title I-A formulas, grants are initially determined at the LEA level, so each LEA competes for funding against all other LEAs nationwide. Second, while formula child counts are not weighted when calculating state total grants under the EFIG formula, they are weighted in the separate process of suballocating state total grants among LEAs. This intra-state allocation process is based on the same number and percentage scales used for Targeted Grants, but the weights vary among states based on a state's equity factor. Third, slightly narrower floor and ceiling constraints are applied to the expenditure factor under EFIG compared to the other Title I-A formulas. In general, this results in higher expenditure factors for lower-spending states and lower expenditure factors for higher-spending states relative to the other Title I-A formulas. Fourth, the EFIG formula includes not only a formula child count and an expenditure factor but also two unique factors. These are an effort factor, based on APPE for public K-12 education compared to personal income per capita for each state compared to the nation as a whole, and an equity factor, based on variations in APPE among the LEAs within a given state. Thus, state total grants under EFIG are based on each state's share, compared to the national total, of a formula child count multiplied by an expenditure factor, an effort factor, and an equity factor, adjusted by a state minimum. Then, each LEA's share of the state's total grant under EFIG is based on a weighted formula child count for the LEA, compared to the total for all LEAs in the state, adjusted by an LEA hold harmless provision. These formula factors are described below, followed by a mathematical expression of the formula. Population Factor (Formula Child Count) . In the first-stage calculation of state total EFIG Grants, this factor is the same as for Basic Grants (see above). In the second-stage suballocation of state total grants to LEAs, as under all stages of the allocation process for Targeted Grants, weights are applied to the formula child counts before they are actually used in the formula. This process is the same as for Targeted Grants with respect to the number and percentage scales used, and use of the greater of the two weighted child counts to calculate LEA grants. However, for EFIG only the weights on the number and percentage scales differ, depending on the state's equity factor. That is, the weights rise more rapidly as the numbers and percentages of formula children increase in states with higher equity factors. As is discussed below, states with higher equity factors have relatively high degrees of variation in APPE among their LEAs. For states with an equity factor below 0.10, the weights are the same as for Targeted Grants. For states with equity factors between 0.10 and 0.20, the maximum weights are 50% higher than for Targeted Grants. For states with equity factors of 0.20 or above, the maximum weights are twice as high as for Targeted Grants. This variation is illustrated in Table 2 . Eligibility Threshold. Same as Targeted Grants (see above). Expenditure Factor. The state expenditure factor is determined using the state APPE for public K-12 education. For EFIG, state APPE is subject to a minimum of 85% (not 80%, as in the other Title I-A formulas) and a maximum of 115% (not 120%, as in the other Title I-A formulas) of the national APPE. That is, if a state's APPE is less than 85% of the national APPE, the state's APPE is automatically raised to 85% of the national APPE. If a state's APPE is more than 115% of the national APPE, the state's APPE is automatically reduced to 115% of the national APPE. After adjustments, should they be needed, a state's APPE is multiplied by 0.40 as specified in statute. The expenditure factor is the same for all LEAs in the same state. Effort Factor. The effort factor is one of the two factors that is only included in the EFIG formula. It is a ratio of the three-year average APPE for public K-12 education to the three-year average state personal income per capita (PCI) divided by the ratio of the three-year average national APPE to the three-year average national PCI. The effort factor ratio is The resulting index number is greater than 1.0 for states where the ratio of expenditures per pupil for public elementary and secondary education to PCI is greater than the average for the nation as a whole, and below 1.0 for states where the ratio is less than the average for the national as a whole. Narrow bounds of 0.95 and 1.05 are placed on the resulting multiplier, so that its influence on state grants is rather limited. The effort factors are the same for all LEAs in the same state. Equity Factor. The equity factor is also unique to the EFIG formula. It is based on a measure of the average disparity in APPE among the LEAs of a state, called the coefficient of variation (CV). The CV is expressed as a decimal proportion of the state APPE. In the CV calculations for this formula, an extra weight (1.4 vs. 1.0) is applied to estimated counts of formula children. The effect of including this additional weight is that grants would be maximized for a state where expenditures per formula child are 40% higher than expenditures per non-formula child. Typical state equity factors range from 0.0 (for the single-LEA jurisdictions of Hawaii, Puerto Rico, and the District of Columbia, where by definition there is no variation among LEAs) to approximately 0.25 for a state with high levels of variation in expenditures per pupil among its LEAs. The equity factors for most states fall into the 0.10 - 0.20 range. In calculating grants, the equity factor is subtracted from 1.30 to determine a multiplier to be used in calculating state grants. As a result, the lower a state's expenditure disparities among its LEAs are, the lower its CV and equity factor are, and the higher its multiplier and grant are under the EFIG formula. Conversely, the greater a state's expenditure disparities among its LEAs are, the higher its CV and equity factor are, and the lower its multiplier and grant are under the EFIG formula. In effect, states are rewarded for having lower disparities among LEAs. LEA Minimum Grant or "Hold Harmless" Level. Same as Basic Grants (see above), with one exception. The hold harmless provisions are not taken into consideration in the initial calculation of state total grants. Therefore, it is possible (and it has occurred in a small number of instances) that state total grants would be insufficient to fully pay hold harmless amounts to all LEAs in a state. In that case, each LEA gets a proportional share of its hold harmless amount. Minimum State Grant. Same as Target Grants (see above), with one exception. The formula child count used in the calculation of the minimum grant amounts for each state includes children in LEAs that are ineligible for grants under the EFIG formula. In contrast, under Targeted Grants only children in LEAs eligible to receive Targeted Grants are included in the determination of the state minimum grant amounts. , Initial State Grant. The initial grant for each state is calculated by multiplying the unweighted number of formula children in the state by the state expenditure factor, the state effort factor, and the state equity factor. Ratable Reduction. Same as Basic Grants (see above). Treatment of Puerto Rico, Outlying Areas, and the Bureau of Indian Education . Same as Basic Grants (see above). Further Adjustments by SEAs of LEA Grants as Calculated by ED. Same as Basic Grants (see above). Education Finance Incentive Grant Allocation Formula. Stage 1: Calculation of State Total EFIG Allocations Step 1: Preliminary State Grant = PF * EF * EFF * (1.30 - EQ) In Step 1, the population factor is multiplied by the expenditure factor, the effort factor, and 1.30 minus the equity factor for each state. Step 2: Final State Grant = (Preliminary State Grant / ∑ Preliminary State Grant) * APP * S_MIN_ADJ or S_MIN, if greater In Step 2, the amount for each state in Step 1 is divided by the total of these amounts for all eligible states in the nation, and then multiplied by the available appropriation, adjusted through application of the state minimum grant provision. The state minimum grant adjustment is upward in the smallest states, where total grants are increased through application of the minimum, and downward in all other states, where funds are reduced in order to pay the costs of applying the minimum. Stage 2: Calculation of LEA EFIG Allocations Step 1: Preliminary LEA Grant 1 = ( WPF / ∑ WPF ) * S_ALL, or L_HH, whichever is greater In Step 1, the weighted population factor for each eligible LEA is divided by the total weighted population factor for all eligible LEAs in the state. If this amount is greater than the LEA's hold harmless amount, it is used. If it is less than the LEA's hold harmless level and sufficient funds are available, the hold harmless amount is used. Step 2: Preliminary LEA Grant 2 = Preliminary LEA Grant 1 * L_HH_ADJ or L_HH, whichever is greater In Step 2, the amount for each LEA is adjusted to account for the aggregate costs of raising LEAs in the state to their hold harmless levels. That is, when LEAs whose preliminary grant amounts are below their hold harmless levels are brought up to their hold harmless levels, the grant amounts for all other LEAs in the state are reduced by the same percentage (but not necessarily the same amount). If an LEA's new grant amount is less than the LEA's hold harmless level and sufficient funds are available, the latter amount is used. It should be noted that in the grant allocation process, only Stage 1 and Steps 1 and 2 in Stage 2 are calculated by ED. Thus, all estimates produced by ED (and by CRS) are the grant amounts calculated in Step 2 of Stage 2. Step 3: Final LEA Grant = Preliminary LEA Grant 2 * SCH_IMP_ADJ * S_ADMIN_ADJ * AWD_ADJ * OTR_ADJ In the final step of calculating LEA grants under all Title I-A allocation formulas, LEA grants as calculated in Step 2 are further adjusted by the state for the school improvement and state administration reservations, possible state reservations for achievement awards, and other possible adjustments (such as for grants to charter schools) discussed above. Where: PF = Population factor or formula child count EF = Expenditure factor EFF = Effort factor EQ = Equity factor APP = Appropriation S_MIN_ADJ = State minimum adjustment (proportional decrease in non-minimum grant states to account for the increase in grant amounts in minimum grant states) S_MIN = State minimum WPF = Weighted population factor S_ALL = State total allocation L_HH = LEA minimum or hold harmless level L_HH_ADJ = LEA minimum or hold harmless adjustment (proportional decrease, in LEAs not benefitting from the LEA hold harmless, to apply the LEA minimum grant) SCH_IMP_ADJ = Reservation by SEA for school improvement grants S_ADMIN_ADJ = Reservation by SEA for state administration AWD_ADJ = Possible reservation by SEA for achievement awards OTR_ADJ = Other possible adjustments by the SEA ∑ = Sum (for all states in the nation in Stage 1, and for all eligible LEAs in the state in Stage 2) Under S. 1177 , Title I-A funds would be allocated to LEAs via states using five formulas. More specifically, all appropriations up to $17 billion would be allocated through the four formulas prescribed in current law. All funds appropriated in excess of $17 billion would be allocated using a new Equity Grant formula. Additionally, S. 1177 would alter the process by which schools are annually ranked to determine Title I-A grants. While there are several rules related to Title I-A school selection, under current law LEAs must generally rank their public schools by their percentages of students from low-income families and serve them in rank order. This must be done without regard to grade span for any eligible school attendance area in which the concentration of children from low-income families exceeds 75%. Below this point, an LEA can choose to serve schools in rank order at specific grade levels (e.g., only serve elementary schools in order of their percentages of children from low-income families). Under S. 1177 , LEAs would have to serve elementary and middle schools with more than 75% of their children from low-income families and high schools with more than 50% of their children from low-income families before choosing to serve schools in rank order by specific grade levels. However, no LEA would be required to reduce the amount of funding provided to elementary and middle schools below the level provided in the fiscal year prior to the enactment of S. 1177 in order to comply with the proposed requirement related to serving high schools under Title I-A. The Equity Grant formula would essentially be the same as EFIG, with two major exceptions: it would remove the effort factor used in the determination of state level grants and use the same expenditure factor for all states as opposed to a state level expenditure factor. There would also be differences regarding the calculation of the weighted formula child counts used in the determination of LEA grant amounts and Puerto Rico's grant amount. Like the EFIG formula, grants under the Equity Grant formula would be allocated first to states and then to LEAs within each state. As a result, a state's Equity Grant would be affected by the formula child count within the state relative to the formula child counts in other states. LEA grants would then be determined, in part, based on how an LEA's formula child count compares to that of other LEAs in the same state. In contrast, under the Basic Grant, Concentration Grant, and Targeted Grant formulas, grants are initially determined at the LEA level, so each LEA competes for funding against all other LEAs nationwide. Thus, state total Equity Grants would be based on each state's share, compared to the national total, of a formula child count multiplied by a national expenditure factor, and an equity factor, adjusted by a state minimum. Then, each LEA's share of the state total Equity Grant would be based on a weighted formula child count for the LEA, compared to the total for all LEAs in the state, adjusted by an LEA hold harmless provision. These formula factors are described below, followed by a mathematical expression of the formula. Population Factor (Formula Child Count) . The children counted for calculating Equity Grants would be the same as for Basic Grants (see above). As under Targeted Grants and EFIG, when state grants are suballocated to LEAs weights would be applied to these child counts before they are actually used in the formula. Similar to the EFIG formula, under Equity Grants the set of weights used for a state would depend on what range the state's equity factor falls into. The same weights and equity factor ranges used for EFIG would be used for Equity Grants. As under Targeted Grants and EFIG, the formula child weights would be applied based on quintiles. However, the number and percentage quintiles used under Equity Grants would be different than those under Targeted Grants and EFIG. The Equity Grant quintiles would be based on the most current distribution of formula children in FY2015 as opposed to the distribution of formula children at the time NCLB was being considered. The same methodology used to calculate the quintiles under the Targeted Grant and EFIG formulas is used to calculate the quintiles included in the Equity Grant formula. Additionally, under Equity Grants all LEAs would have to have a formula child rate at or above 20% to benefit from the weights in the 4 th and 5 th quintiles on the numbers weighting scale. That is, for LEAs that have a formula child rate at or above 20% the numbers-based formula child counts would be determined using the formula child weights for all five quintiles on the numbers weighting scale. For LEAs that have a formula child rate below 20% the numbers-based weighted formula child counts would be determined using only the weights in the first three quintiles on the numbers scale. It should be noted that this provision would only affect the population factor in LEAs that would otherwise benefit from the formula child weights in the 4 th and 5 th quintiles on the numbers weighting scale and have an estimated formula child rate below 20%. Of the LEAs for which ED would calculate grants under the Equity Grant formula, 29 (0.23%) would meet the aforementioned criteria in FY2015. As a result, this provision would have a limited impact on grant amounts. The numbers and percentage formula child weighting scales are illustrated in Table 3 . Equity Factor. Same as EFIG (see above). Eligibility Threshold. Same as Targeted Grants (see above). Expenditure Factor. The expenditure factor for all states would be determined by multiplying the national APPE by 0.40 (not by multiplying the state APPE by 0.40, as in the other formulas). Using the national APPE to determine the expenditure factor for every state is essentially the same as multiplying all of the initial grant amounts by 1. State APPE would therefore have no effect in the determination of Title I-A grants. LEA Minimum Grant or "Hold Harmless" Level. Same as EFIG (see above). Minimum State Grant. Same as EFIG (see above). Initial State Grant. The initial grant for each state is calculated by multiplying the unweighted number of formula children in the state by the national expenditure factor and the state equity factor. Ratable Reduction. Same as Basic Grants (see above). Treatment of Puerto Rico, Outlying Areas, and the Bureau of Indian Education . Puerto Rico's grant would be capped at the percentage amount that Puerto Rico received, relative to other states, in FY2015 under current law. The percentage of Puerto Rico's grant would be calculated by dividing the amount Puerto Rico received in FY2015 by the total amount available to states for FY2015. Puerto Rico's Equity Grant would then be calculated by multiplying the total amount available to states by this percentage. This means that in years when the amount available to states increases Puerto Rico's grant would increase, but its percentage share of the total would remain the same. Similarly, when the amount available to states remains constant, Puerto Rico's grant would remain the same. If the overall level of funding available to states were to decrease in a subsequent year, the amount of funding provided to Puerto Rico would also decrease. The treatment of the Outlying Areas and the Bureau of Indian Education would be the same as Basic Grants (see above). Further Adjustments by SEAs of LEA Grants as Calculated by ED. Same as Basic Grants (see above). Equity Grant Allocation Formula. Stage 1: Calculation of State Total E quity Grant Allocations Step 1: Preliminary State Grant = PF * EF * (1.30 - EQ) In Step 1, the population factor would be multiplied by the expenditure factor, the effort factor, and 1.30 minus the equity factor for each state. Step 2: Final State Grant = ( Preliminary State Grant / ∑ Preliminary State Grant) * APP * S_MIN_ADJ or S_MIN, if greater In Step 2, the amount for each state in Step 1 would be divided by the total of these amounts for all eligible states in the nation, then multiplied by the available appropriation, adjusted by the application of the state minimum grant provision. The state minimum grant adjustment would be upward in the smallest states, where total grants would be increased through application of the minimum, and downward in all other states, where funds would be reduced in order to pay the costs of applying the minimum. Stage 2: Calculation of LEA Equity Grant Allocations Step 1: Preliminary LEA Grant 1 = ( WPF / ∑ WPF ) * S_ALL, or L_HH, whichever is greater In Step 1, the weighted population factor for each eligible LEA would be divided by the total weighted population factor for all eligible LEAs in the state. If this is greater than the LEA's hold harmless level, it would be used in the subsequent calculation. If it is less than the LEA's hold harmless level, the hold harmless amount would be used. Step 2: Preliminary LEA Grant 2 = Preliminary LEA Grant 1 * L_HH_ADJ or L_HH, whichever is greater In Step 2, the amount for each LEA would be adjusted to account for the aggregate costs of raising LEAs in the state to their hold harmless levels. That is, when LEAs whose preliminary grant amounts are below their hold harmless levels are brought up to their hold harmless levels, the grant amounts for all other LEAs in the state would be reduced by the same percentage (but not necessarily the same amount). If, as a result of this adjustment, an LEA's new grant amount is less than the LEA's hold harmless level and sufficient funds are available, the LEA's hold harmless amount would be used. It should be noted that in the grant allocation process, only Stage 1 and Steps 1 and 2 in Stage 2 would be calculated by ED. Thus, all Equity Grant estimates produced by ED (and by CRS) are the grant amounts calculated in Step 2 of Stage 2. Step 3: Final LEA Grant = Preliminary LEA Grant 2 * SCH_IMP_ADJ * S_ADMIN_ADJ * AWD_ADJ * OTR_ADJ In the final step of calculating LEA grants under all Title I-A allocation formulas, LEA grants as calculated in Step 2 would be further adjusted by the states for the school improvement and state administration reservations, and other possible adjustments (such as for grants to charter schools) discussed above. Where: PF = Population factor or formula child count EF = Expenditure factor EQ = Equity factor APP = Appropriation S_MIN_ADJ = State minimum adjustment (proportional decrease in non-minimum grant states to account for the increase in grant amounts in minimum grant states) S_MIN = State minimum S_ALL = State total allocation L_HH = LEA minimum or hold harmless level L_HH_ADJ = LEA minimum or hold harmless adjustment (proportional decrease, in LEAs not benefitting from the LEA hold harmless, to apply the LEA minimum grant) WPF = Weighted population factor SCH_IMP_ADJ = Reservation by SEA for school improvement grants S_ADMIN_ADJ = Reservation by SEA for state administration AWD_ADJ = Possible reservation by SEA for achievement awards OTR_ADJ = Other possible adjustments by the SEA ∑ = Sum (for all states in the nation in Stage 1, and for all eligible LEAs in the state in Stage 2) This section of the report examines estimated state level grants under S. 1177 assuming two appropriations levels: $17.5 billion and $20 billion. These appropriations levels were chosen as hypothetical examples because they are in excess of the $17 billion trigger established in S. 1177 for the Equity Grant formula to be activated and provide an example of estimated grant amounts based on a level just over the $17 billion trigger and a level substantially above the trigger. This section begins with a discussion of the methodology used to conduct this analysis followed by an examination of estimated grants at various appropriations levels under S. 1177 . The estimated FY2015 Title I-A grant amounts under current law were calculated by ED and all other estimated grant amounts were calculated by CRS using the most current data available. CRS used the estimated FY2015 Title I-A grants amounts calculated by ED as the prior-year grant amounts for calculating the estimated FY2016 Title I-A grant amounts. Additionally, it was assumed funding would remain at FY2015 levels for Basic Grants and Concentration Grants and any increases in appropriations for the four formulas under current law would be split evenly between Targeted Grants and EFIG, as appropriators have divided any increase in Title I-A appropriations equally between these two formulas for the past several years. It should be noted that, as prescribed in statute, before grants are made to states approximately $4 million is set aside from the Basic Grant appropriation for the U.S. Census Bureau to produce the SAIPE dataset discussed previously. From the remaining appropriations amount, an additional 1% is set aside under each of the four formulas to make grants to the Bureau of Indian Education (BIE) and the Outlying Areas. As a result, 1% of any appropriations increase would be used to make grants for the Outlying Areas and BIE and 99% would be used to make grants to the 50 states, the District of Columbia, and Puerto Rico. Please note that the estimated grants are provided solely to assist in comparisons of the relative impact of alternative formulas and funding levels in the legislative process. They are not intended to predict specific amounts that LEAs or states will receive. Table 4 provides estimated FY2016 Title I-A grants under S. 1177 assuming appropriations are increased above the $17 billion threshold required to fund the Equity Grant formula. More specifically, grants are estimated assuming appropriations levels of $17.5 billion and $20 billion. For comparison purposes, estimated FY2016 grants under current law assuming the same increases in appropriations are also provided. Note that all differences and percentage differences were calculated relative to estimated FY2016 grants under current law with an increase in appropriations. It should be noted that nine states (Alaska, Delaware, Maine, Montana, New Hampshire, North Dakota, South Dakota, Vermont, and Wyoming) and the District of Columbia are estimated to receive a minimum grant under Targeted Grants, EFIG, and Equity Grants. As discussed previously, there is a small difference in the calculation of the Targeted Grant state minimum provisions and the EFIG and Equity Grant state minimum provisions. The minimum grant under Targeted Grants is determined using only children in LEAs that are eligible for grants under the formula, while the minimum grant provisions under EFIG and Equity Grants are determined using children in all LEAs for which ED calculates grants regardless of whether the LEA is eligible to receive a grant or not under the formula. Thus, the state minimum provisions under the Targeted Grant formula are favorable to different states than those under the EFIG and Equity Grant formulas. Due to the addition of a fifth formula and the resulting redistribution of appropriations under S. 1177 , states that receive a higher minimum grant under the Targeted Grant provisions (Alaska, Delaware, the District of Columbia, and Wyoming) would see a decrease in their estimated grant amounts when funds are also allocated under the Equity Grant formula, and states that receive a higher minimum grant under the EFIG and Equity Grant provisions (New Hampshire, North Dakota, South Dakota, and Vermont) would see an increase in their estimated grants amounts under S. 1177 relative to current law. States that have no difference in their minimum grant amounts under the three formulas (Maine and Montana) would see no change in their grant amounts under S. 1177 relative to current law. Overall, 20 states and the District of Columbia would lose funds relative to their estimated FY2016 grants under current law, ranging from $1,000 in Alaska and Wyoming to $12.6 million in New York. No state would lose more than 0.9% of their Title I-A funding. Two states (Maine and Montana) would see no change in their grant amounts. The remaining states and Puerto Rico would see an increase in their grant amounts, ranging from less than $1,000 in South Dakota to $5.9 million in Texas. No state would have their grant increase by more than 0.7%. Overall, 20 states and the District of Columbia would lose funds relative to their estimated FY2016 grants under current law, ranging from $3,000 in Wyoming to $75.7 million in New York. No state would lose more than 4.8% of their Title I-A funding. Two states (Maine and Montana) would see no change in their grant amounts. The remaining states and Puerto Rico would see an increase in their grant amounts, ranging from less than $1,000 in South Dakota to $35.2 million in Texas. No state would have their grant increase by more than 3.5%. In addition to the Equity Grant formula factors and distribution of funds discussed previously, Congress may consider the following issues in relation to Equity Grants. First, while the Equity Grant formula has some similarities to the existing Title I-A formulas (particularly the EFIG formula), it differs in various ways, most notably with respect to the expenditure factor. Second, moving from four formulas to five makes Title I-A grant determinations more complex and would shift the relative percentage of Title I-A funds allocated to each formula if the appropriators allocated funds for the Equity Grant Formula in accordance with the provisions of S. 1177 . That is, the influence of the Targeted Grant and EFIG formulas would be reduced. Third, the Equity Grant formula may have little if any impact on Title I-A grant amounts in the near future, as the formula would only be implemented if appropriations exceed $17 billion. The remainder of this section discusses each of these issues in more detail. The four Title I-A formulas under current law all include factors that reflect a state's education "inputs" (e.g., spending). More specifically, all four formulas under current law include an expenditure factor based on state APPE and the EFIG formula includes an effort factor that is based on a state's education spending relative to personal income. In contrast, the Equity Grant formula proposed in S. 1177 does not include any factors that account for the differences in education spending among states. There has been disagreement over the use of an expenditure factor in the calculation of Title I-A grants since the program was initiated in 1965. Since that time, all of the formulas have included a factor that reflects state education spending. Arguments for an expenditure factor that varies by state, as opposed to a national level expenditure factor, are that it recognizes and compensates for different levels of spending associated with providing public education in different states; provides an incentive for states and LEAs to increase education spending; rewards states that spend relatively high amounts per pupil for public education; and accounts for the different costs of living in various regions that would be missed by a reliance on poverty data alone, as no geographic cost of living adjustment is applied to the income thresholds used to calculate the estimated number of children in poverty. Conversely, arguments against an expenditure factor that varies by state include the following: the expenditure factor may not compensate for differences in education costs as it is based on levels of state and local spending (rather than costs); as the Title I-A expenditure factor is the same for all LEAs in each state, it does not account for the potentially large differences in the education costs among LEAs within each state; the expenditure factor may provide little incentive for increased spending as (1) an increase in spending would only result in higher grant amounts if a state's APPE increased relative to that of other states, (2) an increase in spending might not result in an increase in a state's expenditure factor in a very high- or very low-spending state due to the bounds placed on APPE in determining the expenditure factor, (3) the increase in Title I-A funding would likely be small in comparison to the increase in state and local spending, and (4) an increase in spending by an individual LEA may have little impact on the aggregate spending per pupil used to determine the expenditure factor; states with relatively high concentrations of formula children (e.g., California, New Mexico, Mississippi) tend to have relatively low APPEs and thus receive less Title I-A funding as a result of the expenditure factor included in current law; and the expenditure factor might not provide the appropriate adjustment for poverty data as there is no widely accepted measure of variation in state or local costs of living and those costs may not be closely associated with variations in state APPE. , Under S. 1177 , Title I-A grant amounts would be determined by five, rather than four, formulas. Although there are differences among the five Title I-A allocation formulas, questions may arise about whether each formula serves a sufficiently distinct role and purpose as to justify its continued use. Additionally, the current four-formula strategy is the result of compromises over proposals to replace previous proposals with a single new formula. At the least, the use of four different allocation formulas to award portions of each year's Title I-A appropriations is complicated. The use of multiple formulas also detracts from transparency as multiple formula factors and provisions may be changing simultaneously. Adding a fifth formula to the Title I-A program would make the grant allocation process more complex. A primary rationale for using multiple formulas to allocate shares of the funds for a single program is that the formulas have distinct allocation patterns, providing varying shares of allocated funds to different types of LEAs or states (e.g., LEAs with high poverty rates or states with comparatively equal levels of spending per pupil among their LEAs). In addition, some of the formulas contain elements that are deemed to have important incentive effects or to be significant symbolically, in addition to their impact on allocation patterns. The result of dividing appropriations among multiple formulas is that it tempers the influence of any one formula. Under S. 1177 , appropriations above $17 billion that otherwise would most likely be divided between Targeted Grants and EFIG would go to Equity Grants. Thus, S. 1177 would decrease the level of funding that would have been allocated through the Targeted Grant and EFIG formulas, thereby decreasing their overall impact on Title I-A grant amounts. Additionally, adding the Equity Grant formula as a fifth formula rather than using it to replace the four existing formulas limits its impact on total Title I-A grant amounts. Under S. 1177 , only Title I-A appropriations in excess of $17 billion would be allocated through the Equity Grant formula. Figure 1 details the appropriations levels for Title I-A since FY2001. Overall, after NCLB reauthorized the ESEA in 2002, there was a steady increase in Title I-A appropriations through FY2005, and a second period of increasing appropriations from FY2007 to FY2009. In recent years, however, appropriations for Title I-A have remained relatively constant. The FY2015 level ($14.4 billion) is below the $17 billion threshold needed to fund the Equity Grant formula. If current funding trends continue, the Equity Grant formula may not be funded in the near future. If, however, appropriations increase by the same amount they did from FY2001 to FY2005, the Equity Grant formula would be implemented in the next few years. Under H.R. 5 , Title I-A grants would continue to be allocated to states and LEAs based on the four formulas prescribed in current law. As discussed previously, under the Targeted Grant and EFIG formulas, there are five sets of weights that apply to an LEA's formula child count and percentage of formula children, and these weights correspond to formula child quintile ranges. H.R. 5 would slightly alter both the numbers-based and percentage-based quintiles used to determine the weighted child counts under Targeted Grants and EFIG beginning in FY2022. Additionally, H.R. 5 specifies that if the quintile change would result in a decrease in Title I-A funds for any LEA, the quintiles demarcated in current law would continue to be used to determine grant amounts. It should be noted that H.R. 5 would also add a new option for states to distribute funds available under Title I-A to LEAs and schools. This provision is commonly referred to as the "state option" or "Title I-A Portability." Unlike the change to the quintiles, the state option would not alter the formulas used by ED to calculate Title I-A grant amounts but would give states the option to change how Title I-A funds are allocated within the state. As the state option is discussed in detail in CRS Report R43929, Allocation of Funds Under Title I-A of the Elementary and Secondary Education Act: H.R. 5 and the State Option , by [author name scrubbed], the remainder of this section focuses only on the quintile changes proposed in H.R. 5 . The changes to the quintiles used for weighted child counts based on the number of formula children and based on the percentage of formula children are shown in Table 5 and Table 6 , respectively. Under H.R. 5 , the ceiling for the first four quintiles on the numbers weighting scale would be increased by 1 and the ceiling for the first four quintiles on the percentage weighting scale would be increased by 0.01 percentage points. The floors for the 2 nd through 5 th quintiles would then be adjusted accordingly. As these would be relatively small changes to the quintiles, their impact would be somewhat limited. The quintile ranges in current law were based on the actual distribution of formula children among the nation's LEAs, according to the latest data in 2001 (at the time NCLB was being considered). Each quintile contains one-fifth of the national total of formula children. If reauthorization legislation were to follow the model of NCLB, these quintiles would need to be updated to reflect the actual distribution of formula children in FY2015. The changes to the quintiles proposed by H.R. 5 do not follow the NCLB approach. Under H.R. 5 , the changes to the quintiles would go into effect in FY2022, only if the change to the new quintiles would result in no "harm" to an LEA. That is, for FY2016 through FY2021 there would be no change to the quintiles used in the Targeted Grant and EFIG formulas. Subsequently, the new quintiles would only be used in the determination of Title I-A grants if, as a result of the change, no LEAs were to lose Title I-A funds relative to their Title I-A grant amount for the prior year as a result of the change. The quintile change, like any formula change, would shift Title I-A funds among states and LEAs. In general, formula changes result in no LEAs losing funds when there is a large enough increase in appropriations to offset any losses. In recent years, appropriations for Title I-A have remained relatively constant. Thus, there is a reasonable chance that the proposed change to the quintiles would result in "harm" to some LEAs and would therefore not go into effect during FY2022 or a subsequent fiscal year. Additionally, as the quintile change would not immediately go into effect, it is possible that the ESEA would be reauthorized before the new quintiles were used in the determination of Title I-A grants. Thus, the quintile changes proposed in H.R. 5 would have little, if any, impact on Title I-A grants. Title I-A Formula Characteristics ESEA Title I-A Appropriations | The Elementary and Secondary Education Act (ESEA) was last comprehensively reauthorized by the No Child Left Behind Act of 2001 (NCLB; P.L. 107-110). During the 114th Congress, the House Education and the Workforce Committee reported the Student Success Act (H.R. 5), which would provide for a comprehensive reauthorization of the ESEA. The bill was subsequently passed on the House floor on July 7, 2015. The Senate Health, Education, Labor, and Pensions (HELP) Committee reported the Every Child Achieves Act of 2015 (ECAA; S. 1177), which was subsequently passed on the Senate floor on July 16, 2015. Title I-A of the ESEA 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 pre-kindergarten through grade 12 schools with relatively high concentrations of students from low-income families. Title I-A has also become a vehicle to which a number of requirements affecting broad aspects of public K-12 education for all students have been attached as conditions for receiving Title I-A grants. It is the largest program authorized under the ESEA and was funded at $14.4 billion for FY2015. Under Title I-A, funds are allocated to LEAs via states using four different allocation formulas specified in statute: Basic Grants, Concentration Grants, Targeted Grants, and Education Finance Incentive Grants (EFIG). Annual appropriations bills specify that portions of each year's appropriation be allocated under each of these different formulas. Under three of the formulas—Basic Grants, Concentration Grants, and Targeted Grants—funds are initially calculated at the LEA level. State grants are the total of allocations for all LEAs in the state adjusted for state minimum grant provisions. Under EFIG, grants are first calculated for each state overall and are subsequently suballocated to LEAs within a state using a different formula. Once funds reach LEAs, the amounts allocated under the four formulas are combined and used jointly. H.R. 5 and S. 1177 would both make changes to the formulas used to allocate funds under Title I-A. Under S. 1177, an Equity Grant formula would be added to the existing formulas used to distribute Title I-A funds to state educational agencies (SEAs) and LEAs. S. 1177 would also modify the process by which Title I-A funds are allocated from LEAs to schools. Under H.R. 5, a new option for distributing funds from the state level to LEAs and from LEAs to schools would be available. This option is often referred to as the "state option" or "Title I portability." H.R. 5 would also make changes to the determination of weighted child counts under two of the four Title I-A formulas included in current law. This report begins with a detailed discussion of how Title I-A grants are determined under current law. It then discusses the changes to these formulas that have been proposed by S. 1177 and H.R. 5. Table A-1 in Appendix A provides an overview of the key elements included in the four Title I-A formulas authorized under current law and the Equity Grant formula that would be added by S. 1177. |
The federal budget is central to Congress's ability to exercise its "power of the purse." Federal budget decisions also express Congress's priorities and reinforce Congress's influence on federal policies. Making budgetary decisions for the federal government is a complex process and requires balancing competing goals. Recent economic turmoil put a strain on the federal budget due to declining revenues and increasing spending levels. Subsequently, policies enacted to restrain spending, along with a recovering economy, have improved the budget outlook, at least in the near term. In August 2011, budget negotiations resulted in the enactment of the Budget Control Act of 2011 (BCA; P.L. 112-25 ), which contained provisions to reduce the budget deficit by about $2 trillion over the next decade. Since that time, various legislative changes to the law have lessened the impact on certain types of federal spending. In addition, the long-term costs of federal health care programs and the effects of the baby boom generation's retirement continue to put pressure on the federal budget and have yet to be addressed. Operating these programs in their current form may pass on substantial economic burdens to future generations. Congress and the President may consider proposals for additional deficit reduction as fiscal issues may remain a key component of the legislative agenda. This report will provide an overview of federal budget issues, focusing on recent fiscal policy changes. It will also discuss the major policy proposals contained in the President's FY2015 budget and the House and Senate budget resolutions. Finally, it also addresses major short- and long-term fiscal challenges. This report will track legislative events related to the federal budget and will be updated as budgetary legislation moves through Congress. Each fiscal year Congress and the President undertake a variety of steps intended to set levels of spending and revenue and to make policy decisions. This section provides a brief summary of the budget cycle along with an explanation of how budget baselines are constructed. Budget baselines are used to measure how legislative changes affect the budget outlook and are integral to making these policy choices. A single year's budget cycle takes roughly three calendar years from initial formation by the Office of Management and Budget (OMB) until final audit. The executive agencies begin the budget process by compiling detailed budget requests in the calendar year before the President's budget submission. Many agencies start working on their budgets during the spring and summer—about a year and a half before the fiscal year begins. OMB oversees the development of these agency requests. The President submits a budget to Congress, which is based on work by OMB and federal agencies, typically around the first Monday in February or about eight months before the fiscal year begins. Congress typically begins formal consideration of the budget resolution once the President submits his budget request. The budget resolution sets out a plan, agreed to by the House and Senate, that establishes the framework for subsequent budgetary legislation. Because the budget resolution is a concurrent resolution, it is not sent to the President for approval. Congress does not always complete action on a budget resolution. In years when Congress is late in adopting, or does not adopt, a budget resolution, the House and Senate independently may adopt "deeming resolution" provisions for the purpose of enforcing certain budget levels. The last time the House and Senate agreed to a budget resolution was for FY2010. The FY2010 budget resolution was agreed to on April 29, 2009. House and Senate Appropriations Committees and their subcommittees typically begin reporting discretionary spending bills after the budget resolution is agreed upon. Appropriations Committees review agency funding requests and propose levels of budget authority (BA). Appropriations acts passed by Congress set the amount of BA available for specific programs and activities. Authorizing committees, which control mandatory spending, and committees with jurisdiction over revenues also play important roles in budget decision making. During the fiscal year, which begins on October 1, Congress and OMB oversee the execution of the budget. Once the fiscal year ends on the following September 30, the Treasury Department and the Government Accountability Office (GAO) begin year-end audits. Budget baseline projections are used to measure how future legislation would affect the budget picture. They are not meant to be predictions of the future budget outlook. Due to the nature of projections, slight changes in assumptions can lead to large effects in outyear totals. Therefore, it is important to understand what projections include and the assumptions on which they are based. Baseline projections are included in both the President's budget and the congressional budget resolution. The Congressional Budget Office (CBO) computes current law baseline projections using assumptions set out in budget enforcement legislation. Since Congress and the President have resolved certain questions related to expiring tax policy and have enacted specific policies set to control discretionary spending over the next decade, there are fewer policy uncertainties affecting the baseline levels under current law. More specifically, the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240 ; see additional discussion below) permanently set into law many individual tax rates and tax policy provisions. On the spending side, baseline discretionary spending levels are largely constrained by the caps and automatic spending reductions enacted as part of the Budget Control Act of 2011 (BCA; P.L. 112-25 ) and further modified by the Bipartisan Budget Act (BBA; P.L. 113-67 ; see additional discussion below). In addition to these current law assumptions, macroeconomic assumptions, specifically of gross domestic product (GDP) growth, inflation, and interest rates, will also affect the baseline estimates and projections. However, the CBO baseline also incorporates certain assumptions currently in law, but that have historically been revised prior to the policy change actually taking effect. Specifically, the CBO baseline assumes that sharp reductions in Medicare's payment rates for physician services will take effect as scheduled in April 2015 and that certain expired and expiring tax provisions will not be extended. The projections in the baseline also contain additional uncertainty, particularly as it relates to future federal borrowing and healthcare costs. Minor changes in the economic or technical assumptions that are used to project the baseline also could result in significant changes in the outyear deficit levels. Current baseline projections show continued reductions in the budget deficit over the next several years, from 4.1% of GDP in FY2013 to 2.6% of GDP in FY2015, and roughly similar deficits as a percentage of GDP through FY2018. These declining deficit figures, relative to the past few fiscal years, are primarily due to continued improvements in the economy, restraints on discretionary spending, and certain assumptions used in constructing the baseline (i.e., certain tax provisions will expire as scheduled under current law). This would result in budget deficits that slightly reduce the level of debt held by the public as a percentage of GDP through FY2018. In other words, these budget deficits would be fiscally sustainable. However, after FY2018, deficit levels are projected to rise again, reaching 4.2% of GDP by FY2022 and 4.0% of GDP by FY2024. Under the baseline assumptions, budget deficits are projected to average 3.5% of GDP over the FY2015 to FY2024 period. (See Table 1 below.) CBO also provides projections based on alternative policy assumptions, which illustrate the levels of spending and revenue if current policies continue, rather than expire as scheduled under current law. If Medicare payment rates for physician services remain the same, expiring tax provisions are extended, and the provisions of the Budget Control Act's automatic spending reduction process do not remain in effect for FY2015 and beyond, CBO projects a cumulative increase in the budget deficit by more than $2.3 trillion relative to the current law baseline, including increased debt service costs, over the FY2015 to FY2024 period. Beyond the 10-year forecast window, federal deficits are expected to grow unless major policy changes are made. This is a result of increased outlays largely attributable to health care costs and baby boomer retirements. Over the last four decades, on average, federal spending accounted for approximately 20% of the economy (as measured by gross domestic product), while federal revenues averaged roughly 17% of GDP. Since FY2002, spending exceeded revenue in each fiscal year resulting in budget deficits. Over the last several fiscal years, spending and revenue have deviated significantly from historical averages primarily as a result of the economic downturn and policies enacted in response to financial turmoil. As the economy recovers, the budget deficit continues to fall. In FY2013, the U.S. government spent $3.5 trillion and collected $2.8 trillion in revenue resulting in a budget deficit of 4.1% of GDP, the lowest imbalance in five years. The trends in revenues and outlays between FY1970 and FY2013 are shown in Figure 1 . Federal outlays are often divided into the broad categories of discretionary and mandatory spending, and net interest. Discretionary spending is controlled by annual congressional appropriations acts. Mandatory spending encompasses spending on entitlement programs and spending controlled by laws other than annual appropriation acts. Entitlement programs such as Social Security, Medicare, and Medicaid make up the bulk of mandatory spending. Congress sets eligibility requirements and benefits for entitlement programs, rather than appropriating a fixed sum each year. Therefore, if the eligibility requirements are met for a specific mandatory program, outlays are made automatically. Net interest comprises the government's interest payments on the debt held by the public, offset by small amounts of interest income the government receives from certain loans and investments. In FY2000, total outlays equaled 18.2% of GDP. In FY2009, outlays peaked at 24.4% of GDP. Outlays have fallen since then, but remain at levels above the historical average. In FY2013, total outlays were 20.8% of GDP. Under the CBO baseline, total outlays are projected to be 22.4% of GDP in FY2024. Figure 2 shows the level of federal spending as a percentage of GDP, broken into the discretionary, mandatory, and net interest categories, between FY2000 through FY2024, as projected in the CBO baseline. Discretionary spending peaked in FY2010 at 9.1% of GDP. In FY2013, discretionary spending totaled 7.2% of GDP. Since FY2000, discretionary spending as a share of GDP has increased 5.3% a year, on average. Increases in discretionary spending over this period have largely been a result of increases in security spending and, more recently, the funding provided in the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ). On average, from FY2000 to FY2013, defense discretionary outlays grew 5.9% per year in nominal terms, while non-defense discretionary outlays grew 4.6% per year in nominal terms. However, by FY2018, according to CBO's baseline projections, discretionary spending will fall to 5.8% of GDP, its lowest level ever. Discretionary spending in FY2024 is projected to total 5.2% of GDP. The projected decline in discretionary spending in the baseline over the next decade is largely due to the reductions under current law contained in the Budget Control Act. Mandatory spending totaled 12.2% of GDP in FY2013, up from 9.7% of GDP in FY2000, as shown in Figure 2 . Mandatory spending peaked in FY2009 at 14.5% of GDP. Mandatory spending levels have been elevated mainly as a result of increases in outlays for income security programs. Though the economic recovery is expected to lower mandatory spending on certain programs over the next few fiscal years, the growth in mandatory spending is projected to resume its upward trend towards the end of the decade due to increases in certain entitlement programs. As a result, under current law, CBO projects that mandatory spending will total 13.9% of GDP in FY2024, higher than the FY2013 level. In addition to their size relative to the economy, the components of federal spending can also be examined relative to each other. In FY2013, mandatory spending totaled 58.8% of total outlays, discretionary spending totaled 34.8% of total outlays, and net interest comprised the remaining 6.4% of total outlays. The largest mandatory programs, Social Security, Medicare, and the federal share of Medicaid, constituted 48.0% of all federal spending in FY2013. By FY2024, mandatory and net interest spending are projected to increase, thereby reducing discretionary spending's share of total outlays. Mandatory spending is projected to rise to 62.3% of total outlays while discretionary spending's share is projected to fall to 23.1% in that year. Net interest spending is projected to rise to 14.7% of total outlays in FY2024. Because discretionary spending represents roughly one-third of total federal outlays, some budget experts contend that to achieve significant reductions in federal spending, reductions in mandatory spending are needed. Other budget and social policy experts contend that cuts in mandatory spending would cause substantial disruption to many households, because mandatory spending comprises important parts of the social safety net. Even though the budget deficit has recently been declining, future projections of increasing deficits and resulting high debt levels still warrant further action to restore fiscal health over the long term. Revenue collection has remained depressed over the last few fiscal years as the result of the economic downturn and certain tax relief provisions. In FY2009 and FY2010, revenue collection totaled 14.6% of GDP. In FY2013, federal revenue collection totaled 16.7% of GDP, which remains below the historical average. Policies enacted during the 112 th Congress enhanced certainty with respect to the revenue outlook. The American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240 ) permanently extended existing tax rates for most income groups, while raising tax rates for upper-income households beginning in calendar year 2013. Under the CBO baseline, revenues are projected to total 18.4% of GDP in FY2024. Individual income taxes have long been the largest source of federal revenues, followed by social insurance (payroll) and corporate income taxes. In FY2013, individual income tax revenues totaled 7.9% of GDP. Social insurance tax revenue accounted for 5.7% of GDP, and corporate income tax revenues equaled 1.6% of GDP in FY2013. Figure 3 shows revenue collections between FY2000 and FY2024, as projected in the CBO baseline. The annual differences between revenue (i.e., taxes and fees) that the government collects and outlays (i.e., spending) result in the budget deficit (or surplus). Annual budget deficits or surpluses determine, over time, the level of publicly held federal debt and affect the growth of interest payments to finance the debt. Between FY2009 and FY2012, annual budget deficits as a percentage of GDP were sharply higher than deficits in any period since FY1945. The unified budget deficit in FY2013 was $680 billion, or 4.1% of GDP—the lowest level since FY2008. The unified deficit, according to some budget experts, gives an incomplete view of the government's fiscal condition because it includes off-budget surpluses. Excluding off-budget items (Social Security benefits paid net of Social Security payroll taxes collected and the U.S. Postal Service's net balance), the on-budget FY2013 federal deficit was $720 billion. The February 2014 CBO baseline estimated the FY2014 budget deficit at $514 billion or 3.0% of GDP. The decline in the estimated budget deficit for FY2014 is mainly the result of increased revenues due to higher individual and corporate tax collections. Outlays for FY2014 are estimated to be slightly lower, as a percentage of GDP, than FY2013. In October 2014, the Treasury Department and Office of Management and Budget reported a final deficit level for FY2014 of $483 billion or 2.8% of GDP. Gross federal debt is composed of debt held by the public and intragovernmental debt. Intragovernmental debt is the amount owed by the federal government to other federal agencies, to be paid by the Department of the Treasury. This amount largely consists of money contained in trust funds, such as the Social Security trust fund, that has been invested in federal securities as required by law. Debt held by the public is the total amount the federal government has borrowed from the public and remains outstanding. This measure is generally considered to be the most relevant in macroeconomic terms because it is the debt sold in credit markets. Changes in debt held by the public generally track the movements of the annual unified deficits and surpluses. Whether or not the movements of gross federal debt will follow those of debt held by the public depends on how intragovernmental debt changes. Historically, Congress has set a ceiling on federal debt through a legislatively established limit. The debt limit also imposes a form of fiscal accountability that compels Congress, in the form of a vote authorizing a debt limit increase, and the President, by signing the legislation, to take visible action to allow further federal borrowing when nearing the statutory limit. Since February 2013, however, three consecutive pieces of legislation have suspended the debt limit accompanied by specific dates upon which the suspension expires. The debt limit is currently suspended as a result of the Temporary Debt Limit Extension Act ( P.L. 113-83 ) through March 5, 2015. It should be noted that the debt limit by itself has no effect on the borrowing needs of the government. The debt limit, however, can hinder the Treasury's ability to manage the federal government's finances when the amount of federal debt approaches this ceiling. In those instances, the Treasury has had to take unusual and extraordinary measures to meet federal obligations, leading to inconvenience and uncertainty in Treasury operations at times. At the end of FY2013 (September 30, 2013), federal debt subject to limit was approximately $16,699 billion, of which $11,976 billion was held by the public. In FY2013, the United States spent $221 billion or 1.3% of GDP on net interest payments on the debt. What the government pays in interest depends on market interest rates as well as on the size and composition of the federal debt. Currently, low interest rates have held net interest payments as a percentage of GDP below the historical average despite increases in borrowing to finance the debt. Some economists, however, have expressed concern that federal interest costs could rise once the economy fully recovers, resulting in future strain on the budget. Interest rates are projected to gradually rise in the CBO baseline resulting in net interest payments of $880 billion or 3.3% of GDP in FY2024. If interest costs rise to this level, they will be higher than the historical average. During the 112 th and 113 th Congresses, several legislative actions and events have affected the fiscal outlook. In August 2011, negotiations over increasing the debt limit resulted in the enactment of the Budget Control Act of 2011 (BCA). Subsequently, two pieces of legislation have revised this law. First, the American Taxpayer Relief Act of 2012 (ATRA) was enacted in January 2013 to deal with numerous expiring tax provisions, the BCA's across-the-board spending cuts (i.e., sequester), and other short-term considerations that were scheduled to take effect at the very end of 2012 or in early 2013. This combination of policies was referred to by some as the "fiscal cliff." During October 2013, certain activities of the federal government ceased operation (i.e., shutdown) due to a lapse in appropriations. Several months after the shutdown, the second piece of legislation modifying the BCA, the Bipartisan Budget Act of 2013 (BBA), was enacted (December 2014). It contained new discretionary spending levels for FY2014 and FY2015 replacing the old levels as prescribed by the BCA. These actions are discussed in more detail below. The Budget Control Act of 2011 (BCA; P.L. 112-25 ) was enacted on August 2, 2011. The BCA contained a variety of measures intended to reduce the deficit by at least $2.1 trillion over the FY2012-FY2021 period, along with a mechanism to increase the debt limit. The deficit reduction provisions included $917 billion in savings from statutory caps on discretionary spending and the establishment of a Joint Select Committee on Deficit Reduction (Joint Committee) to identify further budgetary savings of at least $1.2 trillion over 10 years. Because the Joint Committee was unable to reach an agreement, an automatic spending reduction process was triggered to begin in FY2013. This automatic process was intended to reduce spending levels further in the absence of other legislation to implement these changes. As the BCA's additional spending reductions were set to take effect in early 2013, the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240 ) was signed into law by President Obama on January 2, 2013. ATRA included a number of spending provisions. First, ATRA postponed the start of the FY2013 BCA spending reductions until March 1, 2013. ATRA also reduced the FY2013 BCA spending reductions implemented via the automatic process by $24 billion (i.e., two months' worth of reductions), to roughly $85 billion equally divided between defense and non-defense. These provisions were offset by other changes in spending or revenue. Other spending changes unrelated to the BCA included an extension of certain unemployment benefits, prevention of reductions in Medicare physician payment rates, and a one-year extension of the 2008 farm bill. In addition, ATRA made a variety of changes to tax policy, including the permanent extension of the 2001 and 2003 tax cuts on both ordinary income and capital gains and dividends for taxpayers with taxable income below $400,000 ($450,000 for married taxpayers filing jointly). For taxpayers with taxable income above these thresholds, the marginal tax rate on ordinary income rose from 35% to 39.6% on the portion of their income above these thresholds, and the top tax rate on long term capital gains and dividends rose from 15% to 20%. ATRA also reinstated the personal exemption phase-out (PEP) and limitation on itemized deductions (Pease) for taxpayers with adjusted gross income (AGI) above $250,000 ($300,000 for married couples filing jointly), allowing these limitations to expire for those with AGI below these thresholds. ATRA also extended the tax changes to a variety of tax credits, provided marriage tax penalty relief, and modified certain education-related tax incentives. ATRA also included a permanent "patch" for the alternative minimum tax and provided permanent estate and gift tax rules. Expiring provisions commonly known as "tax extenders" were extended through the end of 2013. The 113 th Congress may choose to address these "extenders" again in 2014. On October 1, 2013, the federal government experienced a funding gap and partial shutdown after appropriations to fund many departments and agencies were not enacted by the beginning of FY2014. The funding gap and associated shutdown ended on October 17, 2013, with the enactment of the Continuing Appropriations Act, 2014 ( P.L. 113-46 ). The act provided interim appropriations through January 15, 2014. As part of the negotiations related to the passage of the Continuing Appropriations Act, the House and Senate agreed to go to conference on the FY2014 budget resolution. On December 9, 2013, Senator Patty Murray and Representative Paul Ryan released an agreement on discretionary spending caps for the remainder of the current fiscal year (FY2014) and the next fiscal year (FY2015), which was later enacted into law as the Bipartisan Budget Act of 2013. The Bipartisan Budget Act of 2013 (BBA; P.L. 113-67 ) replaced a portion of the BCA's automatic spending process reductions for FY2014 ($45 billion) and FY2015 ($18 billion) with other deficit reduction provisions. These changes allow for more discretionary spending than was provided under the BCA for FY2014 and FY2015. Various deficit reduction measures were included to offset the cost of the increased discretionary spending. The Obama Administration released its FY2015 budget in two parts—the first on March 4, 2014, and the second on March 10, 2014. The President's budget lays out for Congress the Administration's views on national priorities and policy initiatives. Congress has also begun its consideration of the FY2015 budget. In his budget for FY2015, President Obama presented his policy agenda, largely focused on providing funding for various investments through the "Opportunity, Growth, and Security Initiative," increasing infrastructure investment, and providing additional funding for early childhood education programs. These measures are paid for through a variety of proposals to increase taxes and reduce other spending over the next 10 years. The budget also proposes enactment of comprehensive immigration reform, tax reform, and other changes to federal health programs to achieve additional deficit reduction. Overall, the proposed budget would reduce the deficit from an estimated $649 billion (3.7% of GDP) in FY2014 to $434 billion (1.6% of GDP) in FY2024, averaging 2.2% of GDP over the next decade. The President's budget proposes a variety of tax and spending measures intended to pay for the initiatives discussed above, as well as other deficit reduction to replace some of the Budget Control Act's automatic spending reduction process (often referred to as the Joint Committee sequester or Joint Committee enforcement). In August 2011, the Budget Control Act placed limits on spending via discretionary spending caps and included provisions for additional spending cuts to be implemented via an automatic process (for more information see the section titled " Recent Budget Policy Legislation and Events "). The budget proposes to eliminate the sequester on mandatory programs in FY2015. For the years beyond FY2015, the budget proposes to replace most of the automatic cuts (i.e., most of the reductions to the discretionary spending caps and all of the mandatory sequester) with spending cuts and tax increases. Table 2 , below, compares the discretionary spending levels in current law to those in the President's budget proposal, before any adjustments. In his budget, President Obama proposes an "Opportunity, Growth, and Security Initiative" to provide additional funding for unspecified discretionary programs in FY2015. This additional funding would be offset by changes to mandatory spending and revenue to be achieved over the FY2015-FY2024 period. The additional spending in FY2015 would be paid for over the next decade. The largest of these proposals include a reduction in agriculture subsidies and limiting the total accrual of tax-favored retirement accounts. Savings are also generated from increasing the tax on tobacco products, eliminating various tax provisions to raise revenue, making changes to Medicare, Medicaid, and other federal health programs, and enacting tax and immigration reform proposals. The budget also proposes reductions in spending on Overseas Contingency Operations (OCO) through the implementation of spending caps. Together, these deficit reduction proposals total $2,167 billion relative to the Administration's Adjusted Baseline between FY2015 and FY2024. Finally, the President's Budget also includes a Cuts, Consolidations, and Savings section that contains proposed changes to 136 discretionary and mandatory programs, which would save approximately $17 billion in FY2015 if enacted. Consistent with the presentation of previous budgets, the Obama Administration provided three separate deficit projections. First, OMB projected a Balanced Budget and Emergency Deficit Control Act (BBEDCA) baseline as required by statute. The BBEDCA baseline assumes that discretionary spending remains constant in real (i.e., inflation-adjusted) terms and revenue and mandatory (or direct) spending continue as under current law. Under this scenario, the FY2015 deficit is projected to total $568 billion. The Obama Administration also projected an Adjusted Baseline, which in its view, provides a more transparent and realistic reflection of the federal government's current fiscal situation. This methodology is used to provide a basis for understanding how new policy choices would affect the fiscal outlook, essentially replacing the current BBEDCA baseline. The Administration's Adjusted Baseline assumes that discretionary spending will be limited by the discretionary caps put in place as part of the Budget Control Act and Medicare payments to physicians will not be reduced under the Sustainable Growth Rate (SGR) formula. The deficit under this scenario is projected to reach $561 billion in FY2015. The final deficit projection, the Proposed Budget, illustrates the impact on the budget outlook if all of the policies proposed in the budget are implemented. In FY2015, the Administration projects that the deficit will reach $564 billion. Both the Adjusted Baseline and the Proposed Budget project deficits throughout the 10-year budget window. Under the Proposed Budget, the deficit would fall from 3.1% of GDP in FY2015 to 1.6% of GDP by FY2024. The deficit levels in the Proposed Budget scenario in the outyears are lower than both the BBEDCA baseline and the Adjusted Baseline figures. As stated above, the Adjusted Baseline assumes that certain policies due to expire will be continued. The President's budget views the Adjusted Baseline as the most realistic projection of the budget deficit, and it is used as their benchmark to measure the impact of their budget proposals. The Proposed Budget, however, is the one that illustrates the resulting budget outlook if all of the policies proposed by the President were implemented. Whether or not a certain policy proposal increases or decreases the deficit depends on which baseline is used as the starting point. Ultimately, the question of whether or not the amount of deficit reduction is sufficient can only be measured by actual budget outcomes (i.e., whether the budget deficit is higher or lower in the future relative to today) and whether or not the budget is on a sustainable path. There are no real limits on what assumptions can be used to construct the Adjusted Baseline as opposed to the BBEDCA baseline, whose parameters were set by legislation. The Adjusted Baseline in the FY2015 budget assumes, for example, increases in spending as a result of eliminating the reduction in Medicare physician payments under the SGR formula. Because this policy serves to increase the deficit, this policy has no cost in the Administration's Proposed Budget when it is measured against the constructed Adjusted Baseline. If it were measured under the BBEDCA baseline, the SGR fix would increase the deficit. In other words, because the Administration assumes that Medicare physician payments would be maintained at current year levels in its Adjusted Baseline, at a cost of $110 billion between FY2015 and FY2024, this proposal does not increase the deficit in the Proposed Budget. A similar methodology can be used in understanding how the funding for Overseas Contingency Operations is being accounted for in each baseline. Both the Adjusted Baseline and BBEDCA baseline assume that OCO funding will continue at current year levels, adjusted for inflation. In the Proposed Budget, the Administration assumes a reduction in OCO funding. As a result, the Proposed Budget allocates a reduction in the deficit of $695 billion over the FY2015-FY2024 period for reduced OCO costs relative to the Adjusted Baseline and the BBEDCA baseline. The budget committees in the House and Senate each work to develop a budget resolution as they receive information and testimony from various sources, such as the Administration, CBO, and congressional committees with jurisdiction over spending and revenues. For FY2015, the Bipartisan Budget Act (BBA) contained a provision directing the House and Senate Budget Committee Chairmen to file spending and revenue levels in the Congressional Record that would be enforceable in the same manner as a concurrent budget resolution. However, nothing would preclude Congress from acting on a budget resolution for FY2015 even after levels have been filed. As specified by the BBA, levels would be filed in this manner if the House and Senate do not agree to a budget resolution for FY2015 by April 15, 2014. The levels would include spending levels for the House and Senate Appropriations Committees (302(a) allocations) consistent with the discretionary spending caps ($521 billion for defense and $492 billion for non-defense) and mandatory spending and revenue levels "consistent with the most recent baseline of the Congressional Budget Office." Such action would be similar to prior years when the House and Senate could not reach agreement on the budget resolution and both took action to "deem" enforceable budgetary levels. In the past, deeming resolutions have also been used when the House and Senate are late in reaching final agreement on a budget resolution. It has been reported that Senate Budget Committee Chairwoman Patty Murray has signaled that the provisions contained in the BBA make a budget resolution for FY2015 unnecessary. On April 2, 2014, the House Budget Committee reported a budget resolution ( H.Con.Res. 96 , 113 th Congress) by a vote of 22-16. On April 10, 2014, the resolution was agreed to by the House by a vote of 219 to 205. The resolution provided for revenue levels of $3,305 billion and outlays of $3,664 billion in FY2015 for a deficit of $380 billion, or approximately 2.1% of GDP. By FY2024, the budget is projected to reach a surplus of $5 billion. This includes a "macroeconomic fiscal impact" of $74 billion in FY2024, without which there would be no budget surplus in that year. Debt held by the public is projected to rise in nominal terms from $13,213 billion in FY2015 to $15,176 billion by FY2024. The budget proposal contains several policy changes affecting spending. Under the House budget resolution, overall discretionary spending would be reduced from its current law levels. Through FY2021, the BCA's caps constrain discretionary spending. The House budget resolution would reduce the non-defense discretionary spending caps under current law and would reduce non-defense discretionary spending relative to the CBO baseline between FY2022 and FY2024. The defense discretionary spending caps would be increased in each fiscal year through FY2021 and defense discretionary spending would be increased between FY2022 and FY2024 relative to the CBO baseline. The reductions to non-defense discretionary spending ($791 billion over the FY2015 to FY2024 period) would more than offset the increases in defense discretionary spending ($483 billion over the FY2015 to FY2024 period). In addition to these changes to spending, the budget resolution also proposes other changes to mandatory programs, specifically to Medicare and Medicaid, and proposes to replace the Patient Protection and Affordable Care Act (ACA). Overall, the budget resolution proposes to reduce spending by $5.9 trillion between FY2015 and FY2024 relative to the current CBO baseline. Spending levels would average roughly 19.0% of GDP between FY2015 and FY2024 under the policies of the resolution. On the revenue side, the House Budget Committee recommends no changes to the overall revenue levels under current law. However, in the report accompanying the budget resolution, the committee recommends implementation of comprehensive tax reform with the ultimate goal of replacing the current system with two tax brackets of 10% and 25% and repealing the Alternative Minimum Tax. The corporate tax rate would also be reduced from 35% to 25%. Revenue collection would average roughly 18.1% of GDP between FY2015 and FY2024 under the policies of the resolution. Ongoing budgetary challenges remain, which may result in Congressional action. In the short term, issues related to deficit reduction and the slow economic recovery may continue to dominate the policy debate. Over the long term, increased spending on entitlement programs, as currently structured, will likely contribute to rising deficits and debt, placing ever-increasing focus on how to achieve fiscal sustainability. Various budget issues may feature prominently in the Congressional debate in the near-term. Ongoing discussions over the budget resolution, FY2015 appropriations levels, and the Budget Control Act and related legislation may highlight the agenda. As discussed above, the Bipartisan Budget Act of 2013 (BBA) put into place new discretionary spending caps for FY2014 and FY2015. As the FY2015 budget and appropriations process continues, the BBA levels were intended to serve as an agreement on the amount of discretionary spending to be provided for these fiscal years. Beyond that however, discretionary spending levels for FY2016 to FY2021 remain as prescribed in the BCA. Therefore, it is possible that Congress and the President may work to change discretionary spending levels in future years. On September 19, 2014, the President signed a continuing resolution into law ( P.L. 113-164 ) providing appropriations for FY2015 through December 11, 2014. Further appropriations will need to be enacted on or before that date to avoid a funding lapse. Though discussions may continue over spending levels, the debate over the debt limit is not expected to resume until spring 2015. This is a result of legislation to suspend the debt limit, which was enacted on February 15, 2014, and suspends the debt limit through March 15, 2015 ( P.L. 113-83 ). This is the third consecutive measure suspending the debt limit. The economy is still recovering from the most recent recession, which lasted from December 2007 to June 2009. Growth remains moderate, primarily due to slack in the labor and capital markets. Most economists expect unemployment rates to remain elevated for the medium term. During the recession and for several subsequent years, the budget deficit grew largely as a result of government actions taken to combat the economic downturn as well as significantly lower revenue and higher spending levels directly attributable to the economic conditions. CBO's projections, however, assume steady economic growth over the next 10 years, taking into account that changes in economic conditions will average out over the period. A recession over the budget window is likely and, if it should actually occur, would temporarily worsen the deficit relative to the baseline. In other years, an expansion could result in a lower deficit relative to the baseline. Other unforeseen events could also change the fiscal outlook. As the economy continues to recover, revenue should remain on an upward trajectory as unemployment continues to fall and income tax collections continue to rise. Spending should stabilize due to decreased reliance on federal programs meant to provide assistance during economic downturns. This should lead to a period of more sustainable budget deficits. The resulting large budget deficits and high debt levels will have an effect for many years, though many argued that fiscal stimulus and other actions were needed to help the economy recover. Many budget analysts are concerned about future levels of federal debt and acknowledge that the current spending and revenue collection cannot continue at current or projected future levels. However, significant deficit reduction at this time may be harmful to the ongoing economic recovery. On the other hand, the longer that the country continues without a plan to stabilize its fiscal future, the more costly reform (i.e., more severe reductions in spending or larger increases in taxes) may ultimately be. In addition, the likelihood of a severe fiscal crisis caused by an unwillingness of private investors to continue financing unsustainable deficits may increase, and, if that occurs, reforms may be forced by events rather than being deliberate and planned. Occasional deficits, in and of themselves, are not necessarily problematic. Deficit spending can allow governments to smooth outlays and taxes to shield taxpayers and program beneficiaries from abrupt economic shocks in the short term, while also temporarily boosting GDP when the economy is underperforming. Persistent deficits, however, lead to growing levels of federal debt that may lead to higher interest payments and may also have adverse macroeconomic consequences in the long term, including slowing investment and lowering economic growth. Since the debt cannot grow faster than GDP indefinitely, large deficits will eventually need to be reduced through increases in taxes, reductions in spending, or both. The federal government faces long-term budget challenges. Some measures of fiscal solvency in the long term indicate that, under current policy, the United States faces major future imbalance, specifically as it relates to rising health care costs and the likely impact on government-financed health care spending. Even as Congress and the President worked to enact deficit reduction legislation (i.e., the BCA), legislators are seen not to have made significant changes to the part of the budget that is projected to grow. Therefore, many budget analysts believe that additional savings are required to put the budget on a sustainable path over the long term. Further, over the last two years, many of those deficit reduction provisions have been softened. Under the current law baseline, deficits continue to be projected over the budget window. CBO, GAO, and the Administration agree that the current mix of federal fiscal policies is unsustainable in the long term. The nation's aging population, combined with rising health care costs per beneficiary, may keep federal health costs rising faster than per capita GDP. CBO projected in September 2013 that under current policy, federal spending on federal health programs (including Medicare, Medicaid, CHIP, and exchange subsidies) would grow from 4.7% of GDP today to 7.6% of GDP in 2035, and 13.5% by 2085. The 2013 Economic Report of the President also projected that future federal spending on Medicare and Medicaid would rise significantly under current law projections. Though these forecasts are highly uncertain, it seems probable that spending on these programs will rise as a share of GDP over time. In addition, growing debt and rising interest rates are projected to consume a greater share of future federal spending. Under current law, CBO projects that spending to finance the federal debt will grow rapidly from 1.3% of GDP today, to 4.5% of GDP in FY2035, and 11.4% of GDP in FY2085. GAO's recent long-term fiscal simulations, under an alternative policy scenario, projected that debt held by the public as a share of GDP would exceed the post-World War II historical high in about 15 years. Keeping future federal outlays at 20% of GDP, or approximately at its historical average, and leaving fiscal policies unchanged, according to CBO projections, would require drastic reductions in all spending other than that for Medicare, Social Security, and Medicaid, or reining in the costs of these programs. As shown in Table 3 below, under CBO's extended baseline, maintaining the debt to GDP ratio at today's level (73%) through FY2038 would require an immediate and permanent cut in non-interest spending or revenues or some combination of the two in the amount of 0.9% of GDP (or about $150 billion in FY2014 alone) in each year. Maintaining this debt-to-GDP ratio beyond FY2038 would require additional savings. If policy makers wanted to lower future debt levels relative to today, the annual spending reductions or revenue increases would have to be larger. For example, in order to bring debt as a percentage of GDP in FY2038 down to the same level it was in FY2008 (39% of GDP), spending reductions or revenue increases or some combination of the two would need to total roughly 2.1% of GDP (or $360 billion in FY2014 alone) in each year. As the economic recovery continues, Congress may focus more effort on reducing the deficit and reining in the debt. This would require less spending, more revenue, faster-than-average economic growth, or a combination of these things. Debt requires interest payments that can strain budgets if debt levels and interest rates are high. High debt levels could limit the government's flexibility in meeting its obligations or in responding to emerging needs of its citizens. Ultimately, failing to take action to reduce the projected growth in the debt might lead to future insolvency. CBO Documents The Congressional Budget Office (CBO) provides data and analysis to Congress throughout the budget and appropriations process. Each January, CBO issues a Budget and Economic Outlook that contains current-law baseline estimates of outlays and revenues. In March, CBO typically issues an analysis of the President's budget submission with revised baseline estimates and projections. These documents can be delayed as a result of the legislative agenda or if the President's Budget is off schedule. In late summer, CBO issues an updated Budget and Economic Outlook with new baseline projections. In these documents, CBO sets a current-law baseline as a benchmark to evaluate whether legislative proposals would increase or decrease outlays and revenue collection. Baseline estimates are not intended to predict likely future outcomes, but to show what spending and revenues would be if current law remained in effect. CBO typically evaluates the budgetary consequences of legislative proposals and the Joint Committee on Taxation (JCT) evaluates the consequences of revenue proposals. CBO also releases other periodic publications focusing on the future fiscal health of the United States. In their publication, The Long-Term Budget Outlook , CBO makes projections on the state of the federal budget over the next 75 years. They discuss spending and revenue levels and the related issues that they expect will arise under different policy assumptions. In their Budget Options volumes, they provide specific policy options and the impact they will have on spending and revenues over a 10-year budget window. They also provide arguments for and against enacting each policy. OMB Documents The President's Budget contains five major volumes: (1) The Budget ; (2) Historical Tables ; (3) Analytical Perspectives ; (4) Appendix ; and (5) Supplemental Materials . These documents lay out the Administration's projections of the fiscal outlook for the country, along with spending levels proposed for each of the federal government's departments and programs. The Historical Tables volume also provides significant amounts of budget data, much of which extends back to 1962 or earlier. Along with the Administration's budget documents, the Department of the Treasury also releases its Green Book , which provides further detail on the revenue proposals that are contained in the budget. | The federal budget is central to Congress's ability to exercise its "power of the purse." Each fiscal year Congress and the President undertake a variety of steps intended to set levels of spending and revenue and to make policy decisions. The purpose of this report is to provide an overview and background on the current budget debate. This report will track legislative events related to the federal budget and will be updated as budgetary legislation moves through Congress. In recent years, policies enacted to restrain spending, along with a stronger economy, have led to reductions in the budget deficit. On August 2, 2011, the President signed into law the Budget Control Act of 2011 (P.L. 112-25). The BCA contained a variety of measures intended to reduce the deficit by at least $2.1 trillion over the FY2012-FY2021 period, along with a mechanism to increase the debt limit. Two subsequent pieces of legislation have modified the BCA since it was enacted—the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240) and the Bipartisan Budget Act of 2013 (BBA; P.L. 113-67). Both pieces of legislation allow for more discretionary spending than was provided under the BCA for FY2013, FY2014, and FY2015. Various deficit reduction measures were included to offset the costs of the changes to spending levels in both ATRA and the BBA. The BCA and the BBA will continue to affect spending levels in FY2015 and beyond as Congress may debate whether or not to enact further changes. The Obama Administration released its FY2015 budget in two parts—the first on March 4, 2014, and the second on March 10, 2014. In his budget, President Obama proposes an "Opportunity, Growth, and Security Initiative" to provide additional funding for unspecified discretionary programs in FY2015. The budget also proposes to eliminate the BCA sequester on mandatory programs in FY2015. These proposals yield a deficit for FY2015 that is slightly higher than what is currently projected in the CBO baseline. Congressional consideration of FY2015 budget and appropriations legislation has already begun. The BBA contained a provision directing the House and Senate Budget Committee chairmen to file spending and revenue levels in the Congressional Record that would be enforceable in the same manner as a concurrent budget resolution for FY2015 if an agreement on a budget resolution could not be reached by April 15, 2014. However, nothing would preclude Congress from acting on a budget resolution for FY2015 even after those levels have been filed. It has been reported that Senate Budget Committee Chairman Patty Murray has signaled that the provisions contained in the BBA make a budget resolution for FY2015 unnecessary. On April 10, 2014, the House agreed to a budget resolution (H.Con.Res. 96, 113th Congress) by a vote of 219 to 205. Though the federal budget deficit has fallen in recent years, CBO, GAO, and the Administration agree that current federal fiscal policies are unsustainable in the long term. Projections indicate that putting the federal budget on a sustainable long-term path will require an agreement on additional deficit reduction. Such an agreement could include increases in revenues, changes to large spending programs, or some combination of the two. |
Cuban migration to the United States is a topic of long-standing congressional interest. U.S. immigration policy toward Cuba is the product of a unique set of circumstances and is unlike U.S. immigration policy toward any other nation in the world. Efforts by the Obama Administration to normalize relations with Cuba following President Obama's December 2014 announcement of a major policy shift toward that country focused increased attention on migration issues, leading some policymakers to reexamine the policies on immigration and federal assistance that apply to Cuban migrants. The November 2016 death of Cuba's Fidel Castro may spur a broader reexamination of these policies. At the same time, concern among some in Cuba about possible changes to current U.S. migration policy is seen as a key factor behind recent upticks in Cuban arrivals to the United States. "Normal" immigration from Cuba to the United States has not existed since the Cuban Revolution of 1959 brought Fidel Castro to power. For more than 50 years, the majority of Cubans who have entered the United States have done so through special humanitarian provisions of federal law. For example, between 1962 and 1979 hundreds of thousands of Cubans entered the United States under the parole provision in the Immigration and Nationality Act (INA). The INA parole provision authorizes the Attorney General (now the Secretary of Homeland Security) "to parole into the United States temporarily under such conditions as he may prescribe only on a case-by-case basis for urgent humanitarian reasons or significant public benefit any alien applying for admission to the United States." Although the Cubans who arrived in the United States after the Cuban Revolution were paroled in, they were considered to be refugees fleeing persecution. At the time, the INA did not contain the current definition of a refugee or the provisions on refugee admissions and asylum; these were added by the Refugee Act of 1980. In 1980, the INA parole provision was again used when a mass migration of asylum seekers—known as the Mariel Boatlift—brought approximately 125,000 Cubans (and 25,000 Haitians) to South Florida over a six-month period. The Carter Administration described these arrivals as "Cuban-Haitian entrants." The INA parole provision continues to be used today by executive discretion to allow some Cubans to enter the United States. U.S. policy on Cuban migration has been shaped by a 1966 law, as amended, and migration agreements between the United States and Cuba, operating in conjunction with the INA. The 1966 law commonly known as the Cuban Adjustment Act (CAA), as amended, enables Cubans who have been present in the United States for at least one year to adjust to lawful permanent resident status (becoming lawful permanent residents (LPRs) of the United States) provided they are eligible to receive an immigrant visa and are admissible to the United States for permanent residence. Unlike most other applicants for adjustment to LPR status, Cuban nationals do not have to be sponsored by an eligible family member or employer. The CAA concerns Cubans who are already present in the United States and, as such, is distinct from U.S. policy on Cuban migrants attempting to reach the United States (see " Migration Agreements of 1994 and 1995 " and " Wet Foot/Dry Foot Policy "). Under the CAA: [T]he status of any alien who is a native or citizen of Cuba and who has been inspected and admitted or paroled into the United States subsequent to January 1, 1959 and has been physically present in the United States for at least one year, may be adjusted by the Attorney General [now the Secretary of Homeland Security], in his discretion and under such regulations as he may prescribe, to that of an alien lawfully admitted for permanent residence if the alien makes an application for such adjustment, and the alien is eligible to receive an immigrant visa and is admissible to the United States for permanent residence. In FY2014, the most recent year for which data are available, about 40,000 Cubans and their dependents adjusted to LPR status under the CAA. The CAA, which predated the Refugee Act of 1980, arguably reflected a belief that Cuban migrants to the United States were refugees under international law. The treatment of Cuban arrivals as refugees is a recurring theme in U.S. immigration policy toward Cuba. There have been legislative efforts over the years to sunset or repeal the CAA. In 1996, a provision was enacted as part of the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA) that provides for the repeal of the CAA "effective only upon a determination by the President ... that a democratically elected government in Cuba is in power." Negotiated at a time of increasing U.S. Coast Guard interdictions of Cubans trying to reach the United States by sea, the 1994 migration agreement purportedly sought to normalize migration between Cuba and the United States. Under the agreement, both nations agreed to take steps to promote "safe, legal, and orderly" migration. Among the agreement's key elements, Cuba agreed to try to prevent unsafe departures from the island, and the United States agreed that Cuban migrants rescued at sea would not be allowed to enter the United States and instead would be taken to safe-haven camps. With respect to legal migration, the United States agreed to admit no less than 20,000 Cuban immigrants annually, excluding the immediate relatives of U.S. citizens. To help achieve this level of admissions, the United States established the Special Cuban Migration Lottery; lottery winners, who are randomly selected among applicants, are considered for immigration parole. The 1995 migration agreement built on the 1994 accord. A key element of this agreement concerned treatment of Cubans intercepted at sea on their way to the United States. Both nations agreed that intercepted Cubans would be returned to Cuba and that this would be done in a manner consistent with "the parties' international obligations." The 1994 and 1995 migration agreements, supported by the CAA, have resulted in a so-called "wet foot/dry foot" policy toward Cuban migrants. "Wet foot" refers to Cubans who do not reach the U.S. shore. They are returned to Cuba unless they cite a well-founded fear of persecution, in which case they are considered for resettlement in third countries. "Dry foot" is a reference to Cubans who successfully reach the U.S. shore, are inspected by Department of Homeland Security (DHS) officers, and generally are permitted to stay in the United States. It is important to note that those who are permitted to stay under the "wet foot/dry foot" policy are not granted formal admission to the United States. Instead, they are typically granted parole and, as parolees, can apply to adjust to LPR status under the CAA after one year. DHS U.S. Coast Guard and U.S. Customs and Border Protection (CBP) data reveal recent increases in unauthorized immigration from Cuba to the United States, which experts attribute mainly to Cuban concerns that the policy of allowing those who reach the U.S. shore to become permanent residents may soon change. As shown in Figure 1 , since FY2013 (the year before the announced shift in U.S. policy toward Cuba), there have been notable increases in U.S. Coast Guard maritime interdictions, in U.S. Border Patrol apprehensions between U.S. ports of entry, and especially in numbers of unauthorized Cubans presenting themselves at official U.S. ports of entry (see Appendix for the yearly data in Figure 1 ). The terms "unauthorized" and "inadmissible" are used here to describe these Cuban migrants because they do not meet the INA requirements for admission to the United States (although policies may permit them to enter and remain in the country). The U.S. Coast Guard is charged with interdicting unauthorized migrants at sea prior to landfall in the United States. As shown in Figure 1 , the annual number of maritime interdictions of Cubans has fluctuated over the years (see Figure A-1 for yearly data). The trend, however, has been consistently upward since 2010. Between FY2013 (the year before the announced shift in U.S. policy toward Cuba) and FY2016, the number of maritime interdictions increased nearly fourfold, from 1,357 in FY2013 to 5,213 in FY2016. The number of maritime interdictions in FY2016 was higher than in any other year during the FY1995-FY2016 period. The annual number of Cubans apprehended by the Border Patrol between U.S. ports of entry has likewise fluctuated over the years, generally tracking the interdiction data. These apprehensions have risen consistently since FY2012 (see Figure A-2 ). Between FY2013 and FY2016, Border Patrol apprehensions of Cubans increased more than threefold, from 624 to 1,930. The FY2016 figure was the highest since FY2008. Consistent with maritime travel, the vast majority of these encounters have occurred in U.S. coastal areas. Far greater than the number of Coast Guard interdictions and Border Patrol apprehensions of Cubans each year combined, at least since FY2004, is the number of Cubans encountered at official U.S. ports of entry (see Figure A-3 ). These data reflect a preference on the part of Cubans to travel to the United States mainly by land. Unlike migrants of other nationalities, Cubans who are not eligible for formal admission are nevertheless generally able to enter and live in the United States in accordance with special immigration policies, as discussed. The number of inadmissible Cubans arriving at ports of entry has grown annually since FY2009. The increases since FY2014 have been marked, with total numbers more than doubling between FY2014 (24,277) and FY2016 (46,590). The majority of these Cubans present themselves at land ports of entry along the southwest border. Qualified Cubans can also avail themselves of pathways to permanent residence in the United States available to all nationalities. Cuban asylum seekers, like those of all nationalities, can apply for asylum from within the United States or at a U.S. port of entry, or they can be considered for refugee status abroad. Under the INA, refugees typically have to be outside their home country, but there is an in-country refugee program that enables certain Cubans, including human rights activists, members of persecuted religious minorities, and former political prisoners, to apply to the U.S. refugee program while still in Cuba. Persons granted asylum or admitted to the United States as refugees can apply for LPR status after one year. Among the other pathways to permanent residence, U.S. citizens and LPRs can petition for eligible family members in Cuba to become LPRs through the U.S. family-based immigration system. Annual numbers of refugee admissions to the United States from Cuba have varied over the years, revealing no clear trend. With the exception of one year when annual admissions of Cuban refugees exceeded 6,000, refugee admissions from Cuba have numbered less than 5,000 each year since FY1996. Asylum grants have been significantly lower. In FY1996, the peak year for asylum grants in the FY1996-FY2014 period, 886 Cubans were granted asylum. In each year between FY2002 and FY2014, fewer than 100 Cubans received asylum. In addition to creating processes for the admission of refugees and the granting of asylum, the Refugee Act of 1980 authorized federal assistance to resettle refugees of all nationalities and promote their self-sufficiency. It established the Office of Refugee Resettlement at the Department of Health and Human Services (HHS) to administer a set of refugee resettlement assistance programs. Another 1980 law, the Refugee Education Assistance Act, enacted at the time of the Mariel Boatlift, addressed the eligibility of Cubans and Haitians for federal assistance and benefits. Section 501(e) of the law defined the term "Cuban and Haitian entrant," which had been used by the Carter Administration to describe Mariel arrivals, for purposes of eligibility for federal assistance: (1) any individual granted parole status as a Cuban/Haitian Entrant (Status Pending) or granted any other special status subsequently established under the immigration laws for nationals of Cuba or Haiti, regardless of the status of the individual at the time assistance or services are provided; and (2) any other national of Cuba or Haiti— (A) who—(i) was paroled into the United States and has not acquired any other status under the Immigration and Nationality Act; (ii) is the subject of removal proceedings under the Immigration and Nationality Act; or (iii) has an application for asylum pending with the Immigration and Naturalization Service; and (B) with respect to whom a final, nonappealable, and legally enforceable order of removalhas not been entered. The law directed the President "to exercise authorities with respect to Cuban and Haitian entrants which are identical to the authorities which are exercised under [the Refugee Assistance provisions of the INA]." It also allowed the President to provide by regulation "that benefits granted by any law of the United States ... with respect to individuals admitted to the United States [as refugees] ... shall be granted in the same manner and to the same extent with respect to Cuban and Haitian entrants." Another law, the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, as amended, made Cuban and Haitian entrants eligible for certain federal public benefits to the same extent as refugees. Steps taken by the Obama Administration to date to normalize relations with Cuba have not changed U.S. policy toward Cuban migrants. However, these efforts have raised questions about the potential for changed policies in the future through either executive or congressional action. Much of this attention has focused on the CAA, which, as discussed, grants DHS the discretionary authority to adjust the status of eligible Cubans. Generally speaking, the executive could be said to have some latitude under the CAA to determine whether to exercise this discretion toward individual Cuban migrants or classes of Cuban migrants. With respect to congressional action, bills were introduced in the 114 th Congress to repeal the CAA. If enacted, measures such as these would eliminate the special adjustment of status pathway for Cubans, requiring them to qualify for adjustment of status under the applicable provisions in the INA. Other legislation was introduced in the 114 th Congress that would eliminate the special treatment that Cuban entrants receive with respect to federal refugee resettlement assistance and other federal assistance. Proposals limited to ending federal assistance, however, would not change existing immigration policies toward Cubans and, thus, would not directly impact the ability of Cubans to enter the United States or to adjust status under the CAA. These three figures provide available data on the migration of unauthorized Cubans to the United States. These are the same data included in Figure 1 . The figures display annual data since FY1995 on U.S. Coast Guard interdictions ( Figure A-1 ) and U.S. Border Patrol apprehensions between U.S. ports of entry ( Figure A-2 ), and annual data since FY2004 on inadmissible Cubans encountered at U.S. ports of entry ( Figure A-3 ). As discussed, the recent increases in all three measures are widely attributed to Cuban concerns that U.S. treatment of Cuban migrants may soon change. The data, however, also reflect considerable variability in earlier years. Observers have identified a number of factors that may have contributed to these annual changes. On the U.S. side, these include U.S. economic conditions (e.g., the 2007-2009 recession and slow recovery) and migration-related policies affecting Cubans (e.g., changes in Coast Guard patrolling methods). | The Obama Administration's efforts to normalize relations with Cuba focused attention on U.S. policies on immigration and federal assistance that apply to Cuban migrants in the United States—a set of policies that afford Cuban nationals unique immigration privileges. The November 2016 death of Cuba's Fidel Castro may lead to further consideration of these issues. "Normal" immigration from Cuba to the United States has not existed since the Cuban Revolution of 1959 brought Fidel Castro to power. For more than 50 years, the majority of Cubans who have entered the United States have done so through special humanitarian provisions of federal law. U.S. policy on Cuban migration has been shaped by a 1966 law known as the Cuban Adjustment Act, as amended, and U.S.-Cuban migration agreements signed in the mid-1990s, operating in conjunction with the Immigration and Nationality Act (INA). Among the special immigration policies presently in place is a so-called "wet foot/dry foot" policy toward Cuban migrants who try to reach the U.S. shore by sea. "Wet foot" refers to Cubans who do not reach the United States. They are returned to Cuba unless they cite a well-founded fear of persecution, in which case, they are considered for resettlement in third countries. "Dry foot" is a reference to Cubans who successfully reach the U.S. shore and are generally permitted to stay in the country. After one year, these individuals can apply to become U.S. lawful permanent residents (LPRs) under the Cuban Adjustment Act. In addition to entering the United States under special policies and becoming LPRs through the Cuban Adjustment Act, Cubans can gain permanent admission to the United States through certain standard immigration pathways set forth in the INA. They can be sponsored for U.S. permanent residence by eligible U.S.-based relatives who are U.S. citizens or LPRs through the U.S. family-based immigration system. They can also apply for asylum from within the United States or at a U.S. port of entry, or they can be considered for refugee status abroad. Persons granted asylum or admitted to the United States as refugees can apply for LPR status after one year. Special provisions of law also make Cuban migrants in the United States eligible for federal assistance. The Refugee Education Assistance Act of 1980 defines the term "Cuban and Haitian entrant" for purposes of eligibility for federal assistance. It makes these entrants eligible for the same resettlement assistance as refugees. The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, as amended, makes Cuban and Haitian entrants eligible for certain federal public benefits to the same extent as refugees. The steps taken by the Obama Administration to normalize relations with Cuba have raised questions about the possibility of future changes to U.S. policy toward Cuban migrants through either executive or congressional action. Regarding the latter, legislation was introduced in the 114th Congress to repeal the Cuban Adjustment Act and eliminate the special treatment that Cuban entrants receive with respect to federal refugee resettlement assistance and other federal assistance. It remains to be seen whether Congress will act on any such measures. For an overview of current issues in U.S.-Cuban relations, see CRS Report R43926, Cuba: Issues for the 114th Congress. |
Research on climate change has identified a wide array of sources that emit "greenhouse gases" (GHGs)—compounds that trap the sun's heat, with effects on Earth's climate. The largest sources of these emissions, particularly in developed economies, are electric utilities and the transportation sector. In the United States, electricity generation accounts for about 40% of the emissions of carbon dioxide, the principal greenhouse gas, or about one-third of the emissions of the six major GHGs combined. The transportation sector, including cars, trucks, buses, trains, ships, and aircraft, accounts for roughly one-third of U.S. CO 2 emissions, or 28% of the six GHGs combined. Aircraft account for about 10% of the U.S. transportation sector's GHG emissions, or 2.6% to 3.4% of total U.S. GHG emissions. In the United States, aviation emissions have grown more slowly than those of other transportation sectors, and slightly less than the emissions of the economy as a whole over the last two decades, but worldwide aviation has been among the faster-growing sources of GHG emissions. According to the Commission of the European Union, emissions from international aviation increased by almost 70% between 1990 and 2002. The United Nations Intergovernmental Panel on Climate Change (IPCC), in a 1999 study that is still widely cited, projected that the impact of aircraft emissions on climate would be 2.6 to 11 times as large in 2050 as it was in 1992. If, as many argue, GHG emissions must be reduced 50% to 80% in that time period, emissions from aviation would need to be drastically reduced to provide a proportional share of the targeted reduction. U.S. emissions from aircraft have run counter to the worldwide trends and projections. Since 1990, aircraft GHG emissions have declined as a percentage of total U.S. emissions (see Table 1 ). The biggest factor in the decline was a 54% decrease in emissions from domestic military operations, which more than offset increases in domestic commercial and general aviation emissions. Emissions from domestic operation of commercial aircraft grew 13% between 1990 and 2007. That figure was well below the growth in air travel: according to the Air Transport Association (the association that represents the domestic airlines) passenger-miles traveled domestically on U.S. commercial airlines increased 74% between 1990 and 2007 and cargo revenue-ton miles increased 136%. Two types of efficiency increases contributed to the relatively slow growth in U.S. commercial aircraft emissions. First, load factors (the percentage of seats occupied) increased to 79.8% in 2007, compared with 60.4% in 1990. Second, fuel efficiency itself increased, as older, less efficient aircraft were retired in favor of newer, more efficient models. These savings can be substantial. For example, American Airlines estimates that the 18-year old MD-80s currently flying use 35% more fuel than the Boeing 737-800 aircraft that are to replace them over the next two years. EPA's Inventory of U.S. Greenhouse Gas Emissions and Sinks shows that domestic flights of all kinds (military, commercial aircraft, and general aviation) accounted for about 10% of the GHG emissions from the U.S. transportation sector in 2006—2.6% of overall U.S. GHG emissions. Aviation's impact on climate may be greater than these figures suggest, however, for two reasons. First, emissions resulting from international transportation are not currently included in the U.S. emission totals. These emissions totaled 52.7 million metric tons in 2007. If they were included in the U.S. aviation statistics, emissions from aircraft of all types would have accounted for 3.4% of the U.S. GHG total. Second, the bulk of the aviation sector's emissions occur high in the atmosphere, where their impact on climate is greater than that of emissions at ground level. According to a number of sources, the total impact of aviation could be around twice the impact of carbon dioxide alone when this factor is taken into account. Emissions from jet aircraft also lead to the formation of cirrus clouds, as the condensation trails (contrails) of water vapor and sulfur particles emitted from engines at high altitudes form ice crystals that persist as clouds under some atmospheric conditions. Scientists are uncertain how to measure the occurrence and impact of such clouds, but they are reasonably certain that the clouds add to the greenhouse effect of aircraft emissions, perhaps substantially. Thus, while the precise share of aviation in total greenhouse gas emissions depends on what is included, and the impact of some emissions is unclear, there is little doubt that aviation is a significant contributor to U.S. and world GHG emissions. The cost of jet fuel represents a significant portion of total cost for most air carriers. There is a great deal of variation depending on the distance traveled, the age and efficiency of the aircraft, and the price of fuel at any given time, but the total fuel expenses of U.S. airlines consumed an average of 24% of airline operating revenues in 2007, according to the Air Transport Association. Given the importance of fuel costs, airlines and air freight companies have a major incentive to purchase more fuel-efficient aircraft, and thus, aircraft manufacturers are constantly seeking to improve the efficiency of airplanes and engines. These incentives have resulted in sizeable efficiency gains: U.S. airlines carried 20.4% more passenger and cargo traffic in 2007 than they did in 2000, but they used nearly 3% less fuel in doing so. This resulted in a reduction of 5.1 million metric tons of CO 2 emissions in 2007, as compared to 2000, according to ATA. The industry has committed to a further 30% increase in fuel efficiency by 2025. In addition to improving the efficiency of individual aircraft, there is a general consensus that fuel use could be reduced by modernizing the Federal Aviation Administration (FAA)'s air traffic control system. The FAA is in the process of transforming air traffic control from a ground-based system of radars to a satellite-based system, dubbed the Next Generation (NextGen) Air Transportation System. The primary objective is to enable the air traffic control system to handle a projected doubling of current passenger loads by 2025. But, when fully implemented, NextGen is also expected to cut the GHG emissions of individual aircraft 10% to 15%, by allowing more direct routing, reducing delays, and through such features as Continuous Descent Approach. According to the FAA, United Parcel Service aircraft equipped with some of the NextGen technologies have reduced emissions as much as 34%. As policy makers consider whether the federal government should regulate aircraft GHG emissions (versus continuing to rely solely on market forces to determine the level of emissions), some have turned their attention to the potential for regulation under the Clean Air Act. In December 2007, EPA received two petitions requesting that it exercise that authority to regulate GHG emissions from aircraft engines. EPA has not responded to these petitions, nor has it promulgated regulations to control CO 2 from any source, to date. In 2003, responding to an earlier petition to regulate GHGs from cars and trucks, the agency maintained that it did not have authority under the Clean Air Act to do so. That determination was challenged by Massachusetts and other petitioners, and in a 2007 decision, the U.S. Supreme Court found that GHGs are air pollutants within the Clean Air Act's definition, and thus, EPA has authority to regulate them if it finds that they "cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare." Using the authority of Section 231 of the act, the EPA Administrator may propose emission standards applicable to any air pollutant from any class of aircraft engines which in the Administrator's judgment causes, or contributes to, air pollution which may reasonably be anticipated to endanger public health or welfare. The Administrator is required to consult with the FAA Administrator and hold public hearings before finalizing such standards. The President may disapprove of such standards if the Secretary of Transportation finds that they would create a hazard to aircraft safety. The December 2007 petitions request that EPA make a finding that aircraft GHG emissions do endanger public health or welfare, and that the agency adopt regulations that allow a range of compliance approaches: these might include emission limits, operational practices, fees, a cap-and-trade system, minimizing engine idling time, employing single engine taxiing, or use of ground-side electricity measures to replace the use of fuel-burning auxiliary power units at airport gates. The aircraft petitions are among several others that EPA has received to regulate GHG emissions from cars and trucks, ships, and nonroad engines and vehicles. As a result, whatever decision is made (for any one of these sectors) is considered likely to affect the decisions regarding all the others—ultimately, a large portion of the economy. Furthermore, as soon as greenhouse gases become "subject to regulation" under any section of the act, new stationary sources, such as electric generating units, will be required to install best available GHG control technology under the act's New Source Review/Prevention of Significant Deterioration provisions. Given the relative size of aircraft emissions as compared to power plants, cars, and trucks, aviation was never likely to be the first sector whose GHG emissions EPA would regulate. Thus, not surprisingly, EPA has taken no action on the aircraft petitions, to date. The agency is moving ahead with regulation of GHG emissions from cars and trucks, however: on May 19, at a press conference in the White House Rose Garden, the President announced that EPA would proceed to set greenhouse gas emission standards for new motor vehicles, in coordination with new fuel efficiency standards to be established by the National Highway Traffic Safety Administration. A formal set of proposed standards appeared in a joint EPA-NHTSA notice in the September 28, 2009 Federal Register . Both EPA and the President have made clear that, despite their action under existing authority, they support legislation targeted more specifically at GHGs, and would prefer that Congress enact a bill addressing GHG emissions specifically rather than EPA using its current authority. New legislation might be more efficient—clearly allowing sources in different industries to trade emission allowances to each other, for example—and it might avoid challenge in the courts if Congress were specific regarding the authority it was giving EPA to control GHG emissions. The current language of the act, while arguably providing regulatory authority, is sufficiently vague that legal challenges are considered almost a certainty as EPA proceeds. This might delay implementation of controls. The two options—proceeding under the Clean Air Act or supporting new legislation—are not mutually exclusive, however. Existing EPA authority under the Clean Air Act can be used as a backstop, while Congress considers granting new authority. In the meantime, EPA's development of regulations is among the factors motivating Congress and interested parties to agree on a legislative approach. GHG legislation has been a high priority of the current Congress. Attention has centered on legislation ( H.R. 2454 in the House) that would cap emissions of GHGs economy-wide and establish an allowance trading system for major emitters. (For a general discussion of how such cap-and-trade systems work, see CRS Report RL34502, Emission Allowance Allocation in a Cap-and-Trade Program: Options and Considerations , by [author name scrubbed], especially Appendix A.) As noted, aviation is considered a significant source of GHG emissions. Nevertheless, the aviation sector has not generally been targeted directly by the climate change bills introduced in Congress to date. An exception was the reported version of H.R. 2454 , the Waxman-Markey bill. As reported by the House Energy and Commerce Committee in May, the bill would have required EPA to promulgate best achievable control technology standards for emissions of GHGs from new aircraft and new engines used in aircraft by December 31, 2012. This requirement was removed from the version of the bill that passed the House June 26. Instead, the House-passed version encourages the development of a global framework for the regulation of GHG emissions from civil aircraft within the International Civil Aviation Organization. And, instead of direct regulation, the bill would deal with aviation emissions indirectly: by including the refining sector in its overall emissions cap, it would address the aviation sector's emissions "upstream." Capping emissions from fuels upstream of the air carriers and eventually lowering the cap more than 80%, as the bill would do, could have several effects: first, it would provide an incentive for refiners to produce lower-carbon fuels ; second, it would increase the price of fuels, as refiners either purchased additional allowances for their emissions or were forced to reduce production, in essence rationing fuels through a higher price in order to stay beneath the emissions cap; third, as the cost of fuel increased, the demand for fuel-efficient aircraft would increase; and fourth, consumers of aviation services (airline passengers and shippers of freight) would have incentives to replace higher-cost air transportation with lower-cost alternatives (e.g., video-conferencing by business and government entities, increased reliance on lower-emission forms of transport, greater reliance on local sources of goods, etc.). The cost of air travel and of air freight has been reduced substantially since its inception, as aircraft have become more efficient and airlines have reduced other costs in competitive markets. According to ATA, the cost of domestic air travel in real (inflation-adjusted) terms has declined by 51.9% since 1978. By contrast, controlling GHG emissions, if it were done, would likely increase the price of air travel and air freight, reducing demand in comparison to a business-as-usual (i.e., without GHG controls) scenario. Unlike the upstream approach of U.S. cap-and-trade bills, the European Union (EU) has chosen to regulate aviation directly, by including the sector in its Emission Trading Scheme (ETS), beginning in 2012. The ETS began operation in 2005, capping emissions of CO 2 from more than 10,000 energy-intensive stationary sources of emissions. The currently covered sectors (power plants; petroleum refining; iron and steel production; coke ovens; pulp and paper; and cement, glass, lime, brick, and ceramics production) account for about half of EU CO 2 emissions. On January 1, 2012, the aviation sector's CO 2 emissions are to be added to the ETS. The scheme is to cover all aircraft operators landing in or departing from the EU, with the exception of military aircraft, some small carriers, emergency services, research, and humanitarian flights. Thus, flights to and from the EU by U.S. air carriers would be subject to the emission limits. For the first year, the total quantity of allowances would be equivalent to 97% of the sector's average 2004-2006 emissions. The cap would be reduced to 95% in 2013, with further reductions to be agreed on as part of the ongoing review of the ETS. In allocating the emissions allowed under the cap, 85% of the sector's 2012 allowances are to be given to aircraft operators at no cost, and 15% of the allowances auctioned. The EU Commission has proposed that 80% of allowances be distributed free of charge in 2013, with 20% being auctioned; the percentage of free allowances is expected to continue declining with a goal of auctioning all allowances in 2020. Operators emitting more than their allowed cap would need to buy additional allowances on the carbon market. A special reserve fund, taken from the sector's overall cap, is to allocate up to one million tons worth of allowances a year to ensure access to the market to new operators and to provide allowances to rapidly growing airlines. The directive provides sanctions for failure to comply with the scheme, including the possibility that a non-complying airline might be banned from operating in the EU. According to press reports, "This warning shot is aimed at foreign airlines—including US carriers—that have said they will not recognise the scheme." For its part, the United States has responded by threatening trade sanctions if the EU makes an attempt to force foreign airlines to comply with the emissions trading system. This dispute highlights a general problem in directly regulating emissions from sectors such as aviation or shipping, a substantial portion of whose total emissions occur outside of national borders. Without international agreement, it may be difficult to enforce emission limits, and the imposition of controls by any one country or bloc of countries is likely to be challenged through existing international institutions. Regulating upstream of the aviation industry, as most U.S. climate change bills would do, may avoid some of these issues, maintaining a level playing field for U.S. and foreign airlines and air freight companies, without imposing emission limits that could be directly challenged or circumvented. Whether enactment of such legislation would be sufficient to address European concerns over U.S. airlines' emissions, resolving the dispute, remains to be seen. The EU is not the only international body addressing aircraft emissions. The International Civil Aviation Organization (ICAO), the international organization that administers standards and recommended practices for the aviation authorities of more than 190 countries, agreed in September 2007 to support the development of an "aggressive" action plan on aviation and climate change, but without a fixed timetable or specific emission reduction targets. The United States has supported the ICAO as the proper venue for international regulation of emissions, and maintains that the EU's approach is contrary to ICAO's charter, the Chicago Convention on International Civil Aviation. A majority of ICAO's members agree with the United States that participation in an emissions trading scheme (such as EU-ETS) should only be on the basis of mutual consent. As noted earlier, the House-passed version of H.R. 2454 encourages the development of a global regulatory framework through ICAO. Section 276 of the bill declares it to be the sense of Congress that the United States should actively promote an ICAO framework and work with foreign governments to reconcile emissions reduction programs to "minimize duplicative requirements" and avoid "unnecessary complication for the aviation industry, while still achieving the environmental goals." Greenhouse gas emission controls of some sort may affect U.S. aviation in the next few years, be they specific controls on engine emissions, emission caps applied to the sector as a whole, upstream caps (on fuel refiners), or carbon taxes. Depending on their stringency, the effects of most of these approaches could ripple through the economy, providing additional incentives for aircraft manufacturers to improve the fuel efficiency of aircraft, raising the cost of air travel and air freight, and providing further pressure to improve the air traffic control system. U.S. airlines and air freight companies, like many other sectors, would prefer that they be allowed to address the GHG issue through voluntary measures. Unlike some other sectors, they have achieved substantial increases in fuel economy over the last three decades or more, and in the current recession, their GHG emissions are at roughly their 1990 levels. Compared to other means of transportation, in fact, U.S. commercial aviation's record on GHG emissions over the last two decades is much better. As shown in Table 2 , GHG emissions from U.S. commercial aviation increased less than those of any other segment of the transportation market, despite the demand for aviation services (measured in passenger-miles traveled) increasing at a faster pace than the other sectors. But the sector is still an important source of emissions, and its projected growth indicates that it may outstrip the economy as a whole's rate of emission growth in future years. Thus, it is likely to be included in some fashion in any mandatory economy-wide approach to reducing GHG emissions. On a practical level, reducing emissions from aviation may be complicated: The sector is composed of tens of thousands of mobile emission sources; thus, direct controls on engines or aircraft face obstacles that do not apply in industries composed of fewer and stationary emission sources. Even monitoring the relevant emissions for this sector is difficult. The sector's emissions affect climate in several ways. Controlling only CO 2 emissions might leave other impacts of aircraft on climate unaffected. More research is needed to identify the precise effects of some of these, such as the impact of contrails on cirrus cloud formation, and the effect of such clouds on climate change. The sector's impressive progress in making itself more energy-efficient in recent years poses obstacles as well: improving load factors was relatively easy when they were at 60%; at the current level, roughly 80%, one begins to approach the limits of further improvement. Some means of emission reduction are beyond the industry's control, including the pace of modernization of the air traffic control system, and the degree to which aeronautical research and engine modifications can reduce fuel consumption. In both cases, emission reduction may depend, at least in part, on the actions of government agencies—the FAA and NASA, in particular. According to ATA, funding for NASA and FAA aviation environmental R&D programs has been cut by approximately 50 percent in the past 10 years. Finally, the sector faces controls from foreign countries, particularly the European Union. International negotiations for a post-Kyoto-Protocol emissions control scheme may give rise to emission limits in other countries, as well. As discussed, Congress and the Administration have a number of options, including several forms of legislation; regulation by EPA under the existing Clean Air Act is another possibility. If the Administration so chooses, the existing Clean Air Act might prove a particularly important tool to bring interested parties to the table, while providing a backdrop to consideration of legislation by Congress. | Aircraft are a significant source of greenhouse gases—compounds that trap the sun's heat, with effects on the Earth's climate. In the United States, aircraft of all kinds are estimated to emit between 2.6% and 3.4% of the nation's total greenhouse gas (GHG) emissions, depending on whether one counts international air travel. The impact of U.S. aviation on climate change is perhaps twice that size when other factors are considered. These include the contribution of aircraft emissions to ozone formation, the water vapor and soot that aircraft emit, and the high altitude location of the bulk of aircraft emissions. Worldwide, aviation is projected to be among the faster-growing GHG sources. If Congress or the Administration decides to regulate aircraft GHG emissions, they face several choices. The Administration could use existing authority under Sections 231 and 211 of the Clean Air Act, administered by the Environmental Protection Agency. EPA has already been petitioned to do so by several states, local governments, and environmental organizations. Congress could address aviation or aviation fuels legislatively, through cap-and-trade or carbon tax proposals, or could require EPA to set emission standards. Among the legislative options, the cap-and-trade approach (setting an economy-wide limit on GHG emissions and distributing tradable allowances to emitters) has received the most attention. Most cap-and-trade bills, including the House-passed energy and climate bill, H.R. 2454, would include aviation indirectly, through emission caps imposed upstream on their source of fuel—the petroleum refining sector. By capping emissions upstream of air carriers and eventually lowering the cap more than 80%, bills such as these would have several effects: they would provide an incentive for refiners to produce lower-carbon fuels; they would increase the price of fuels, and thus increase the demand for more fuel-efficient aircraft; and they might increase the cost of aviation services relative to other means of transport, giving airline passengers and shippers of freight incentives to substitute lower-cost, lower-carbon alternatives. Besides regulating emissions directly or through a cap-and-trade program or carbon tax, there are other tools available to policy makers that can lower aviation's GHG emissions. These include implementation of the Next Generation Air Traffic Control System (not expected to be complete until 2025, although some elements that could reduce aircraft emissions may be implemented sooner); research and development of more fuel-efficient aircraft and engines; and perhaps the development of lower-carbon jet fuel. This report provides background on aviation emissions and the factors affecting them; it discusses the tools available to control emissions, including existing authority under the Clean Air Act and proposed economy-wide cap-and-trade legislation; and it examines international regulatory developments that may affect U.S. commercial airlines. These include the European Union's Emissions Trading Scheme for greenhouse gases (EU-ETS), which is to include the aviation sector beginning in 2012, and discussions under the auspices of the International Civil Aviation Organization (ICAO). |
A variety of offices at the federal level respond to complaints, grievances, and concerns from the public about government programs, services, and operations. These entities, which differ in important respects, are variously referred to as complaint-handling, advocacy, public counsel, coordinative, and ombudsman offices. Despite their differences, they exhibit a common purpose—to represent the public in such matters—which is reflected in the classic ombudsman: that is, a high-ranking official who may be situated outside the executive and possessing independent resources and powers. This notion, which has developed over more than a century, has its modern genesis in Sweden and its evolution largely in European parliamentary regimes. An "ombudsman," which is a Swedish word that broadly means "one who represents someone," is viewed as a servant of the public. As such, the position has been described as follows: an independent high-level officer who receives complaints, who pursues inquires [sic] into the maters [sic] involved, and who makes recommendations for suitable action. He may also investigate on his own motion. He makes periodic public reports. His remedial weapons are persuasion, criticism and publicity. He cannot as a matter of law reverse administrative action. In brief, the concept of ombudsman has come to mean, in the words of former Senator Edward Long, "a guardian of the people's rights against abuses and malfunctions by government, its programs, and its officials—a sort of watchman over the law's watchmen." The U.S. federal government has not adopted the "classic" ombudsman. Instead, the government has multifarious forms of ombudsmen-like offices. Even the entities that carry the same title (of "ombudsman," for example) differ in their powers, functions, duties, activities, jurisdictions, independence, and resources. In comparison to one another, for instance, some offices are limited to receiving complaints or grievances from the public and passing them on to relevant units within the agency—without necessarily following up on them. Other complaint-handling entities do follow up on such charges, examine the agency's operations, and, in some cases, mediate or resolve disputes between the aggrieved party and the agency. Still other entities may be proactive; that is, they seek out certain clientele groups to notify them about relevant government services, assist them in gaining access to these, and ensure that such services are delivered properly and fully. Separate from these functions and duties, some ombudsman-like offices issue reports (periodic and/or episodic) to agency officials, Congress, and/or the public, while others have no such obligation or practice. Several recent statutes reflect these different characteristics, as well as varying position titles. The Intelligence Reform and Terrorism Prevention Act of 2004, which expanded the government's powers to combat terrorism, established a new entity or added to the responsibilities and roles of existing ones to help protect civil rights and civil liberties. Three with enhanced responsibilities are in the Department of Homeland Security (DHS): a Privacy Officer and an Officer for Civil Rights and Civil Liberties, along with additional special duties for the inspector general (IG). In addition, a new position—the Civil Liberties Protection Officer—was created in the Office of the Director of National Intelligence (ODNI), to help protect civil liberties and privacy in policies and procedures under the ODNI. The National Defense Authorization Act for FY2008 incorporated a number of separate bills, including the Wounded Warrior Act. The legislation is designed to aid returning wounded military personnel in receiving appropriate medical care, when they are in the service (and in the Department of Defense), as well as after they are discharged (and under the jurisdiction of the Department of Veterans Affairs). The provisions—based on the recommendations of several governmental commissions (notably, the Dole-Shalala Commission) and congressional panels that were highly critical of the care given to injured veterans —established Federal Recovery Coordinators and Transition Patient Advocates to assist them. These positions are intended to reduce, if not prevent, complications, uncertainties, and delays from arising in the first place and, if they do arise, mitigate their impact. If such problems arise, the coordinators and advocates are positioned to respond on their own or at the behest of the veterans. Freedom of Information Act (FOIA) amendments signed into law on December 31, 2007, created several new positions to assist the public in gaining access to government information. Public Liaisons in each federal agency are to be designated by a Chief FOIA Officer, who is also responsible for monitoring FOIA implementation and facilitating public understanding of the purposes of FOIA's exemptions. The purposes of the Public Liaisons are to serve as an official to whom a FOIA requester can raise concerns about service from the FOIA Requester Center; to assist in reducing agency delays in responding to requests and increase the transparency and understanding of the status of requests; and to assist in the resolution of disputes between a requester and the agency. The law also required the creation of an Office of Government Information Services (OGIS) in the National Archives and Records Administration; it is to review executive-branch agency compliance with FOIA policies, recommend FOIA policy changes to Congress and the President, offer mediation services between FOIA requesters and administrative agencies, and issue advisory opinions if mediation has not resolved a dispute. The American National Red Cross Governance Modernization Act of 2007 established an ombudsman in the American National Red Cross (ANRC). Although it is not a federal agency, the ANRC is federally chartered and charged with assisting federal government efforts in disaster relief. The ombudsman's office, while modest at this stage, serves as a neutral party that provides voluntary, confidential, and informal processes designed to facilitate the resolution of problems between the ANRC and others. Illustrating the ad hoc and specialized focus of ombudsmen-like offices at the federal level is one advanced in the 111 th Congress by the House Permanent Select Committee on Intelligence. It has proposed an Ombudsman for Intelligence Community (IC) Security Clearances, who would be appointed by the Director of National Intelligence. Applicants for a security clearance in any component in the IC would be given contact information for the ombudsman, who would report annually to the House and Senate Select Committees on Intelligence with regard to the number of persons contacting the ombudsman and a summary of their concerns, complaints, and questions. Attempts to establish a government-wide ombudsman at the federal level or to standardize ombudsman-like offices have received attention—from Congress, the executive, international organizations, academia, relevant professional societies, and the press—sporadically since at least the mid-1960s. These across-the-board plans, however, have remained on the drawing board. By comparison, national-level offices of ombudsman have proliferated in Sweden and elsewhere. Finland established such an office nearly 100 years ago. In the 1960s, New Zealand, the Netherlands, Spain, Tanzania, Great Britain, and Northern Ireland established ombudsmen. In the 1970s, France, Portugal, and Austria established such offices. Countries including South Africa, Hungary, the Czech Republic, Columbia, the Republic of Georgia, and Zimbabwe have established national or sub-national offices of ombudsman in the last 20 years to curb human rights abuses and aid in democratic transitions. According to the International Ombudsman Institute, about 120 countries currently employ ombudsmen at the national or sub-national level of government. The European Union appointed its first European Ombudsman on July 12, 1995. Some of the ombudsmen in other countries serve at the national level and have broader jurisdictions and a greater degree of independence—especially those in parliamentary regimes—than their American namesakes. This overview is not a comprehensive study of various complaint-handling, ombudsman, or advocacy offices. Instead, it examines and provides examples of ombudsman-like offices, recognizing their variations. Differences among these instrumentalities include those noted below. Origins: Was the office created internally within an agency, or mandated by Congress or the President? Powers and duties: Does the entity simply receive complaints and pass them along, or does it also follow up on complaints after an agency response; does it resolve disputes between the agency and the complainant, or does it engage in proactive efforts, such as providing outreach and special assistance to individuals? Jurisdictions: Is there one complaint-handling entity for an entire agency, or several entities with separate jurisdictions; if the latter, how confined are these? Locations: Is the ombudsman-like office situated within a "parent" agency or made independent of it? Resources: What is the level of funding and resources that the entity receives? Controls: Who appoints and removes the officer, and who determines the office's budget and spending priorities? These criteria are not discrete. The characteristics overlap and are utilized in a variety of combinations in federal agencies and organizations, offering a gamut of ways and means for the public to petition the government. The variations among the attributes also suggest important differences in the capacity and capability of each office. Interest in institutionalizing a centralized or standardized complaint-handling role in the federal government began in the mid-1960s. Although no proposals along these lines have been adopted, a number of studies and recommendations have emerged over the years. These have come from Members of Congress, executive and administrative officers, and nongovernmental organizations. Over the past five decades, Congress has periodically looked into legislating complaint-handling mechanisms with intense interest in the 1960s and sporadic attention in the following decades. Legislative proposals for complaint-handling mechanisms began in 1963. Three years later, the Senate Subcommittee on Administrative Practice and Procedure launched an extensive examination of ombudsmen and other complaint-handling offices and, in 1970, considered proposals to create a public counsel corporation. On May 9, 1973, Representative Wayne Owens introduced H.R. 7680 to create an Office of Congressional Ombudsman, which would have allowed legislators to request investigations of federal agencies—drawing help from both the Congressional Research Service and the General Accounting Office, now the Government Accountability Office (GAO). The bill, however, was not reported by the House Committee on House Administration. On November 6, 1973, Representative Les Aspin sponsored H.R. 11257 , which proposed the addition of an ombudsman position within House members' staffs. The same fate awaited this bill; it was not reported by the House Committee on House Administration. In the mid-1970s, the House Subcommittee on Commerce, Consumer, and Monetary Affairs examined proposals for an office of consumer affairs, a plan that President Jimmy Carter later endorsed. Despite the backing, it was not authorized. Shortly before this development, the Senate Governmental Affairs Committee issued its Study on Federal Regulation , an extensive six-volume effort that devoted an entire volume to public participation in agency proceedings. In this study, the panel looked at different devices—including an office of public counsel, an independent consumer agency, and various other complaint-handling offices—that served or could serve as a conduit for citizen grievances, complaints, or questions about the implementation of public policy or, beyond this, as an advocate for citizen interests. No legislation, however, was enacted. A variety of complaint-handling offices were written into legislation throughout the late 1980s and 1990s, including offices in the Internal Revenue Service (IRS), Federal Student Aid Office (FSA), and the Environmental Protection Agency (EPA). In the early 1990s, GAO examined access to, and utilization of, the ombudsman program under the Older Americans Act, as well as the handling of beneficiary complaints under Medicare. Many of the older and circumscribed ombudsman studies had been confined to the "paper age" and did not consider the impact and implications of computers and the Internet on complaint-handling entities, procedures, practices, and resources. An exception to this was a survey by GAO of 32 "high impact agencies"—those handling about 90% of federal contact with the public—and their use of electronic communications, especially the Internet, to receive citizen complaints and comments. The study found that the overwhelming majority of agencies (i.e., 29 agencies) had a website to receive complaints and comments from the public—21 had an e-mail link for program comments and complaints, and 28 had an e-mail link for comments to the agency webmaster—in addition to receiving information via telephone and mail. The survey, however, was limited in two ways: (1) it did not include the U.S. Department of Housing and Urban Development (HUD), which has substantial contact with the public; and (2) the survey inquired only about an agency's receipt of complaints and comments, not about such other possible Internet-based, website uses, including categorizing, cataloging, storing, and disseminating information. Nonetheless, GAO's review represented the first such cross-agency survey of Internet-based complaint handling and served as a first step to more extensive and detailed studies. GAO's review commented on the status of two federal efforts to develop centralized Internet-based hubs for citizens attempting to access information about federal programs or services: (1) http://www.consumer.gov/ , operated by the Federal Trade Commission (FTC); and (2) the USA.gov site, developed by the General Services Administration's Office of Citizen Services and Communications. The ongoing FTC site presents consumer information and links to complaint forms grouped by topic or subject area (e.g., food, product safety, and health), rather than by agency; because of this orientation, a citizen does not need to know the responsible agency when submitting a comment or lodging a complaint. The GSA site serves as "the U.S. government's official web portal." As such, it provides links to government grants, available jobs, and information on combating identity theft. The site also links to the Federal Citizen Information Center (FCIC), which has a list of federal agencies that document complaints against private companies. In addition, the GSA site includes a page of links to government agencies and elected officials. Beginning at the end of the 20 th century and continuing into the 21 st , Congress—as well as the executive and private parties—has considered the rise of the Internet, its accessibility, and impact, with particular attention to the "digital divide." This phenomenon (discussed further in the section on e-government) recognizes a distinct division between individuals, groups, and organizations with access to, as well as skills and resources in using, the Internet versus those without these attributes. Congressional hearings were held in 1999-2002, in part based on an executive branch study (discussed below); these efforts, in turn, supported a provision in the E-Government of 2002 to authorize a study to make recommendations to correct "disparities in access to the Internet." Congress's attention has extended to ways to increase Internet access, skills, and resources across the board, but often with particular attention to the poor, minorities, and rural residents, the groups most likely to be on the disadvantaged side of the "divide." Proposed legislative remedies center on increasing access to the Internet in general and computer equipment, skills, and resources, rather than on Internet access to specific governmental operations and services in particular, including complaint handling. Despite this orientation, such legislative efforts could, indirectly and to varying degrees, contribute to a better understanding of the impact of the Internet on complaint-handling and accessing information about government programs, operations, and activities. Along these lines, two CRS memoranda in 2000 looked into the use of the Internet in the context of complaint handling. Implicitly and often explicitly, proposals to establish a government-wide ombudsman have generated concerns about its impact on congressional casework. In an earlier era, it was not entirely clear what effects the creation of ombudsmen or complaint-handling offices in the executive had on Congress in terms of the casework function of legislators. The question had been complicated in the past—according to Stanley V. Anderson (an authority on ombudsmen), writing in the late 1960s—by "a paucity of information on the treatment of grievances by elected officials in general, and by legislators in particular." Times have changed since then, as numerous studies have detailed the high priority and significant resources Members and their offices devote to casework across the board. In political scientist Richard F. Fenno Jr.'s 1978 seminal study, Home Style: House Members in their Districts , this activity is recognized as an essential, albeit time-consuming, ingredient in securing the legislator's elected office. According to Fenno, casework is a highly valued form of activity. Not only is the constituent service universally recognized as an important part of the job in its own right. It is also universally recognized as powerful reelection medicine. This and supportive findings elsewhere may help to explain the general reluctance among legislators to relinquish congressional casework to an administrative officer, who is not under their immediate control and direction. This feature of executive ombudsmen is in stark contrast to caseworkers in Member offices. In the latter, staffers are hired and promoted by the Members, who also determine the caseworkers' duties and assignments, and can insist on their responsiveness to constituent requests. As a consequence, casework is well-institutionalized in Member offices and sometimes beyond. It is even directly aided and reinforced by executive agencies that provide casework resources, noticeably in high-demand, high-profile areas. Testimony on the earliest ombudsman proposals of Representative Henry Reuss raised concerns that legislators would continue to act on public complaints by themselves, leaving the ombudsman underutilized. In defending the 1965 incarnation of his legislation to create an "American Ombudsman," Reuss countered criticism by stressing the heavy workload brought about by casework and its adverse impact on other congressional functions and responsibilities, particularly lawmaking, which he saw as primary. The role Congressmen have assumed as the citizen's advocates against the bureaucracy is important and valuable in our system of government. It has helped to prevent injustices and to promote good administration. But the job of handling constituents' cases has become so burdensome that it is interfering with the primary job of Congressmen as legislators. The Member also emphasized that a government-wide ombudsman or public counsel would head a professional office, with sufficient funding, trained and experienced personnel, and powers to pursue complaints and inquiries (via congressional offices or directly from the public) effectively and efficiently. The ombudsman's reporting requirements to Congress, in Representative Reuss's view, could aid its oversight endeavors. At about the same time, however, opposing views gained currency in Congress. These centered on the projected tangible costs of an overarching executive branch ombudsman, as well as the intangible costs to congressional responsibilities and interests. A special Joint Committee on the Organization of the Congress, reporting in 1966, addressed an ombudsman plan. After hearing from some legislators in favor of such a government-wide office and recognizing its adoption in other countries, however, the bipartisan, bicameral panel determined that such an entity at the federal level in the United States would be expensive, both in its funding and its impact on Congress. The extent of the problem in the United States is such that the adoption of the proposal would require creation of a large office or department. The [J]oint [C]ommittee, after careful consideration, decided against recommending creation of such an office at this time. We believe that casework is a proper function of the individual Member of Congress and should not be delegated to an administrative body. The executive has also conducted research and sponsored initiatives in this field over the past three decades. In 1975, for example, the Office of Consumer Affairs in the Department of Health, Education, and Welfare (now Health and Human Services (HHS)) contracted for a feasibility study to improve the handling of consumer complaints. A part of that effort examined federal government programs for resolving consumer complaints and their adequacy, examining 12 executives of independent agencies in depth. Later, as noted above, President Jimmy Carter supported the concept of an office of consumer affairs or representation. When that broad effort failed, however, he settled for a consumer affairs advisor. In 1990, the Administrative Conference of the United States (ACUS) commissioned a study of ombudsmen in federal agencies, including detailed case studies on six of them, along with a short history of the ombudsman movement in America. The report supplemented an ACUS recommendation to establish ombudsmen in "federal agencies that administer programs with major responsibilities involving significant interactions with members of the general public." Another related development was President Clinton's 1993 Executive Order 12862 on "Setting Customer Service Standards." It called on agencies to make information, services, and complaint systems easily accessible, and to provide a means to address customer complaints. A 1996 study by the National Performance Review provided illustrations of efforts to meet these goals, including the availability of toll-free phone lines and websites. In 1999, the Commerce Department's National Telecommunications and Information Administration (NTIA) reported on its study of the "digital divide." It found that computer use in general, and Internet access in particular, had increased measurably in the previous few years. Nonetheless, computer availability and Internet accessibility remained below the national average for certain groups: minority, low-income, rural, and single-parent households. The focus of the NTIA study was on computer resources, skills, and literacy—especially for the disadvantaged—for education, jobs, careers, and business opportunities. Nonetheless, the NTIA review had implications for access to government information and complaint-handling offices for the disadvantaged—Americans who might need these the most. A far-reaching survey appeared in 2000 and was updated in 2003. In a report to the National Taxpayers Advocate on independent advocacy agencies, Jeffrey Lubbers examined nearly 30 such entities, ranging from the IRS National Advocate Service itself to Long-Term Care Ombudsmen. The report, in addition to describing some of the characteristics of the offices, gave attention to state ombudsmen, as well as standards of conduct, such as those offered by the American Bar Association (discussed below.). Professor Lubbers found "an increasing number of independent officers and agencies established within existing departments and agencies" and that these are "becoming prominent." The offices, however, are not standardized. They vary, for instance, in number within their parent departments and agencies, as well as in resources, jurisdiction, and degree of independence. The academic community, professional societies, and the press have also analyzed and assessed complaint-handling mechanisms. As noted above, however, these are often limited to one or a few entities. Nonetheless, several early studies opened a window into the organization and operation of some ombudsman-like offices at the time. Prominent among these was a 1968 volume from the American Academy of Political and Social Science entitled The Ombudsman or Citizen ' s Defender , which included several chapters on the American scene. At the same time, the American Assembly raised the question of An Ombudsman for American Government? , examining practices and proposals affecting federal, state, and local government. A further examination of the U.S. experience appeared the next year in a compilation of papers under the auspices of the Institute for Government Studies. Since then, other scholarly and legal studies have reviewed various aspects of complaint-handling offices at the federal level. These include a proposal for a federal ombudsman (1972); the ways and means by which certain federal agencies handled citizen complaints, based on survey responses from 64 separate units (1974); improved complaint-handling procedures in the Federal Bureau of Investigation (1979); and a comparison of ombudsmen-like offices in the United States with similar ones in other countries (1985). Later accounts have also considered the ombudsman phenomenon in the United States. One journal article reported that the United States lagged behind European democracies in the creation of ombudsmen and showed no signs of catching up. U.S. ombudsmen also differed among agencies; and a number of agencies that dealt with the public extensively did not have institutionalized complaint-handling offices. Still other examinations focused on specific types of complaint-handling procedures and practices (e.g., those associated with the Immigration and Naturalization Service—now the U.S. Citizenship and Immigration Services) or on a specific office (e.g., a proposal to create a public counsel in the National Labor Relations Board). Several professional societies—including the American Bar Association (ABA), the United States Ombudsman Association, the Coalition of Federal Ombudsmen (CFO), and the International Ombudsman Association (IOA)—offer ombudsman job listings, as well as training seminars for investigation techniques. Additionally, the ABA and the United States Ombudsman Association recommend standards to be adopted when instituting ombudsmen or modifying already existing ombudsman offices. Moreover, the ABA's website offers a definition of ombudsman and a typology for its various iterations, separating them into four distinct categories: classical, advocate, organizational, and executive. According to the ABA, an ombudsman protects "the legitimate interests and rights of individuals with respect to each other; individual rights against the excesses of public and private bureaucracies; and those who are affected by and those who work within these organizations." Only some of the more specific ombudsman categories apply directly to U.S. federal ombudsman offices, while others exist in the United States only in a modified form. The Coalition of Federal Ombudsmen has stressed that ombudsmen must be "confidential [in receiving and responding to complaints], neutral and independent." The CFO also advocates a single, government-wide pay scale for all federal ombudsman. In addition, the coalition seeks a statute mandating that all federal ombudsmen—internal or external—constitute a separate, autonomous office, and that they report directly to their agency heads. Although most earlier studies are dated or limited to certain entities, these efforts reveal a wide variety of complaint-handling mechanisms at the federal level. Differences in the current collection of offices and positions that respond to complaints, grievances, concerns, and questions from the public arise along a number of distinct dimensions: their powers and duties, jurisdictions, locations, controls, neutrality, resources, and use of electronic and traditional communications. Variations among the offices are reflected in their titles: Federal Student Aid Ombudsman; Medicare Beneficiary Ombudsman; Taxpayer Advocate; Ombudsman at the Federal Deposit Insurance Corporation; Federal Recovery Coordinators and Transition Patient Advocates for wounded military personnel; Aviation Noise Ombudsman; Environmental Protection Agency Public Liaison; Superfund Ombudsman; Freedom of Information Act Office of Government Information Services and Public Liaisons; Construction Metrication Ombudsman; and Privacy and Civil Liberties Officer or, alternatively, Civil Liberties and Civil Rights Officer. The variations among the complaint-handling offices have emerged for a number of reasons. These include the piecemeal fashion in which the offices were created; the unique set of circumstances associated with each establishment; and different establishing mechanisms (e.g., legislation or administrative directive, issued by the agency head at his or her own volition or in response to a presidential directive). Additional reasons for differences are the varied rationales accompanying each construct. These range from protecting individual rights and liberties, to safeguarding the health and welfare of the public, to assisting in determining an individual's tax obligations to the government. The rationales also extend to aiding selective clientele, such as small businesses in obtaining government contracts and private firms in converting to the metric system to meet federal construction specifications. In addition to these reasons are different expectations for each office, ranging from simply receiving and passing on complaints to relevant units within an agency, to investigating such complaints independently, to reaching out to the public proactively. Other explanations for the variations are the absence of a philosophical consensus underlying the classic ombudsman concept as applied to the United States; opposition to the creation of some ombudsman-like offices; and conflict over certain powers, authorities, and responsibilities. These conditions have, on occasion, resulted in initial compromises or later changes in the offices' structure, location, independence, and resources. Consequently, existing federal complaint-handling offices vary with regard to their basic characteristics—including powers and duties, jurisdiction, location, controls, neutrality, resources, and communications. These differences, in turn, affect independence, autonomy, and capacity. The complaint-handling office could be empowered only to receive complaints and pass them on to the organization in the agency responsible for the program or operation. By comparison, the office could be authorized to follow up on grievances, making recommendations for resolving a problem, or determining whether the agency's response is satisfactory. Still other ombudsman-like entities, beyond being passive recipients of complaints, might adopt a proactive approach. They could, for instance, be authorized to conduct surveys among persons or groups who receive a government service or who are affected by an agency action, in order to identify a perceived problem and determine how widespread and serious it is. The Environmental Protection Agency Public Liaison can conduct independent investigations into cases that prompt concerns of improper agency action. The office does not have legal force, but it publishes its findings, offering the public a more transparent view of the EPA. Separately, a complaint-handling office could be authorized—or required—to perform additional duties to educate the public and keep the agency head and Congress informed. These could include notifying the agency head (not just the bureau or program director) immediately about serious or widespread concerns; issuing periodic reports summarizing the office's findings, actions, and agency responses to the agency head, Congress, and the public; and testifying before congressional committees about the office's findings, recommendations (if any), and subsequent actions. The jurisdictions of complaint-handling offices also differ, depending upon the range of agencies and programs covered. An office's jurisdiction could be limited to a particular program administered by a single bureau within an agency or expanded to all programs administered by the entire agency. The jurisdiction could also encompass a set of related programs or operations that are carried out by several federal agencies. The complaint-handling offices' jurisdictions could differ on other grounds, including whether they extend into the private sector. A jurisdiction could be confined to the agency, per se, thus dealing only with complaints and concerns about the conduct of its employees and its administration of programs; or it could be extended, where appropriate, to private sector organizations or firms that the agency is regulating. The specific locations of complaint-handling offices could also vary. Offices could be placed within agencies, as most are now, or exist independently of the agencies where they have jurisdiction—like the Citizenship and Immigration Services Ombudsman. Some ombudsman-like offices operate out of a centralized federal government location, like the Federal Deposit Insurance Corporation (FDIC) ombudsman, while others have decentralized, regional offices, like the Environmental Protection Agency's Superfund Ombudsmen. A single ombudsman-like office could be granted government-wide jurisdiction and located in the Executive Office of the President. Although there is no such comprehensive ombudsman in the federal government, a single office could serve as a central clearinghouse for complaints and grievances affecting all federal agencies. Additionally, such a complaint-handling office—if it were to exist under public law—could be given greater control over its resources and more overall autonomy than the typical agency-specific offices in the federal government. An alternative arrangement would be to establish several complaint-handling offices, each with jurisdiction over a number of related agencies. Under this plan, each office would operate independently of the agencies about which it receives complaints. Different types of controls might be applied to a complaint-handling office and its head. Appointment and removal powers over the head of the office could vary. He or she could be appointed and be removed in one of three ways, which would affect the office's independence. He or she could be (1) appointed by, and removed by, the head of the agency—the usual way currently; (2) appointed by, and removed by, the President alone; or (3) appointed by the President with the advice and consent of the Senate, and removed by the President. Other controls over the office could also be established to determine who in agency management would supervise the office, to whom its head would report, and who would determine its resources. Some ombudsman offices are created as neutral third parties that can facilitate dispute resolution. Others, by contrast, are designed as advocates for the complainant. The ABA, for example, called for a distinct category of "advocate ombudsmen," which includes offices like the National Taxpayer Advocate within the Internal Revenue Service, and Veterans Affairs Patient Advocates. Other offices, like the Federal Student Aid Ombudsman, are required to perform as neutral "fact-finders" when looking into a complaint. In May 2006, the CFO updated the ABA's Standards for the Establishment and Operations of the Ombuds Offices. Both the CFO and ABA require an ombudsman to perform as a neutral actor who "conducts inquiries and investigations in an impartial manner, free from initial bias and conflicts of interest." Impartiality, however, does not prohibit the ombudsman from advocating "within the entity for change where the process demonstrates a need for it." Each office's budget, staff, and other resources—and control over them—could also differ, depending upon its statutory authority, range of duties and responsibilities, degree of independence, and internal office priorities. For instance, a complaint-handling office might invest heavily in computer technology—for example, setting up its own website and inputting information from paper correspondence into its own computerized data base—while other offices might maintain a more traditional approach, such as receiving and responding to grievances and questions primarily by mail, facsimile, and phone. The office's budget and resources could be controlled independently by agency administration, be derived from the administrative and operating expenses of the agency to which it is attached, or be given a line item in the agency's appropriation act. Hiring authority and practices could also differ—as could control of other resources, such as office space, supplies, communications equipment, training programs, and travel funds. In this regard, the head of the complaint-handling office might possess specific authority that would enable him or her to control all such resources. By contrast, the officer might not be granted such authority; in this case, the head would have to rely, for instance, on existing agency personnel who would rotate in and out of the office and on receiving office space, supplies, and equipment at the discretion of agency management. Though many government agencies do not have a formal or institutionalized public complaint-handling office, all have established ways, new or old, for the general public to contact agencies. These include the Internet, as well as telephone lines and the traditional mail system. The adoption and development of electronic government (e-gov) have been both a cause and effect of the E-Government Act of 2002. It was intended to "promote the use of the Internet and other information technologies to provide increased opportunities for citizen participation in Government ..., to provide citizen-centric Government information and services ..., [and] to promote access to high quality Government information and services across multiple channels." E-gov, in general, and the E-Government Act, in particular, have added new modes of communication between government and citizens, and have increased the accessibility, speed, and efficiency of receiving and responding to public inquiries. Despite these advances, some recent studies have discovered weaknesses and limitations in several aspects of e-gov: what it currently does (e.g., primarily providing information); how well it does it (declining levels of satisfaction); and what it has been unable to do satisfactorily (particularly, progressing into the "transactions stage," referring to exchanges among entities in the same agency, among agencies at the same level of government, among governments at different levels, and among government agencies, private sector stakeholders, and the general public). Despite such growing pains, e-gov and the Internet have become prominent features of the government-citizen interaction, including within the ombudsman and complaint-handling function. Even with this advance, however, government-citizen communications continue through traditional forms as well. The 2002 E-Government Act called upon federal agencies to establish domain directories for their websites. Many of these are for general access to information sources, not necessarily for complaint handling specifically. Nonetheless, several different websites—major and minor—demonstrate a range of offerings. In July 2003, the General Services Administration (GSA) unveiled USA Services, which promised to answer all citizen inquiries—whether submitted by e-mail, conventional mail, telephone, or in-person—within two days. The initiative was described as a "comprehensive 'customer service department'" for citizens. USAServices.gov serves as the initiative's web portal and offers citizens and agencies assistance in communication and information access. Additionally, the federal government offers an Internet gateway to all of its agencies and services: USA.gov, formerly known as both WebGov and FirstGov. The website lists all government agencies, and offers links to each one's website, along with links to state, local, and tribal government websites. Citizens, visitors, employees, and businesses are offered their own entry portals into the website through a web page designed to offer information and services that would be most pertinent to that user. The site also includes a link to the Federal Citizen Information Center, which offers a list of agencies the public can use to register complaints against private businesses. Another federal site—Data.gov—was started by the Office of Management and Budget (OMB) in 2009. As an information resource, Data.gov is intended "to increase public access to high value, machine readable datasets generated by the Executive Branch of the Federal Government." Although most agencies and departments have websites that outline their mission and duties, there remains a general dearth of formal agency-wide ombudsman-like offices, even at those that serve a substantial number of people. Instead, agencies have adopted other similar offices for more specialized or select clientele. The Social Security Administration (SSA), for example, has a toll-free telephone number (1-800-772-1213 or TTY 1-800-325-0778) for complaints and an online complaint form. The SSA also has a website that informs members of the public of various administrative services that are available online, on the phone, or at their offices. Online, for example, clients can calculate their benefits or apply for help with Medicare prescription drug costs. The website also includes maps and directions to local offices. If clients are dissatisfied with the response to their complaints—whether made over the phone or at the local SSA office—they may appeal to a higher level of the SSA. The Department of Transportation hosts an Aviation Consumer Protection Division (ACPD) that serves as a last resort for airline consumers who are dissatisfied with service and attempts by a company to remedy the problem. The ACPD clearly states that the individual airlines are better suited to resolving disputes with consumers, but the division offers consumers the opportunity to have their complaints published in the division's monthly Report of Consumer Complaints , as well as to register the complaints in the federal database. Although this service handles grievances about private sector operations, for the most part, it also responds to consumer complaints that involve an aviation regulatory issue. Complaints about airline safety are channeled to the Federal Aviation Administration's hotline, while transportation security issues are handled in-house or routed to the Transportation Security Administration in the Department of Homeland Security. The Federal Communications Commission (FCC) has four different, topically organized online complaint forms available for consumers. The complaint topics are general complaints, obscenity and indecency, slamming, and telemarketing. Consumers who do not have online access may send complaints and supporting documentation via mail. Similarly, other "high-impact" federal agencies provide e-mail links or online forms for citizens or customers to use when lodging their complaints. The U.S. Consumer Product Safety Commission's website, for example, includes a toll-free customer hotline and online complaint forms for the general public, doctors, fire investigators, police, or others to use to report an injury or death caused by a product. Although such complaints are usually generated by private sector products, the submissions could also involve the Commission's regulatory and enforcement responsibilities. Another site for e-gov communications is http://www.business.gov/ . Launched in 2004 as the official business link to the U.S. government, it is managed by the Small Business Administration in partnership with 21 other federal agencies. Use of the Internet for government-citizen communications, especially for complaint handling, offers benefits, while at the same time, raising concerns. The potential of the Internet for making complaint handling more efficient and effective is significant. Ideally, government web portals could provide "one stop" for inputting and accessing complaint-related information for an entire agency—or at least a particular office or program. This, in turn, could lead to increased sharing of information and data within and among federal agencies, between the federal government and state and local governments, and between the federal government and private sector organizations and the general public. This development might also encourage standardization in receiving and responding to complaints, as well as other operational and organizational characteristics of ombudsman-like offices, including resources and independence. Nonetheless, concerns exist with regard to the inclusiveness, accessibility, and availability of Internet-based information and the government's responsiveness to complaints. Reflective of this is the "digital divide," which sees the population separated into "haves and have-nots" in terms of Internet access and use (discussed above). This divide separates those with requisite computer skills, resources, and Internet access from those without these. The latter group lacks the capability to issue complaints and comments through this medium and to discover what information is held in Internet-based data banks. Another concern about reliance on the Internet for complaint handling is that it might be manipulated. For instance, an organized interest group might encourage its membership to flood a website with complaints—substantiated or not, witnessed first-hand or not—about a particular agency or program. Although this same problem could arise by way of other means of communications (mail or telephone, for example), these traditional avenues would be more cumbersome, more difficult, and possibly more costly to use. In effect, it would be easier to mount massive attacks through the Internet than through more traditional communications media. Use of the Internet as a source for collecting public complaints also prompts worries about maintaining the anonymity of the complainant. These worries might be mitigated, to a degree, through the rise in toll-free hotlines and centralized websites like USA.gov, which could allow for anonymous reporting and protecting a complainant's identity. Although there is no authoritative, comprehensive, detailed survey of current federal complaint-handling offices, earlier studies (even if dated and limited), along with the coverage here, provide useful information with which to describe, examine, and compare them. One observation, for instance, is that such offices appear to be growing in number and prominence as well as range of activities, duties, and services. As noted throughout this report, federal complaint-handling offices exhibit different forms, capacities, and designations. The variations range from the individual office's powers, resources, duties, and functions, to its jurisdiction, location, controls, neutrality, and adoption of new technologies—notably the Internet. The activities, services, and duties of ombudsman-like entities, for instance, cross a wide spectrum, from the nearly passive to the proactive. The range extends from simply receiving a complaint and passing it on to appropriate offices; to following up on it and notifying the complainant of the results; to helping resolve disputes between the agency and complainant. Some offices report findings to agency officials, Congress, and/or the public, while others do not. Some are proactive—for instance, conducting outreach efforts to the public or select groups—while others are not. A few even embark on preemptive efforts—that is, they intervene on behalf of clientele from the beginning to the end of a service, thereby reducing, if not preventing, problems from arising in the first place—while most offices do not. The variations among the offices reflect their piecemeal establishment—at different times, for different reasons, and for different purposes, duties, and functions. Some, for instance, are designed to assist a particular clientele who conduct business with an agency or who are the primary recipients of its services. Other entities may be intended to meet the needs of the public at large or broad sectors of it. Variations also arise over time and across policy areas, as the needs and demands of government and society change. Recent constructs demonstrate this. The Departments of Defense and Veterans Affairs Federal Recovery Coordinators for wounded military veterans were prompted by instances of inadequate medical care. And the creation of a Privacy Officer and an Officer for Civil Rights and Civil Liberties in the Homeland Security Department was due to concerns about the possible intrusiveness and potential impact of the government's new anti-terrorism powers. Efforts to establish a government-wide ombudsman, create complaint-handling offices throughout the executive branch, and/or standardize such entities have existed since the mid-1960s. None of these one-size-fits-all initiatives, however, has been enacted into law. Instead, the legislative and administrative solutions—to meet the challenge of responding to a large and growing number of inquiries, grievances, and concerns from the public—have arisen on an ad hoc basis, focusing on particular agencies and specific problem areas. Even in the few cases where a single statute has called for similar offices in a number of agencies—such as Freedom Of Information Act (FOIA) pubic liaisons, construction metrication ombudsmen, and banking agency ombudsmen—these entities have been highly specialized, responding to a select clientele in a distinct policy or subject area. As a consequence of their varied attributes and development, ombudsman-like entities vary in their roles, capabilities, and independence. These constructs thus reflect certain fundamental characteristics of American national government: dispersed and decentralized power, the absence of uniformity and standardization among similar institutions, and competition between the executive and legislature for control over government organizations and operations. American National Red Cross Although it is not a federal government agency, the American National Red Cross (ANRC) is an organization chartered by public law. Its charter established the basic purposes of the organization, one of which is serving as a disaster relief organization for the United States. Congress also mandated, in the Governance Modernization Act of 2007, an ANRC Ombudsman, who began operating in October 2007. Besides the Ombudsman, the office presently consists of three positions: two analysts, who compile annual reports to Congress and the ANRC Board of Governors, and an ombudsman service representative, who receives incoming telephone complaints. While the ombudsman position was created by Congress, the duties of the office have been delineated by the organization's Board of Governors. The post is to serve as a neutral party that provides a voluntary, confidential, and informal process to facilitate fair and equitable resolutions to problems brought before it; and explores a range of alternatives or options to resolve the problems. The position serves as both an internal and external ombudsman, fielding complaints from employees, blood donors, volunteers, financial donors, disaster victims, and other Red Cross clients. Department of Commerce, Bureau of the Census, Small Business Ombudsman In the Department of Commerce, the Bureau of the Census houses an Office of the Small Business Ombudsman. It is the "primary advocate between the small business community and the Census Bureau and ... provide[s] services and opportunities for the small business community in an effort to simplify and reduce the reporting burden on requested forms." As such, the Ombudsman provides technical assistance through a small business toll free number and a small business website; provides Internet assistance for small businesses in completing report forms; and expands the use of electronic reporting, data sharing, and the use of administrative records. Department of Defense The Department of Defense (DOD) has a number of different ombudsman-like offices. Most of these, however, are "internal; "that is, the offices and positions, such as the Federal Recovery Coordinators, provide services to military and civilian personnel within the department. Nonetheless, DOD also has several different types of external ombudsman-like offices, as the following examples illustrate: Base Transition Coordinators (BTCs) attached to individual military bases undergoing realignments and closings (BRAC), whose involvement ends with the completion of the base closure and reuse; Defense Procurement and Acquisition Policy (DPAP) Ombudsman, whose jurisdiction covers both domestic and foreign contractors; Ombudsman of the Employer Support of the National Guard and Reserve (ESGR), a permanent office whose participation on behalf of eligible service personnel might be a one-time event or recurrent; and select ombudsmen operating at Navy medical centers, whose voluntary participation on behalf of family members of patients at individual command centers might be short-term and sporadic or long-term and continuous. Base Transition Coordinators for Military Base Reuse Introducing its community guide to military base reuse, the Department of Defense recognizes that it "has been closing military bases and assisting Defense-impacted communities through its Defense Economic Adjustment Program for more than 35 years." The program has increased in prominence most recently, because of the Base Realignment and Closing (BRAC) initiative affecting a large number of military bases. Among the many local, state, and federal entities involved in each case is a DOD Base Transition Coordinator (BTC), described as "the local, on-site, Federal point of contact who works as an ombudsman for the community." As such, the BTC "is a key contact, problem solver and information source for the local community, especially in relation to environmental cleanup and property disposal." Defense Procurement and Acquisition Policy Ombudsman The role of the DPAP Ombudsman is to assist companies, both domestic and foreign, interested in performing contracts to satisfy DOD requirements, following the instructions of the DPAP Contract Policy and International Contracting Directorate. In the case of a foreign company, it may contact the Ombudsman if the company "has difficulty fully understanding contracting rules and regulations, or if it thinks it was unfairly excluded from defense procurement.... " The DPAP Ombudsman also provides contact information for the benefit of U.S. companies in doing business with various foreign governments. Employer Support of the National Guard and Reserve Ombudsman The Employer Support of the National Guard and Reserve (ESGR) Ombudsman is designed to ensure smooth transitions for soldiers returning from their military duty by ensuring that they return to their civilian jobs—or equivalent positions—without complication. This assignment results in the ESGR being a combination of an internal ombudsman (for active duty military personnel) as well as an external ombudsman (for discharged personnel reentering the private sector). President Richard M. Nixon established the ESGR in 1971 as a "conduit between the DOD and the nation's employers when the United States changed to an all-volunteer force," by ensuring that service members would have their prior civilian jobs or equivalent jobs when they returned to their homes. In 1994, Congress passed the Uniformed Service Employment and Reemployment Rights Act (USERRA). Its purposes are (1) to encourage noncareer service in the uniformed services by eliminating or minimizing the disadvantages to civilian careers and employment which can result from such service; (2) to minimize the disruption to the lives of persons performing service in the uniformed services as well as to their employers, their fellow employees, and their communities, by providing for the prompt reemployment of such persons upon their completion of such service, and (3) to prohibit discrimination against persons because of their service in the uniformed services. The ESGR is currently tasked to recognize outstanding support from employers of service members; increase awareness of the law; and resolve employment conflicts through informal mediation. More than 900 ombudsmen are located within 56 ESGR "field committees" that help resolve disputes between employers and employees. Complaints against an employer can be filed online. If the ombudsman is not making progress toward the resolution of a dispute within seven days, the case is referred to the Department of Labor. The ombudsmen, however, report their findings and suggestions to the Office of the Assistant Secretary of Defense for Reserve Affairs. A service member seeking to nominate his or her employer for outstanding service can fill out an online nomination form at the ESGR website. NMCP Navy Family Ombudsman The Navy Family Ombudsman, operating out of the Naval Medical Center Portsmouth (NMCP), assists families of military personnel needing medical services there. The Ombudsman duties include providing information, referrals, and contacts with regard to complaints, concerns, and questions. The Ombudsman, "an officially appointed volunteer," serves as: the primary communications link between families and the command; the channel of official information from the command; and a link to related services and facilities, including legal assistance, military medical facilities, professional counseling, and various relief societies. Through outreach programs and other ways, the Ombudsman also acts "as an advocate for the command's families." USNHGUAM Ombudsman The Ombudsman attached to the U.S. Navy Hospital in Guam is, like the one at the NMCP, a volunteer, trained to "offer support and guidance to command families and acts as an official liaison between command and the command families." As such, the Ombudsman serves as the primary link between the command families and the command; serves as a communicator of information between the two; communicates regularly with command families, via newsletters, careline, phone tree, and e-mail; provides information and outreach to family members; interacts and cooperates with relevant organizations, including the American Red Cross as well as appropriate military legal and medical treatment entities; refers individuals in need of professional assistance to appropriate resources (for counseling, for instance); and acts as an advocate for command families. Department of Education Federal Student Aid Ombudsman The Department of Education houses the Federal Student Aid (FSA) Ombudsman. Created in 1998 by amendments to the 1965 Act of Higher Education, the FSA Ombudsman's office received its first cases in late September 1999. Appointed by the FSA's Chief Operating Officer (COO), the FSA Ombudsman serves as a neutral fact-finder in disputes between students with loans and the FSA. The officer serves at the discretion of the COO (there is no fixed term for the position) and reports directly to the COO. The Ombudsman can recommend resolutions, but cannot compel the FSA to overturn its previous decisions. The service is free, but operates only as a last resort—provided the FSA has not already begun legal proceedings against a person receiving the loan. Though the Ombudsman cannot enforce his or her decisions, the position was created to resolve disputes from a neutral, independent viewpoint; informally conduct impartial fact-finding about complaints; recommend solutions (without the authority to reverse decisions); work to bring about changes that will help prevent future problems for other student loan borrowers; and research problems and determine whether the complainants have been treated fairly. If the Ombudsman determines that a complaint is justified, he or she is to help a student negotiate with the agency or other parties involved in the dispute. Prior to requesting help from the FSA Ombudsman, a person seeking assistance is asked to review an online checklist of other options for resolving the dispute. If the person then determines himself or herself qualified for ombudsman assistance, he or she may send a letter to the office, telephone, or fill out the online Ombudsman Assistance Request Form. The ombudsman office does not assist the public in filling out loan forms, nor does it help find ways to pay off loans. Department of Health and Human Services The Department of Health and Human Services (HHS) houses a number of distinct complaint-handling and client-assistance offices. Among them are the following. Food and Drug Administration Ombudsman When Food and Drug Administration (FDA) employees were found to be inadequately performing their duties in reviewing pre-market generic drug applications, the commissioner issued a "managerial fiat" creating the FDA Office of the Ombudsman. The Ombudsman provides several services, including the following: reviews marketing or investigational applications; provides information on import or export issues; offers explanations in response to citizen petitions or general inquiries; and ensures a fair hearing of claims of unfair or unequal treatment. The office also serves as the FDA's Product Jurisdiction Officer, who determines the jurisdiction of a product headed for review if the jurisdiction is questionable. The office, however, predominantly handles complaints about regulatory issues or FDA policies. Long-term Care Ombudsman The Long-term Care Ombudsman (LTCO) began as a demonstration program in 1972, but was mandated by statute in the Older Americans Act, which is currently administered by the Administration on Aging (AOA). The LTCO office consists of more than 1,000 paid, and nearly 14,000 volunteer, staffers, who are located in the 50 states and three additional locales—Washington, DC, Guam, and Puerto Rico. Serving an estimated 280,000 people per year, the ombudsman identifies, investigates, and resolves complaints made by, or on behalf of, residents; provides information to residents about long-term care services; represents the interests of residents before governmental agencies and seek administrative, legal, and other remedies to protect residents; analyzes, comments on, and recommends changes in laws and regulations pertaining to the health, safety, welfare, and the rights of residents; educates and informs consumers and the general public regarding issues and concerns related to long-term care, and facilitates public comment on laws, regulations, policies, and actions; promotes the development of citizen organizations to participate in the program; provides technical support for the development of resident and family councils to protect the well-being and rights of residents; and advocates for changes to improve residents' quality of life and care. LTC ombudsmen are a blend of state and federal oversight. Though each state ombudsman office operates differently, most house their Office of the State LTC Ombudsman within the individual state's unit on aging. The National Long Term Care Ombudsman Resource Center offers "support, technical assistance and training to the State Long Term Care Ombudsman Programs and their statewide networks of almost 600 regional (local) programs." The ombudsmen tread a line between acting as neutral fact-finders and as advocates for older Americans. Additionally, the ombudsmen often deal with third party private entities—an apparent rarity for federal government ombudsmen. Medicare Beneficiary Ombudsman Created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the Medicare Beneficiary Ombudsman is intended to ensure that those eligible for Medicare have reliable and current information about their Medicare benefits and whether they have the information needed to make good health care decisions; their rights and protections under the Medicare Program; and the procedures for getting problems and disputes resolved. The Ombudsman is to aid Medicare recipients in filing appeals if they believe their insurance did not pay proper amounts for their medical services. Recipients can also file complaints or ask for help joining or leaving a given Medicare program. The job of the Ombudsman requires him or her to take an overview of the Medicare system and ensure that the appeals process is operating properly at all government levels. The officer reports to both the Medicare Administrator and the Director of the Office of External Affairs, and is also required to submit an annual report to Congress. Specialized Jurisdictional Ombudsmen The FDA also has four additional ombudsmen who serve as the points of contact for specific public complaints connected to the subject of their jurisdiction. The specialized ombudsmen are located at four centers: Center for Biologics Evaluation and Research (CBER); Center for Drug Evaluation and Research (CDER); Center for Devices and Radiological Health (CDRH); and Center for Veterinary Medicine (CVM) Ombudsman If any of them cannot resolve or remedy a complaint, the issue is to be sent to the FDA Office of Ombudsman. Department of Homeland Security The Department of Homeland Security (DHS) houses a number of ombudsman-like offices. In addition to several connected with immigration and transportation matters, three others are an outgrowth of the authorities and responsibilities that the department received under legislation dealing with anti-terrorism. The 2004 Intelligence Reform and Terrorism Prevention Act (IRTPA), importantly, gave additional duties to the Privacy Officer and Officer for Civil Rights and Civil Liberties, as well as the inspector general, in the Department of Homeland Security. All three entities originated in the Homeland Security Act of 2002, which established the department. Privacy Officer The Privacy Officer's "mission is to minimize the impact on the individual's privacy, particularly the individual's personal information and dignity, while achieving the mission of the Department of Homeland Security." According to DHS, to meet this end, the Officer, who reports directly to the Secretary, requires compliance with the letter and spirit of federal laws promoting privacy; centralizes Freedom of Information Act and Privacy Act operations within the Privacy Office to provide policy and programmatic oversight and support operational implementation within the components; provides education and outreach to build a culture of privacy and adherence to fair information principles across the department; communicates with the public through published materials, formal notices, public workshops, and meetings; and coordinates with the Officer for Civil Rights and Civil Liberties, to ensure that relevant programs, policies, and procedures are addressed in an integrated and comprehensive manner and that Congress receives appropriate reports. Officer for Civil Rights and Civil Liberties The mission of the DHS Officer for Civil Rights and Civil Liberties (OCRCL) is to "protect civil rights and civil liberties and to support homeland security by providing the Department with constructive advice on the full range of civil rights and civil liberties issues the Department will face, and by serving as an information and communication channel with the public regarding all aspects of these issues." According to its statutory authority, the OCRCL is to review and assess information concerning abuses of civil rights, civil liberties, and profiling on the basis of race, ethnicity, or religion, by employees and officials of DHS; make public through the Internet, radio, television, or newspaper advertisements information on the responsibilities and functions of, and how to contact, the OCRCL; help the DHS Secretary, directorates, and offices of DHS to develop, implement, and periodically review DHS policies and procedures to ensure that the protection of civil rights and civil liberties is appropriately incorporated into DHS programs and activities; oversee compliance with constitutional, statutory, regulatory, policy, and other requirements relating to the civil rights and civil liberties of individuals affected by the programs and activities of DHS; coordinate with the Privacy Officer to ensure that programs, policies, and procedures involving civil rights, civil liberties, and privacy considerations are addressed in an integrated and comprehensive manner; and that Congress receives appropriate reports regarding such programs, policies, and procedures; and investigate complaints and information indicating possible abuses of civil rights or civil liberties, unless the inspector general of the Department determines that any such complaint or information should be investigated by the inspector general. Office of Inspector General The third component, the inspector general in the Department of Homeland Security, has been given certain ombudsman-like responsibilities (similar to those required of the IG in the Department of Justice). The DHS IG is to receive and review complaints and information from any source alleging abuses of civil rights and liberties by DHS officials and employees, including contractors; initiate investigations of such alleged abuses; consult with and refer investigations which the IG decides not to investigate to the Officer for Civil Rights and Civil Liberties; and publicize and provide convenient public access to information regarding the procedures to file complaints and the status of corrective action taken by the Department. Transportation Security Administration Office of Civil Rights and Liberties The Transportation Security Administration (TSA) operates two distinct ombudsman-like offices. One handles internal matters, for the most part, while the other deals with external complaints. Most public inquiries and concerns are handled by the Office of Civil Rights and Liberties in the External Compliance Division of TSA. The Office's mission is: to ensure that the civil rights and liberties of the traveling public are respected throughout screening processes, without compromising security; to ensure that agency processes and procedures do not discriminate against the traveling public, and respect the constitutional freedoms of the traveling public; to ensure that the External Compliance Division meets its mission by providing civil rights guidance and services to TSA program offices, including security offices, technology offices, and communications offices; and to review TSA policies and procedures to ensure that the civil rights and liberties of the traveling public are taken into account. United States Citizenship and Immigration Services Ombudsman The 2002 Homeland Security Act created the United States Citizenship and Immigration Services (USCIS) Ombudsman. Unlike most other ombudsman-like offices in the federal government, the USCIS Ombudsman operates separately from the agency about which it receives complaints. The Ombudsman, instead, is located under the aegis of the Department of Homeland Security and reports to the DHS Secretary or Deputy Secretary, not to a USCIS official. The USCIS Ombudsman's mission, as specified in its establishing legislation, is threefold: assist individuals and employers in resolving problems with USCIS; identify areas in which individuals and employers have problems dealing with USCIS; and propose changes to mitigate identified problems. A client seeking Ombudsman services may fill out an online form and mail it to the USCIS Washington, DC, office, where it is to be reviewed. Potential clients should receive a response to their case within 45 days. As with other complaint-handling offices, complainants may leave anonymous postings on the office's website. Like the Federal Student Aid Ombudsman, the USCIS Ombudsman can neither overturn the agency's decisions nor make exceptions to its regulations. The Ombudsman may, however, facilitate a resolution and offer formal and informal recommendations to USCIS to help it serve patrons. The office also submits an annual report to the House and Senate Judiciary Committees. Unlike offices that act as conduits only, the USCIS Ombudsman serves as an advocate for the complainants—including those experiencing delays because of the backlogs in processing immigration requests. The office also conducts outreach programs, including teleconferences and site visits. It is attempting, moreover, to create an online form that can be submitted via the Internet to expedite complaint processing, as well as establish a Virtual Ombudsman Office online that would offer a way to eliminate costly data entry. Department of the Interior, Office of Insular Affairs, CNMI Ombudsman The Commonwealth of the Northern Mariana Islands (CNMI), Office of Insular Affairs in the Department of the Interior (DOI) has an affiliated Ombudsman with a confined jurisdiction and clientele: the Ombudsman is charged with providing "assistance to the Commonwealth of the Northern Mariana Islands' 30,000 [foreign] workers with labor and immigration complaints." Often known as the Federal Ombudsman, the office was established to assist foreign workers to gain a better understanding of the laws and policies affecting them. In so doing, according to a press release, the Ombudsman's office "works hand-in-hand with the CNMI's Department of Labor and Immigration, the U.S. Attorney's Office, and the Department of the Interior to ensure activities are properly coordinated and developed." Department of Justice Office of Inspector General The USA PATRIOT Act of 2001, passed shortly after the 9/11terrorist attacks, gave the Office of Inspector General (OIG) in the Department of Justice (DOJ) certain ombudsman-related responsibilities, particularly related to civil rights and liberties matters. One of the provisions of the act, which expanded government powers in anti-terrorism efforts, directs the IG to designate an official to carry out certain duties: review information and receive complaints alleging a violation of civil rights and civil liberties; make information about the functions and responsibilities of the office, including how to contact the official, available through the Internet, radio, newspapers, and television; and report semi-annually to the House and Senate Committees on the Judiciary about the implementation of these requirements. These functions are connected to complaints from individuals alleging abuses of civil rights and civil liberties by DOJ employees, including contractors. To respond to relevant allegations, the IG has established two special entities—a Civil Rights and Civil Liberties Complaints unit, along with a special section in the OIG Investigations Division—which are directed to review information and receive complaints alleging such abuses; identify the more serious allegations and assign them to OIG employees for investigation; and refer other complaints to department components for their review and handling (and refer still others to different federal departments and agencies which have jurisdiction over the policies in question). Department of Transportation, Federal Aviation Administration, Aviation Noise Ombudsman An Aviation Noise Ombudsman (ANO) is located in the Federal Aviation Administration (FAA), Department of Transportation. Created by the Federal Aviation Reauthorization Act of 1996, the office "serves as a public liaison for issues about aircraft noise questions or complaints." The ANO usually intervenes, however, only when a complainant thinks FAA officials who had been contacted about noise problems are not responsive to an inquiry or grievance. Department of the Treasury Several different types of ombudsman-like offices are located in the Department of the Treasury. One responds to the general public, while the others respond to a select clientele in the banking industry. Internal Revenue Service Taxpayer Advocate Service The Taxpayer Advocate Service (TAS), headed by the National Taxpayer Advocate (NTA), in the Internal Revenue Service (IRS) has undergone a number of permutations over its history, which dates from the late 1970s. Formerly titled the Office of Ombudsman, TAS is located within the Internal Revenue Service, but operates independently of any other office within the agency. Each state, the District of Columbia, and Puerto Rico has at least one local taxpayer advocate, who attempts to expedite lingering taxpayer issues and recommend "administrative and legislative changes" to IRS policies and operations. The first taxpayer advocate was appointed by the IRS commissioner in 1979. In 1988, the Office of Taxpayer Ombudsman was officially mandated by Congress in P.L. 100-647 . Later, the 1996 Taxpayer Bill of Rights 2—intended "to provide increased taxpayer protections" —changed the title and altered the responsibilities of the office by creating the Taxpayer Advocate. Two years later, the IRS Restructuring and Reform Act of 1998, which also created an IRS Oversight Board, changed the name of the office and its head again: the Office of the Taxpayer Advocate under the supervision and direction of the National Taxpayer Advocate. The 1998 act also strengthened the office's oversight functions. The NTA is now required to submit an annual report to the House Committee on Ways and Means and the Senate Committee on Finance by June 30 of each year. The report must include Advocate initiatives to improve IRS services, as well as potential recommendations to the existing system. No employee of the IRS, including the commissioner, is permitted to review or comment on the report before it is submitted to Congress. In addition, the 1998 amendments reinforced the expanded duties of the Office of the Taxpayer Advocate, requiring it to assist taxpayers in resolving problems with the Internal Revenue Service; identify areas in which taxpayers have problems in dealings with the Internal Revenue Service; propose changes, to the extent possible, in the administrative practices of the Internal Revenue Service to mitigate problems; and identify potential legislative changes that may be appropriate to mitigate such problems. In 2000, the office became known as the Taxpayer Advocate Service (TAS), which handles both systemic IRS issues and individual taxpayer complaints. The Advocate currently reports directly to the IRS commissioner and has no term limit. The National Taxpayer Advocate is appointed by the Secretary of the Treasury, after consultation with both the Commissioner of the IRS and the IRS Oversight Board. Though the TAS has the word "advocate" in its title, the position has a two-fold goal: it advocates for fair and efficient operation of the IRS, as well as directly for individual taxpayers themselves. Any person or business suffering "economic harm" or "experiencing delays" in the resolution of a tax problem has free access to a taxpayer advocate. A taxpayer may seek an advocate by contacting the TAS via a toll-free number and asking an IRS employee to complete and submit a required form (form 911). The taxpayer may also request and fill it out himself or herself. The completed form is sent to the appropriate taxpayer advocate, who—once assigned—is required to remain an advocate for the private party until any IRS dispute is resolved. The advocate, whose service is confidential, is independent of all other IRS offices. Office of the Comptroller of the Currency Ombudsman The Ombudsman in the Office of the Comptroller of the Currency (OCC)—which operates under the Community Development and Regulatory Improvement Act of 1994—is one of five in "appropriate federal banking agencies" established by the act and one of two in the Department of the Treasury. The ombudsman is to act as a liaison between the agency and any affected person with respect to any problem in dealing with the agency resulting from its regulatory activities; and assure that safeguards exist to encourage complainants to come forward and preserve confidentiality. In so doing, the OCC Ombudsman is to report weaknesses in OCC policy and may stay any appealable agency decision. Office of Thrift Supervision Ombudsman The Office of Thrift Supervision (OTS) is one of the five federal entities required by the Community Development and Regulatory Improvement Act of 1994 to have an Ombudsman. All five Ombudsmen are to follow the same statutory directives, that is, to serve as liaisons between the agency and any affected parties with respect to problems in dealing with agency regulatory activities and to encourage complainants to come forward. The jurisdictions and clientele differ among these Ombudsmen. The OTS ombudsman is to respond to questions, concerns, and complaints from federally chartered thrift institutions. He or she is to "assist the thrift community in resolving such matters relating to regulatory oversight that may hinder their institution." Although hired and paid by OTS, the Ombudsman is to be "an advocate for equity ... and is required to perform his duties in an objective and neutral manner." Department of Veterans Affairs The Department of Veterans Affairs (DVA) houses several ombudsman-like offices, including the following. Board of Veterans' Appeals Ombudsman For military service members who claim that they have been unfairly denied medical treatment for an injury received or condition caused during duty, the Board of Veterans' Appeals (BVA) is to determine whether they are eligible to receive benefits. The BVA Ombudsman is to assist in this matter in two basic ways: remedy unsatisfactory experiences with the department; and make certain that communication with the BVA is clear and timely. The BVA website also offers links to a variety of VA offices, including the Debt Management Center and the National Personnel Records Center. Like similar ombudsman positions, the BVA Ombudsman does not have the ability to require other VA centers or offices to take specific action. The Ombudsman, however, receives complaints from eligible parties and attempts to ensure that the BVA is operating effectively. Federal Recovery Coordinators and Transition Patient Advocates For injured combat veterans, there are two newly created statutory positions to handle aspects of their recovery. Though neither the Transition Patient Advocate (TPA) nor the Federal Recovery Coordinator operates in the classic ombudsman capacity, they both serve to help returning soldiers navigate the veterans' medical system. One hundred TPAs currently operate within VA hospitals across the country. The TPA program, which began in May 2007, consists almost entirely of former soldiers who offer assistance and advice as peers to soldiers who return from service with a severe injury. The TPAs are part of a three-person team assigned to each returning Operation Iraqi Freedom and Operation Enduring Freedom (OIF/OEF) soldier with a severe injury. The other two members of the team are a program manager and a case manager—usually a nurse or social worker. The TPA's job is to "ensure a smooth transition of wounded service members through VA's health care system." In so doing, the TPA can aid in meeting the everyday needs—including scheduling medical appointments—of a returning soldier who is enrolled at any of the 1,308 VA facilities. In addition to the 100 TPAs working at the Veterans Affairs medical treatment centers, the VA joined forces with the Department of Defense (DOD) to add 10 "Federal Recovery Coordinator" positions. The two departments created the coordinator positions after the Report of the President's Commission on Care for America's Returning Wounded Warriors, commonly known as the Dole-Shalala Commission, recommended their creation. The recovery care coordinators, who are separate from a three-person case management team, are to coordinate services between VA and DOD and, if necessary, private sector facilities; serve as the ultimate resource for families with questions or concerns about VA, DOD, or other federal benefits; and ensure the appropriate oversight and coordination for care of active duty service members and veterans with major amputations, severe traumatic brain injury, spinal cord injury, severe sight or hearing impairments, and severe multiple injuries. The Federal Recovery Coordinator focuses on the long-term recovery of each returning wounded soldier, whereas the TPA focuses on day-to-day needs. Also, in contrast to the TPAs, the recovery coordinators may offer their services to all returning injured soldiers, regardless of whether they are receiving treatment at VA facilities. Environmental Protection Agency The Environmental Protection Agency (EPA) has several prominent complaint-handling offices. Office of Inspector General Public Liaison The Public Liaison (formerly the ombudsman) currently operates within the Office of Inspector General (OIG) of the Environmental Protection Agency (EPA). Congress created an ombudsman function within the Office of Solid Waste and Emergency Response with an amendment to the Resource Conservation and Recovery Act in 1984. The position initially dealt only with hazardous waste matters. Later, EPA extended the position past its 1988 legislative authorization and expanded its jurisdiction to include Superfund sites. After a July 2001 GAO report critical of the ombudsman office, EPA proposed a controversial transfer of the Office of Congressional and Public Liaison to the Office of Inspector General (OIG). The GAO report found several structural weaknesses in the ombudsman office at the time: EPA's national ombudsman is located within the Office of Solid Waste and Emergency Response (OSWER), the organizational unit whose decisions the ombudsman is responsible for investigating, and his budget and staff resources are controlled by unit managers within OSWER.... [T]his arrangement undermines another fundamental requirement of an effective ombudsman: impartiality. EPA Administrator Christine Todd Whitman determined that moving the ombudsman into the IG office would give the ombudsman "more independence and the impartiality necessary to conduct credible inquires," while critics of the move—including Robert J. Martin, the EPA Ombudsman at the time—insisted that the transfer would "put the ombudsman even more firmly under the authority" of EPA administrators. In January 2002, Martin filed a motion in federal district court to block the proposed move. Three months later, however, a federal district judge dismissed the motion, paving the way for the ombudsman to be moved into the OIG. Martin resigned his post, which was renamed Public Liaison, shortly after the move. According to the EPA, the Public Liaison receives, reviews, and processes complaints and allegations about agency programs and activities; writes and publishes reports of agency needs and desired assessments; and prevents and detects fraud, waste, and abuse. In addition to the Public Liaison, 10 regional EPA ombudsmen receive complaints about regulatory polices regarding Superfund sites. The public can contact the Office of Congressional and Public Liaison, located in Washington, DC, by telephone, mail, facsimile, or e-mail. Although the Public Liaison cannot require EPA to make changes to policies or practices, he or she can "refer" cases to agency management for "review or action," or refer the case to an outside agency—such as the Federal Bureau of Investigation—for further review, if warranted. In most cases, the complaint comes in through the Public Liaison's "hotline," which includes a toll-free phone number. It may also be submitted via e-mail, traditional mail, or in-person. Complainants may remain anonymous. The Liaison then reviews the complaint and determines whether the agency has performed its duties in an acceptable manner. All other waste management complaints are to be handled by the liaison, while criminal investigations are to be referred to a different office. Small Business Ombudsman The EPA created the Small Business Ombudsman (SBO) function in 1982. In 1986, the SBO began also serving as the EPA's Asbestos Ombudsman. The position is established to serve as a liaison between small businesses and the EPA to promote understanding of Agency policy and small business needs and concerns; staff a small business hotline that provides regulatory and technical assistance information; maintain and distribute an extensive collection of informational and technical literature developed by the various EPA program offices; make personal appearances as a speaker or panelist at small business-related meetings; meet with more than 45 key national trade associations representing several million small businesses and with state and regional ombudsmen who serve businesses on the local level; provide guidance on the development of national policies and regulations that impact small businesses; and track development and implementation of regulations affecting small business in support of the Regulatory Flexibility Act. The Ombudsman's primary responsibility is to respond to telephone inquiries about regulatory requirements and pollution prevention. The office also prepares a semi-annual newsletter that is sent to its constituency, which includes members of the public, small business owners, legislators, employees, and agency managers. In addition to the main ASBO office, there are 10 Regional Fairness Boards, each consisting of five members, who are small business owners in their local communities. Federal Deposit Insurance Corporation Ombudsman The Federal Deposit Insurance Corporation (FDIC), which insures deposits in U.S. banks, includes an Office of the Ombudsman (OO). It is one of five such offices established by the Community Development and Regulatory Improvement Act of 1994. The OO has two primary charges under the act: act as a liaison between the agency and any affected person with respect to any problem such party may have in dealing with the agency resulting from the regulatory activities of the agency; and assure that safeguards exist to encourage complainants to come forward and preserve confidentiality. The OO, however, does not act as an "advocate" for individual complainants and it cannot conduct in-depth investigations or require changes in management decisions. Nonetheless, it may clarify FDIC policies and direct complaints to the appropriate division or office, while maintaining the complainant's anonymity. The rash of bank failures in 2008 and 2009, moreover, prompted an expansion in the ombudsman office; it includes a new unit designed to give "borrowers an additional venue for having their concerns addressed by the FDIC," additional staff, and a new guide for borrowers confronted by a failed bank and the subsequent receivership process. Freedom of Information Act Entities The Freedom of Information Act (FOIA) Amendments of 2007 created two ombudsman-like posts: Public Liaisons and an Office of Government Information Services. Public Liaisons The 2007 amendments to the Freedom of Information Act required the creation of public liaison positions throughout much of the executive branch to ensure prompt and proper responses to the public's FOIA requests. The amendments called for the designation of "one or more FOIA Public Liaisons" in each agency, leaving the determination of the size of the staff up to department and agency heads. As instructed by the amendments, "each agency shall make available its FOIA Public Liaison, who shall assist in the resolution of any disputes between the requester and the agency." The Liaison is permitted, moreover, to attempt non-binding dispute resolutions as an alternative to litigation. In addition, each agency is to designate a Chief FOIA Officer who will, in turn, "designate one or more FOIA Public Liaisons." Office of Government Information Services The 2007 FOIA Amendments also provided for the creation of an Office of Government Information Services (OGIS) within the National Archives and Records Administration. The law required the new office to review policies and procedures of administrative agencies under this section; review compliance with this section by administrative agencies; and recommend policy changes to Congress and the President to improve the administration of this section. The office began operations in September 2009. General Services Administration Construction Metrication Ombudsman The General Services Administration (GSA) has established a highly specialized ombudsman with narrow jurisdiction: the Construction Metrication Ombudsman (CMO), located in the Administration's Senior Procurement Executive. The CMO, as with counterparts in other agencies, stems from a statutory requirement that the head of each executive agency that awards construction contracts within the United States and its territories shall designate a senior agency official to serve as a construction metrication ombudsman who shall be responsible for reviewing and responding to complaints from prospective bidders, subcontractors, suppliers, or their designated representatives related to—(A) guidance or regulations issued by the agency on the use of the metric system of measurement in contracts for the construction of Federal buildings; and (B) the use of the metric system of measurement for services and materials required for incorporation in individual projects to construct Federal buildings. In so doing, the CMO is required to respond to each complaint in writing within 60 days and make a recommendation to the head of the agency for an appropriate resolution. After the agency head has made a decision, based on this recommendation, the ombudsman is to communicate it in writing to the affected parties and to the public in a timely manner, as well as to all appropriate offices within the agency. The CMO is also charged with monitoring the implementation of the decision. National Aeronautics and Space Administration Procurement Ombudsman and Center Procurement Ombudsman In 1996, the National Aeronautics and Space Administration (NASA) established a Procurement Ombudsman, along with related Center Procurement Ombudsmen in the Administration's eight centers. Created administratively (NPD 5101.32), the Procurement Ombudsman is to "take action to resolve concerns, disagreements, and recommendations submitted by interested parties that cannot be resolved at the Center level, or those having agency-wide implications." Basically, the office was created "to address the procurement concerns of NASA contractors before they become problems." To accomplish this, the NASA Ombudsman is to respond to relevant inquiries and concerns, work with appropriate NASA officials to resolve concerns, and refer specific matters to appropriate Center Procurement Ombudsmen. Additional responsibilities for the Agency and Center Procurement Ombudsmen include collecting and distributing relevant facts and information, reviewing and resolving complaints relative to certain types of contracts, and maintaining a log to track individual cases from receipt to disposition. National Credit Union Administration Ombudsman The National Credit Union Administration (NCUA) houses an Ombudsman, who "investigates complaints and recommends solutions" related to "regulatory issues that cannot be resolved at the operational (regional) level." The Ombudsman is to help the complainants resolve disputes by defining options and recommending actions to the parties involved. The Ombudsman, however, cannot decide on matters in dispute or advocate the position of the complainant, NCUA, or other parties. The position is one of five created by the Community Development and Regulatory Improvement Act of 1994, which also covers the Federal Deposit Insurance Corporation, Federal Reserve Board of Governors, Office of Thrift Supervision, and Office of the Comptroller of the Currency. The enactment directs them to act as liaisons between the agency and any affected persons with respect to problems associated with regulatory activities and to encourage complainants to come forward. Office of the Director of National Intelligence Civil Liberties Protection Officer The Intelligence Reform and Terrorism Prevention Act of 2004 provided for a number of ombudsman-like offices connected with the protection of civil rights, civil liberties, and individual privacy. In addition to those in the Department of Homeland Security is the Civil Liberties Protection Officer (CLPO) in the Office of the Director of National Intelligence (ODNI); the CLPO is appointed by and reports directly to the Director. The Civil Liberties Protection Officer's duties, among others, are to ensure that the protection of civil liberties and privacy is appropriately incorporated in the relevant ODNI policies and procedures; the use of technologies sustains, and does not erode, privacy; and complaints and other information indicating possible abuses of civil liberties and privacy in the administration of programs and operations of the ODNI are reviewed and assessed and, as appropriate, investigated. Small Business Administration Two separate offices in the Small Business Administration (SBA)—Ombudsman and Advocacy—provide various types of complaint-handling services, information, outreach, and other forms of assistance to clients in the small business community. In light of their possible overlap, the two offices issued a Memorandum of Understanding (MOU) to foster increased cooperation between them, recognizing that "both work to provide a more small business friendly regulatory environment." The MOU spells out their separate roles and responsibilities. SBA Ombudsman Congress created the SBA's Small Business and Agriculture Regulatory Enforcement Ombudsman, now known as the National Office of the Ombudsman, in the Small Business Regulatory Fairness Enforcement Act of 1996. Under the act, the Office is designed to establish a means to receive comments from small businesses regarding federal agency compliance and enforcement activities; conduct hearings in each of the 10 federal regions to solicit comments on small business concerns to ensure that these businesses have an avenue through which they can comment on agency enforcement activities; and issue annual reports to the SBA Administrator and Congress evaluating the enforcement activities of agency personnel, including a rating of the agency's responsiveness to small businesses. In receiving comments, the Ombudsman serves as a liaison between small businesses and federal agencies. These comments are to be forwarded to federal agencies for a high-level review; and the agencies are requested to consider the fairness of their enforcement actions, after which the Ombudsman is to send a copy of the agencies' responses to the small businesses. In some cases, fines have been lowered or eliminated and decisions changed in favor of small businesses. Nonetheless, the Ombudsman cannot change, stop, or delay a federal agency enforcement action. SBA Office of Advocacy SBA also houses a distinct Office of Advocacy, headed by a chief counsel. The office, established in 1976, is broadly designed to examine the role of small businesses in the American economy, including the impact and effectiveness of regulations on them, and make recommendations with regard to such determinations. In so doing, the Office is to provide relevant data and information to the small business community and the federal government. The Advocacy Office may also file amicus curiae briefs on regulatory matters before federal appellate courts. The regional advocates are to help to ensure communication between the small business community and the chief counsel, and provide a link between the counsel, local businesses, and state and local governments. Part of this process may involve receiving complaints and concerns from small businesses, but the Advocate is not obligated to respond to individual pleas as is the Ombudsman. U.S. Agency for International Development Acquisition and Assistance Ombudsman The U.S. Agency for International Development (USAID) established an Acquisition and Assistance (AA) Ombudsman in 1999, in part prompted by the earlier Federal Acquisition Streamlining Act. The role of the Ombudsman is to ensure "equitable treatment of all parties participating in USAID's grants and contracts (for acquisitions and assistance) throughout the process." The AA Ombudsman is tasked with managing complaints about specific AA proceedings and with facilitating the resolution of differences through an informal, impartial administrative review of the agency action in question. Operating as a neutral intermediary, the Ombudsman is to maintain the anonymity and confidentiality of complainants. U.S. Consumer Product Safety Commission Small Business Ombudsman In 1996, the Consumer Product Safety Commission (CPSC) established a Small Business Ombudsman (SBO) to serve as a liaison to that community to answer inquiries, provide information, and proffer advice and guidance about compliance with the statutes, regulations, and policies under the CPSC's jurisdiction. The SBO also is to provide technical guidance to small businesses attempting to resolve problems with the Office of Compliance and the Office of Hazard Identification and Reduction. Along with these activities, the Ombudsman is to maintain a liaison with its counterpart in the Small Business Administration and "an ongoing dialogue with national trade associations that represent small businesses." U.S. Postal Service Consumer Advocate In 1970, Congress passed the Postal Reorganization Act (PRA), which transformed the struggling United States Post Office Department into the United States Postal Service (USPS), an independent establishment in the executive branch. One of its components is a Consumer Advocate. The workload of USPS, the largest federal civilian employer, is heavy. It delivers more than 212 billion pieces of mail annually to more than 120 million homes and businesses in the United States and its territories and commonwealths. When customer complaints arise over its service, responses usually follow several stages, initially with the local post office. At the national level, the Postal Service established a Consumer Advocate of the Postal Service as another way to improve customer service. The Advocate, created in 1971 by then-Postmaster Winton M. Blount, is to respond to customer concerns in several ways. It aids customers whose insured parcels were lost or damaged during mailing. If USPS denies the indemnity claim, the Customer Advocate adjudicates an appeal. The Advocate also independently measures customer satisfaction and customer perspectives, relying on nearly 900,000 survey results annually. A patron seeking assistance from the Consumer Advocate can request it from the local mail carrier; call, write, or visit the local post office; or call the USPS national hotline. | Federal complaint-handling, ombudsman, and advocacy offices have different forms, capacities, and designations. This report, which reviews the state of research in this field and the heritage of such offices, examines and compares them, along with recent legislative developments and past proposals to establish a government-wide ombudsman. In so doing, the report identifies the basic characteristics of these offices, recognizing differences among them with regard to their powers, duties, jurisdictions, locations, and resources, as well as control over them. This study covers only ombudsman-like offices at the federal level that deal with the public, sometimes known as "external ombudsmen." It does not cover "internal ombudsmen," that is, offices created to handle complaints from employees and resolve disputes between them and management; ombudsman-like offices in the private sector; or similar entities at other levels of government in the United States or abroad, except to note differences among them. Legislative interest, albeit sporadic, in establishing a government-wide ombudsman or standardizing individual offices across-the-board dates to the early 1960s. These efforts extended in the 1970s to proposals to establish an independent office of consumer representation or consumer affairs, a plan that President Jimmy Carter later endorsed. Another initiative emerged in 1993, when President William Clinton—through an executive order "Setting Customer Service Standards"—directed executive departments and agencies to make information, service, and complaint-systems easily accessible and provide means to address such complaints. The order also called for agencies to set customer service standards, survey customers, report to the President on those surveys, and publish customer service plans. A subsequent government-wide customer satisfaction survey, incidentally, found a similar range of satisfaction between the private and public sectors. Notwithstanding these efforts over the past five decades, no comprehensive, across-the-board transformations have occurred. Nonetheless, numerous individual offices have been established, modified, and proposed by administrative directives, public laws, and congressional bills. This piecemeal approach—reflecting different demands in both the government and society over time and across policy areas—has resulted in a variety of ombudsman-like offices. Although a complete, authoritative identification and description of current offices does not exist, a number of studies—from past and contemporary eras, along with the examples here—provide a wide sampling of complaint-handling and advocacy offices for examination and consideration as models. This report consists of three parts: (1) an analysis of the ombudsman concept and a brief look at which countries around the world have used ombudsmen; (2) a breakdown of the various ways in which federal complaint-handling offices differ; and (3) an identification and description of selected ombudsman-like offices, including specifics on their origins and operations. This report will be updated as events warrant. |
Some observers assert that since 9/11 the Pentagon has begun to conduct certain types of counterterrorism intelligence activities that may meet the statutory definition of a covert action. The Pentagon, while stating that it has attempted to improve the quality of its intelligence program in the wake of 9/11, has contended that it does not conduct covert actions. Congress in 1990 toughened procedures governing intelligence covert actions in the wake of the Iran-Contra affair, after it was discovered that the Reagan Administration had secretly sold arms to Iran, an avowed enemy that had it branded as terrorist, and used the proceeds to fund the Nicaraguan Democratic Resistance, also referred to by some as "Contras." In response, Congress adopted several statutory changes, including enacting several restrictions on the conduct of covert actions and establishing new procedures by which Congress is notified of covert action programs. In an important change, Congress for the first time statutorily defined covert action to mean "an activity or activities of the United States Government to influence political, economic, or military conditions abroad, where it is intended that the role of the United States Government will not be apparent or acknowledged publicly." The 1991 statutory changes remain in effect today. This report examines the legislative background surrounding covert action and poses several related policy questions. In 1974, Congress asserted statutory control over covert actions in response to revelations about covert military operations in Southeast Asia and other intelligence activities. It approved the Hughes-Ryan Amendment to the Foreign Assistance Act of 1961 requiring that no appropriated funds could be expended by the CIA for covert actions unless and until the President found that each such operation was important to national security, and provided the appropriate committees of Congress with a description and scope of each operation in a timely fashion. The phrase "timely fashion" was not defined in statute. In 1980, Congress endeavored to provide the two new congressional intelligence committees with a more comprehensive statutory framework under which to conduct oversight. As part of this effort, Congress repealed the Hughes-Ryan Amendment and replaced it with a statutory requirement that the executive branch limit its reporting on covert actions to the two intelligence committees, and established certain procedures for notifying Congress prior to the implementation of such operations. Specifically, the statute stipulates that if the President determines it is essential to limit prior notice to meet extraordinary circumstances affecting the vital interests of the United States, the President may limit prior notice to the chairmen and ranking minority Members of the intelligence committees, the Speaker and minority leader of the House, and the majority and minority leaders of the Senate—a formulation that has become known as the "Gang of Eight." If prior notice is withheld, the President is required to inform the committees in a "timely fashion" and provide a statement of the reasons for not giving prior notice. In 1984, in the wake of the mining of Nicaraguan harbors in support of the Nicaraguan Democratic Resistance, the chairman and vice chairman of the Senate Select Committee on Intelligence signed an informal agreement—which became known as the "Casey Accords"—with then-Director of Central Intelligence (DCI) William Casey establishing certain procedures that would govern the reporting of covert actions to Congress. In 1986, the committee's principals and the DCI signed an addendum to the earlier agreement, stipulating that the committee would receive prior notice if "significant military equipment actually is to be supplied for the first time in an ongoing operation ... even if there is no requirement for separate higher authority or Presidential approval." This agreement reportedly was reached several months after President Reagan signed the January 17, 1986, Iran Finding which authorized the secret transfer of certain missiles to Iran. Following the Iran-Contra revelations, President Ronald Reagan in 1987 issued National Security Decision Directive 286 prohibiting retroactive findings and requiring that findings be written. The executive branch, without congressional consent, can revise or revoke such National Security Directives. In 1988, acting on a recommendation made by the Congressional Iran-Contra Committee, the Senate approved bipartisan legislation that would have required that the President notify the congressional intelligence committees within 48 hours of the implementation of a covert action if prior notice had not been provided. The House did not vote on the measure. Still concerned by the fall-out from the Iran-Contra affair, Congress in 1990 attempted to tighten its oversight of covert action. The Senate Intelligence Committee approved a new set of statutory reporting requirements, citing the ambiguous, confusing and incomplete congressional mandate governing covert actions under the then-current law. After the bill was modified in conference, Congress approved the changes. President George H. W. Bush pocket-vetoed the 1990 legislation, citing several concerns, including conference report language indicating congressional intent that the intelligence committees be notified "within a few days" when prior notice of a covert action was not provided, and that prior notice could only be withheld in "exigent circumstances." The legislation also contained language stipulating that a U.S. government request of a foreign government or a private citizen to conduct covert action would constitute a covert action. In 1991, after asserting in new conference language its intent as to the meaning of "timely fashion" and eliminating any reference to third-party covert action requests, Congress approved and the President signed into law the new measures. President Bush noted in his signing statement his satisfaction that the revised provision concerning "timely" notice to Congress of covert actions incorporates without substantive change the requirement found in existing law, and that any reference to third-party requests had been eliminated. Those covert action provisions remain in effect today. Since the 9/11 terrorist attacks, concerns have surfaced with regard to the Pentagon's expanded intelligence counterterrorism efforts. Some lawmakers reportedly have expressed concern that the Pentagon is creating a parallel intelligence capability independent from the CIA or other American authorities, and one that encroaches on the CIA's realm. It has been suggested that the Pentagon has adopted a broad definition of its current authority to conduct "traditional military activities" and "prepare the battlefield." Senior Defense Department officials reportedly have responded that the Pentagon's need for intelligence to support ground troops after 9/11 requires a more extensive Pentagon intelligence operation, and they suggest that any difference in DOD's approach is due more to the amount of intelligence gathering that is necessarily being carried out, rather than to any difference in the activity it is conducting. These same officials, however, also reportedly contend that American troops were now more likely to be working with indigenous forces in countries like Iraq or Afghanistan to combat stateless terrorist organizations and need as much flexibility as possible. Late 2008 media reports stated that the U.S. military since 2004 has used broad, secret authority to carry out nearly a dozen previously undisclosed attacks against Al Qaeda and other militants in Syria, Pakistan, and elsewhere. According to other media reports, DOD has been paying private contractors in Iraq to produce news stories and other media products to "engage and inspire" the local population to support U.S. objectives and the Iraqi government. The products may or may not be non-attributable to coalition forces. Adding even more complexity to DOD and CIA mission differences, according to then-Director of National Intelligence Dennis C. Blair, is that there often is not a "bright line" between traditional secret intelligence missions carried out by the military and those by the CIA, requiring that such operations be considered on a case-by-case basis. Mr. Blair said the executive branch would be guided by two criteria. First, the President and those in the military and intelligence chains of command would maintain the flexibility to design and execute an operation solely for the purpose of accomplishing the mission. Second, he said, such operations would be approved by the appropriate authorities, coordinated in the field, and reported to the relevant congressional committees, including the Intelligence, Armed Services, and Appropriations Committees. Former DNI Blair's views appear to comport with comments previously made by former CIA Director Michael Hayden, who reportedly stated that it has become more difficult to distinguish between traditional secret military and CIA intelligence missions and that any problems resulting from overlapping missions would be resolved case-by-case. Stating the military's perspective, General James R. Clapper, Jr., the Pentagon's former Under Secretary of Defense for Intelligence, testified before the Senate Armed Services Committee that within the statutory context of the meaning of covert action, "covert activities are normally not conducted ... by uniformed military forces." In written responses to questions posed by the Senate Armed Services Committee in advance of the hearing, General Clapper asserted that it was his understanding that "military forces are not conducting 'covert action,'" but are instead confining their actions to clandestine activities. Although testifying that the term "clandestine activities" is not defined by statute, he characterized such activity as consisting of those actions that are conducted in secret, but which constitute "passive" intelligence information gathering. By contrast, covert action, he suggested, is "active," in that its aim is to elicit change in the political, economic, military, or diplomatic behavior of a target. In comments before the committee, he further noted that clandestine activity can be conducted in support of a covert activity. He also distinguished between a covert action, in which the government's participation is unacknowledged, and a clandestine activity, which although intended to be secret, can be publicly acknowledged if it is discovered or inadvertently revealed. Being able to publicly acknowledge such an activity provides the military personnel who are involved certain protections under the Geneva Conventions, according to General Clapper, who suggested that those who participate in covert actions could jeopardize any rights they may have under the Geneva Conventions. He recommended "that, to the maximum extent possible, there needs to be a line drawn (between clandestine and covert activities) from an oversight perspective and as well [sic] as a risk perspective." Some observers suggest that Congress needs to increase its oversight of military activities that some contend may not meet the definition of covert action, and may therefore, be exempt from the degree of congressional oversight accorded to covert actions. Others contend that increased oversight would hamper the military's effectiveness. The Senate Intelligence Committee expressed its concern that the then-USD(I) has interpreted Title 10 to expand "military source operations" authority, thus allowing the Services and Combatant Commands to conduct clandestine HUMINT operations worldwide. "These activities can come awfully close to activities that constitute covert action," the committee stated in questions for the record posed to DNI following his confirmation hearing before the committee. Mr. Clapper would subsequently become Director of National Intelligence in August 2010. Perhaps in an effort to bring clarity to the covert action issue, Department of Defense officials early in the 112 th Congress stated that the law could be updated to reflect U.S. Special Operations Command's current list of core task and the missions assigned to it in the Unified Command Plan. But in doing so, they also noted that Section 167 includes "such other activities as may be specified by the President or the Secretary of Defense," which they argued provides the President and the Secretary the flexibility to meet changing circumstances. The current statute with regard to covert action remains virtually unchanged since it was signed into law in 1991. In essence it codified elements of the "Casey Accords," the President's 1988 national security directive, and various legislative initiatives. The legislation approved that year, according to the conferees, for the first time imposed the following requirements pertaining to covert action: A finding must be in writing. A finding may not retroactively authorize covert activities which have already occurred. The President must determine that the covert action is necessary to support identifiable foreign policy objectives of the United States. A finding must specify all government agencies involved and whether any third party will be involved. A finding may not authorize any action intended to influence United States political processes, public opinion, policies, or media. A finding may not authorize any action which violates the Constitution of the United States or any statutes of the United States. Notification to the congressional leaders specified in the bill must be followed by submission of the written finding to the chairmen of the intelligence committees. The intelligence committees must be informed of significant changes in covert actions. No funds may be spent by any department, agency, or entity of the executive branch on a covert action until there has been a signed, written finding. The term "covert action" was defined for the first time in statute to mean "an activity or activities of the United States Government to influence political, economic, or military conditions abroad, where it is intended that the role of the United States will not be apparent or acknowledged publicly." In 1991, congressional conferees said this new definition was intended to clarify understandings of intelligence activities requiring the President's approval, not to relax or go beyond previous understandings. Conferees also signaled their intent that government activities aimed at misleading a potential adversary to the true nature of U.S. military capabilities, intentions or operations, for example, would not be included under the definition. And they stated that covert action does not apply to acknowledged U.S. government activities which are intended to influence public opinion or governmental attitudes in foreign countries. To mislead or to misrepresent the true nature of an acknowledged U.S. activity does not make it a covert action, according to the conferees. In approving a statutory definition of covert action, Congress also statutorily stipulated four categories of activities which would not constitute covert action. They are (1) activities the primary purpose of which is to acquire intelligence, traditional counterintelligence activities, traditional activities to improve or maintain the operational security of U.S. government programs, or administrative activities; (2) traditional diplomatic or military activities or routine support to such activities; (3) traditional law enforcement activities conducted by U.S. government law enforcement agencies or routine support to such activities; and (4) activities to provide routine support to the overt activities (other than activities described in the first three categories) of other U.S. government agencies abroad. This report addresses the second category of activities—traditional military activities and routine support to those activities. Conferees stated: It is the intent of the conferees that "traditional military activities" include activities by military personnel under the direction and control of a United States military commander (whether or not the U.S. sponsorship of such activities is apparent or later to be acknowledged) preceding and related to hostilities which are either anticipated (meaning approval has been given by the National Command Authorities for the activities and or operational planning for hostilities) to involve U.S. military forces, or where such hostilities involving United States military forces are ongoing, and, where the fact of the U.S. role in the overall operation is apparent or to be acknowledged publicly. In this regard, the conferees intend to draw a line between activities that are and are not under the direction and control of the military commander. Activities that are not under the direction and control of a military commander should not be considered as "traditional military activities." Conferees further stated that whether or not activities undertaken well in advance of a possible or eventual U.S. military operation constitute "covert action" will depend in most cases upon whether they constitute "routine support" and referenced the report accompanying the Senate bill for an explanation of the term. The report accompanying the Senate bill states: The committee considers as "routine support" unilateral U.S. activities to provide or arrange for logistical or other support for U.S. military forces in the event of a military operation that is to be publicly acknowledged. Examples include caching communications equipment or weapons, the lease or purchase from unwitting sources of residential or commercial property to support an aspect of an operation, or obtaining currency or documentation for possible operational uses, if the operation as a whole is to be publicly acknowledged. The report goes on to state: The committee would regard as "other-than-routine" support activities undertaken in another country which involve other than unilateral activities. Examples of such activity include clandestine attempts to recruit or train foreign nationals with access to the target country to support U.S. forces in the event of a military operation; clandestine [efforts] to influence foreign nationals of the target country concerned to take certain actions in the event of a U.S. military operation; clandestine efforts to influence and effect [sic] public opinion in the country concerned where U.S. sponsorship of such efforts is concealed; and clandestine efforts to influence foreign officials in third countries to take certain actions without the knowledge or approval of their government in the event of a U.S. military operation. As the congressional conferees declared in 1991, timing of such activities—whether proximate to a military operation, or well in advance—does not define "other-than-routine" support of military activities. Rather, whether such activities constitute "other-than-routine" support, and thus constitute covert action, will depend, in most cases, on whether such an activity is unilateral in nature, that is, whether U.S. government personnel conduct the activity, or whether they enlist the assistance of foreign nationals. In committee report language accompanying the FY2010 Intelligence Authorization Act, the House Permanent Select Committee on Intelligence (HPSCI) expressed its concern that the distinction between the CIA's intelligence-gathering activities and DOD's clandestine operations is becoming blurred and called on the Defense Department to meets its obligations to inform the committee of such activities. The committee said that DOD frequently labels its clandestine activities as "Operational Preparation of the Environment" (OPE) to distinguish particular operations as traditional military activities and not as intelligence functions. According to the committee's report, the overuse of this term "has made the distinction all but meaningless" and there are no clear guidelines or principles for making consistent determinations in this regard. The committee stated: Clandestine military intelligence-gathering operations, even those legitimately recognized as OPE, carry the same diplomatic and national security risks as traditional intelligence-gathering activities. While the purpose of many such operations is to gather intelligence, DOD has shown a propensity to apply the OPE label where the slightest nexus of a theoretical, distant military operation might one day exist. Consequently, these activities often escape the scrutiny of the intelligence committees, and the congressional defense committees cannot be expected to exercise oversight outside of their jurisdiction. If DOD does not meet its obligations to inform the committee of intelligence activities, the report warned, the committee would consider clarifying the department's obligation to do so. The lines defining mission and authorities with regard to covert action are less than clear. The lack of clarity raises a number of policy questions for the 112 th Congress, including the following far-from-exclusive list. How should Congress define its oversight role? Which committees should be involved? Can the U.S. military improve the effectiveness of its intelligence operations without at some point enlisting the support of foreign nationals in such a way that such activity could be viewed as "non-routine support" to traditional military activities, that is, a covert action? Is it appropriate to view U.S. counterterrorism efforts in the context of a global battlefield and to view the military as having the authority to "prepare" that battlefield, and can "anticipated" military action precede the onset of hostilities by months or years? Is it appropriate to view the military as being involved in "a war" against terrorists, and thus its activities as constituting "traditional military activities" as it wages that war? By asserting that its activities do not constitute covert actions, is the Pentagon trying to avoid the statutory requirements governing covert action, including a signed presidential finding, congressional notification, and oversight by the congressional intelligence committees? Or, as Pentagon officials suggest, is DOD, in the wake of 9/11, fulfilling a greater number of intelligence needs associated with combating terrorism that are sanctioned in statute and do not fall under the statutory definition of covert action? Since 1991, when Congress last comprehensively addressed the issue of covert action, has the environment in which the U.S. military operates changed sufficiently to warrant a review of the statute that applies to covert actions? In order to clarify certain Pentagon authorities and covert action guidelines, should Congress consider updating Section 167 of Title 10 to reflect U.S. Special Operations Command's current list of core task and the missions assigned to it in the Unified Command Plan? In his 1991 signing statement, President George H. W. Bush argued that Congress's definition of "covert action" was unnecessary. He went on to state that in determining whether particular military activities constitute covert actions, he would continue to bear in mind the historic missions of the Armed Forces to protect the United States and its interests, influence foreign capabilities and intentions, and conduct activities preparatory to the execution of operations. | Published reports have suggested that in the wake of the 9/11 terrorist attacks, the Pentagon has expanded its counterterrorism intelligence activities as part of what the Bush Administration termed the global war on terror. Some observers have asserted that the Department of Defense (DOD) may have been conducting certain kinds of counterterrorism intelligence activities that would statutorily qualify as "covert actions," and thus require a presidential finding and the notification of the congressional intelligence committees. Defense officials have asserted that none of DOD's current counterterrorism intelligence activities constitute covert action as defined under the law, and therefore, do not require a presidential finding and the notification of the intelligence committees. Rather, they contend that DOD conducts only "clandestine activities." Although the term is not defined by statute, these officials characterize such activities as constituting actions that are conducted in secret but which constitute "passive" intelligence information gathering. By comparison, covert action, they contend, is "active," in that its aim is to elicit change in the political, economic, military, or diplomatic behavior of a target. Some of DOD's activities have been variously described publicly as efforts to collect intelligence on terrorists that will aid in planning counterterrorism missions; to prepare for potential missions to disrupt, capture or kill them; and to help local militaries conduct counterterrorism missions of their own. Senior U.S. intelligence community officials have conceded that the line separating Central Intelligence Agency (CIA) and DOD intelligence activities has blurred, making it more difficult to distinguish between the traditional secret intelligence missions carried out by each. They also have acknowledged that the U.S. intelligence community confronts a major challenge in clarifying the roles and responsibilities of various intelligence agencies with regard to clandestine activities. Some Pentagon officials have appeared to indicate that DOD's activities should be limited to clandestine or passive activities, pointing out that if such operations are discovered or are inadvertently revealed, the U.S. government would be able to preserve the option of acknowledging such activity, thus assuring the military personnel who are involved some safeguards that are afforded under the Geneva Conventions. Covert actions, by contrast, constitute activities in which the role of the U.S. government is not intended to be apparent or to be acknowledged publicly. Those who participate in such activities could jeopardize any rights they may have under the Geneva Conventions, according to these officials. In committee report language accompanying P.L. 111-259, the FY2010 Intelligence Authorization Act, the House Permanent Select Committee on Intelligence (HPSCI) expressed its concern that the distinction between the CIA's intelligence-gathering activities and DOD's clandestine operations is becoming blurred and called on the Defense Department to meet its obligations to inform the committee of such activities. Perhaps in an effort to bring more clarity to the covert action issue, Department of Defense officials early in the 112th Congress stated that current statute could be updated to reflect U.S. Special Operations Command's list of core tasks and the missions assigned to it in the Unified Command Plan. But in doing so, they also noted that Section 167 includes "such other activities as may be specified by the President or the Secretary of Defense," which, they argued, provides the President and the Secretary flexibility to meet changing circumstances. |
On March 25, 2016, the Occupational Safety and Health Administration (OSHA) of the Department of Labor (DOL) published in the Federal Register new standards governing exposure to respirable crystalline silica in the workplace. Key features of the new crystalline silica standards include the following requirements for employers: protect workers when exposure to respirable crystalline silica exceeds the new permissible exposure limit (PEL) of 50 µg/m 3 (micrograms per cubic meter of air), as an 8-hour time-weighted average (TWA), through the use of engineering controls, or if such controls are not effective, the use of respirators; measure workers' exposure to respirable crystalline silica if such exposure may reach or exceed levels of 25 µg/m 3 as an 8-hour TWA; limit workers' access to areas where they may be exposed to respirable crystalline silica; offer medical exams, including chest x-rays and lung function tests, every 3 years to workers exposed to crystalline silica at or above the level of 25 µg/m 3 as an 8-hour TWA for 30 or more days in a year or to construction workers required to wear respirators for 30 or more days in a year; train workers to limit exposure to respirable crystalline silica; and maintain records of workers' exposure to respirable crystalline silica and employer-provided medical exams. These new standards are to be phased in over a five-year period, beginning June 23, 2017, with different implementation dates for construction, general industry, and hydraulic fracturing (fracking). The standards provide employers in the construction industry an exemption from the PEL and requirement to measure employee exposure to crystalline silica if these employers follow the engineering controls and work practices of the new standards, as outlined in Table 1 of the new standards. For example, if a stationary masonry saw is used in construction, the employer is exempt from the PEL and requirement to measure silica exposure if the following controls and practices are used: Use saw equipped with integrated water delivery system that continuously feeds water to the blade. Operate and maintain tool in accordance with manufacturer's instructions to minimize dust emissions. Crystalline silica is a compound found in the earth's crust. It is a component of soil, sand, and other natural materials. The three most common forms of crystalline silica are quartz, cristobalite, and tridymite. Crystalline silica in dust commonly occurs when workers cut, saw, grind, drill, or crush materials such as glass, stone, rock, concrete, brick, or industrial sand. Exposure also occurs when industrial sand is used in abrasive operations, such as sandblasting, and in the hydraulic fracturing process. The National Institute for Occupational Safety and Health (NIOSH) estimates that 1.7 million workers are exposed to crystalline silica in the workplace. However, NIOSH's estimates are based on 1986 data, which were published in 1991. In the preamble to its new crystalline silica standards, OSHA estimates that more than 2.3 million workers are potentially exposed to crystalline silica in the workplace, including more than 2 million workers in the construction industry. Crystalline silica particles can be 100 times smaller than normal sand particles. Because of their small size, these particles can easily enter the human respiratory system. The International Agency for Research on Cancer (IARC) and the Department of Health and Human Services (HHS) National Toxicology Program has identified crystalline silica as a human carcinogen. The respiration of crystalline silica has been associated with the incurable disease silicosis and other respiratory diseases, such as pulmonary tuberculosis and lung cancer; auto-immune diseases, such as scleroderma, rheumatoid arthritis, and lupus; and renal disease and renal changes. The health effects of crystalline silica and the link between occupational exposure to crystalline silica and silicosis and other diseases have been known since the beginning of the 20 th century, when cases of "consumption" and "phthisis" were documented among miners, stonecutters, glass workers, and other workers in the United States and other countries. In 1931, several hundred workers died of acute silicosis after being exposed to silica during the construction of Union Carbide and Carbon Corporation's Hawk's Nest Tunnel in Gauley Bridge, WV, making this exposure one of the deadliest single incidents of occupational disease in American history. The federal government, under the provisions of the Energy Employees Occupational Illness Compensation Program Act (EEOICPA), currently provides a $150,000 cash benefit and health benefits to workers, or their survivors, who contracted chronic silicosis as a result of digging tunnels in Alaska and Nevada used for the underground testing of atomic weapons. In the preambles to its Notice of Proposed Rulemaking (NPRM) and Final Rule, OSHA lays out a detailed rationale for the new crystalline silica standards. OSHA claims that based on an extensive review of existing literature and research that identifies links between exposure to crystalline silica and various medical conditions, including silicosis, cancers, renal conditions, and other diseases, the new standards will prevent more than 600 silica-related deaths each year and reduce monetarized benefits by reducing mortality and morbidity, which far exceed projected costs of compliance. In preparing its new crystalline silica standards, OSHA conducted a Preliminary Quantitative Risk Assessment and Final Quantitative Risk Assessment. Both assessments consisted of an extensive review of published literature and research on the health effects of occupational exposure to crystalline silica. OSHA performed these risk assessments in compliance with Section 6(b)(5) of the Occupational Safety and Health Act (OSH Act), which states, in part Development of standards under this subsection shall be based upon research, demonstrations, experiments, and such other information as may be appropriate. In addition to the attainment of the highest degree of health and safety protection for the employee, other considerations shall be the latest available scientific data in the field, the feasibility of the standards, and experience gained under this and other health and safety laws.... Before the Preliminary Quantitative Risk Assessment, a draft health effects review document was subject to external peer review in accordance with Office of Management and Budget (OMB) guidelines. As a result of the Final Quantitative Risk Assessment, OSHA concludes in the preamble to its Final Rule: [T]here is convincing evidence that inhalation exposure to respirable crystalline silica increases the risk of a variety of adverse health effects, including silicosis, NMRD [non-malignant respiratory disease] (such as chronic bronchitis and emphysema), lung cancer, kidney disease, immunological effects, and infectious tuberculosis (TB). The new standards set a uniform PEL of 50 µg/m 3 measured as an 8-hour TWA. If workers are exposed to crystalline silica above the PEL, they must be protected through engineering controls, such as using water to control dust generated by a work process or respirators provided by the employer. Because the PEL is measured as an 8-hour TWA, a worker can be exposed to levels above the PEL periodically during the work day, provided that his or her average exposure over 8 hours does not exceed the 50 µg/m 3 . Prior to the promulgation of the new crystalline silica standards, the OSHA occupational safety and health standards (the old standards) did not include a universal PEL for all industries and types of crystalline silica. In addition, the PELs in the old standards, as published in the Code of Federal Regulations (C.F.R.), are not directly comparable to the new PELs. The PELs in the old standards are expressed as a formula of volume of crystalline silica per cubic meter of air, divided by the percentage of silicon dioxide (SiO 2 ); or as millions of particles per cubic foot of air, divided by the percentage of SiO 2 . In its NPRM on the new standards, OSHA reports that the particle-count methodology used to determine the number of particles per cubic foot of air is obsolete. In its NPRM, OSHA also provides the following estimates of the old-standard PELs expressed using the new methodology of µg/m 3 , measured as an 8-hour TWA: quartz in general industry: 100 µg/m 3 ; quartz in construction industry: 250 µg/m 3 ; quartz in shipyard industry: 250 µg/m 3 ; cristobalite in all industries: 50 µg/m 3 ; and tridymite in all industries: 50 µg/m 3 . The old-standard PELs trace their history to a report from the U.S. Public Health Service in 1929, which examined exposure to silica among workers in the granite-cutting industry in Barre, VT. The report recommended an exposure limit of between 10 million and 20 million particles per cubic foot (mppcf) for dust containing approximately 35% free silica (which includes crystalline silica) in the form of quartz and stated that this level could be "obtained by the use of economically practicable ventilating devices applied to the source of the dust." A review of the report stated It should be pointed out that the limit established was not found to prevent the occurrence of silicosis. It was found, however, that there seemed to be no particular liability to pulmonary tuberculosis where the concentration of dust was within this limit. Section 6(a) of the OSH Act required OSHA to convert existing federal occupational safety and health standards and national consensus standards into OSHA standards within two years of enactment of the OSH Act. In 1971, OSHA's original PELs for crystalline silica were promulgated based on the existing PELs provided in regulations implementing the Walsh-Healey Public Contracts Act of 1936, which established certain standards for federal contractors. The Walsh-Healey regulations were based on the 1968 Threshold Limit Values (TLVs) established by the American Conference of Governmental Industrial Hygienists (ACGIH). The ACGIH TLVs were based on the recommendations in the 1929 U.S. Public Health Service Report. In 1989, OSHA updated nearly all of its PELs, including those for crystalline silica. The updated PELs for general industry were not increased, but rather were converted from the outdated formulas to measures of µg/m 3 of air. In 1992, OSHA proposed changing the crystalline silica PELs for the construction, agriculture, and maritime industries such that all industries would have the same PELs of 100 µg/m 3 for quartz and 50 µg/m 3 for cristobalite and tridymite. These changes would have resulted in a reduction in the PELs for the construction and maritime industries. In 1992, the U.S. Court of Appeals for the Eleventh Circuit vacated the 1989 changes to the PELs and mooted the 1992 proposed changes, thus returning the PELs back to their original levels set in 1971. These 1971 levels are replaced by the new PELs promulgated in 2016. In 1974, NIOSH issued a recommended PEL for crystalline silica of 50 µg/m 3 , measured as a 10-hour workday, 40-hour week TWA. In response to this recommendation, OSHA in 1974 published an Advanced Notice of Proposed Rulemaking (ANPRM) seeking public comments on whether a new crystalline silica standard should be promulgated based on the NIOSH recommendation or any other factors. More than 40 years after the NIOSH recommendation and the ANPRM, the new OSHA crystalline silica PEL now essentially matches the NIOSH recommendation, although it will be measured as an average over an 8-hour day. The new crystalline silica standards took effect June 23, 2016. However, employers were not required to comply with the new standards at that time. Rather, compliance is to be implemented according to the following schedule: construction industry —September 23, 2017, except for provisions related to the analysis of air samples, which require compliance by June 23, 2018; good faith compliance assistance —On September 20, 2017, OSHA announced that during the first 30 days of enforcement of the standards for the construction industry, the agency would provide compliance assistance, rather than issue citations, to employers making "good faith efforts" to comply with the new standards. general industry (except hydraulic fracturing) and maritime industry —2 years after the effective date (June 23, 2018), except for medical surveillance, which is required to begin for employees exposed at or above the PEL for 30 days in a year by June 23, 2018, and for employees exposed at or above the level of 25 µg/m 3 by June 23, 2020; and hydraulic fracturing —2 years after the effective date (June 23, 2018), except for medical surveillance, which is required to begin for employees exposed at or above the PEL for 30 days in a year by June 23, 2018, and for employees exposed at or above the level of 25 µg/m 3 by June 23, 2020, and also except for engineering controls provisions, which require compliance by June 23, 2021. OSHA projects that the implementation of its new crystalline standards will prevent 642 silica-related deaths per year and produce annual benefits of approximately $8.7 billion through mortality and morbidity reductions. OSHA also projects that annual benefits will be more than eight times greater than the annual projected costs of compliance with the new standards. The projected annualized costs of compliance with the standards are just over $1 billion, with 64% of these costs coming from implementing engineering controls. Table 1 provides OSHA's projected costs and benefits of the new crystalline silica standards. After OSHA published the NPRM on the new crystalline silica standards on September 12, 2013, several groups representing employers expressed their opposition to the proposed changes. These groups argued that OSHA had significantly underestimated the projected costs of the new standards and that the declining rate of silicosis deaths indicated that stricter standards and lower PELs were not necessary. In a March 2015 report, the Construction Industry Safety Coalition (CISC), made up of 25 trade associations representing employers that may be affected by the new standards, estimates that the proposed new standards will cost employers $4.9 billion annually. The CISC estimates annual direct compliance costs of $3.9 billion and indirect costs due to higher prices for building materials of more than $1 billion. The CISC's cost estimate is significantly higher than OSHA's cost estimate of just over $1 billion in the preamble to the Final Rule. The Crystalline Silica Panel of the American Chemistry Council (ACC), composed of representatives from mining and mineral associations and industries, claims that evidence shows the current OSHA crystalline silica PELs are effective at reducing silica-related deaths and thus do not need to be changed. The ACC claims that data from the Centers for Disease Control and Prevention (CDC) indicate a nearly 90% reduction in annual silicosis deaths between 1968 and 2010. The ACC attributes this reduction, in part, to the current PELs adopted in 1971. The CDC states that the reduction in silicosis deaths in this period is likely due to two factors. First, the higher numbers of deaths in the early period of the data may be capturing workers who were exposed to crystalline silica and contracted silicosis before the original OSHA PELs were implemented in 1971, mine safety regulations under the Coal Mine Safety and Health Act of 1969 and the Mine Safety and Health Act of 1977, and a greater use of engineering controls and other measures to control crystalline silica exposure. Second, there has been a reduction in the number of workers in heavy industries, such as the mining industry, where silica exposure is prevalent. In the preamble to its NPRM, OSHA calls these factors identified by the CDC "reasonable." In addition, the ACC claims that better compliance with current PELs, not lower PELs, is the key to reducing silicosis deaths among workers. Annual silicosis mortality data are shown in Figure 1 . In public comments in response to the NPRM, the ACC, the U.S. Chamber of Commerce, the National Utility Contractors Association, and the National Federation of Independent Business all argued that OSHA's projection of the new standards preventing 642 annual deaths from silicosis and non-malignant respiratory diseases (NMRD) in the NPRM exceeded the number of silicosis-related deaths reported in 2010 by the CDC and cited this as evidence that OSHA had overstated the benefits of the proposed standards. In response to these objections, OSHA claims that commenters are making "apples and oranges" comparisons because the industry's objections focus on the number of deaths attributable to silicosis only, whereas OSHA's projections are for the number of deaths from silicosis and other NMRD prevented by the new standards. In Section 115 of its FY2016 appropriations bill, S. 1695 , the Senate Committee on Appropriations included a provision that would have prohibited OSHA from spending any appropriated funds to implement any change to the crystalline silica standards until a review is conducted, after the date of enactment, by a small business advocacy review (SBAR) panel (commonly referred to as a SBREFA panel) under the provisions of the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996, and a report of this panel is submitted to OSHA; and OSHA commissions a study by the National Academy of Sciences (NAS), and reports on the results of this study to the Senate Committees on Appropriations and Health, Education, Labor, and Pensions within one year of enactment of the legislation, to examine the epidemiological justification for reducing the crystalline silica PEL, "including consideration of the prevalence or lack of disease and mortality associated" with the current PELs; the ability to collect and measure samples of crystalline silica at levels below the proposed PELs and below the level of 25 µg/m 3 ; the ability of regulated industries to comply with the proposed standards; the ability of various types of personal protective equipment (PPE) to protect workers from crystalline silica exposure; and the costs of various types of PPE compared with the costs of engineering controls and work practices. S. 1695 would have appropriated $800,000 to OSHA to conduct the NAS study. S. 1695 was reported by the Senate Committee on Appropriations, but was not voted on by the Senate. The crystalline silica provisions were not included in the Consolidated Appropriations Act, 2016, P.L. 114-113 . In the weeks after the Final Rule was published, legal challenges to the new crystalline silica standards were initiated by groups representing employers, manufacturers, and labor. The U.S. Judicial Panel on Multidistrict Litigation ruled that these petitions for review were to be consolidated in the U.S. Court of Appeals for the D.C. Circuit. Employers and manufacturers challenged the standards on the basis of the following five issues: 1. whether substantial evidence supports OSHA's finding that limiting workers' silica exposure to the level set by the new standards reduces a significant risk of material health impairment; 2. whether substantial evidence supports OSHA's finding that the standards are technologically feasible for the foundry, hydraulic fracturing, and construction industries; 3. whether substantial evidence supports OSHA's finding that the standards are economically feasible for these industries; 4. whether OSHA violated the Administrative Procedure Act in promulgating the new standards; and 5. whether substantial evidence supports the provision that allows workers who undergo medical examinations to keep the results confidential from their employers, the provision that prohibits employers from using dry cleaning methods unless doing so is infeasible. Labor groups challenged the following: 1. the requirement that medical surveillance for construction workers be provided only if the employee has to wear a respirator for 30 days for 1 employer within a 1-year period; and 2. the absence of medical removal provisions. The U.S. Court of Appeals for the D.C. Circuit decided the case on December 22, 2017, and upheld the new standards. In its decision, the court rejected all challenges brought by manufacturers and employers as well as labor groups' objections to the medical surveillance provision. On the issue of medical removal raised by labor groups, the court held that OSHA had acted in an "arbitrary and capricious" manner in declining to require medical removal of a worker in cases in which a medical professional recommends permanent removal of the worker, when a medical professional recommends temporary removal of the worker to alleviate symptoms of chronic obstructive pulmonary disease (COPD), or when a medical professional recommends temporary removal of a worker pending a further determination by a medical specialist. The court remanded these issues to OSHA for reconsideration or further explanation. | On March 25, 2016, the Occupational Safety and Health Administration (OSHA) of the Department of Labor (DOL) published new standards regulating exposure to crystalline silica in the workplace. Under the new standards, the Permissible Exposure Limit (PEL) for crystalline silica is to be reduced to 50 µg/m3 (micrograms per cubic meter of air). Employers are to be required to monitor crystalline silica exposure if workplace levels may exceed 25 µg/m3 for at least 30 days in a year and provide medical monitoring to employees in those workplaces. In the case of construction workers, medical monitoring is required only if the new standards require workers to wear respirators for at least 30 days in a year. Construction industry employers are exempt from the PEL and exposure monitoring requirements if they comply with the engineering controls and work practices specified in the new standards. The new standards are scheduled to be phased in over the next five years, beginning June 23, 2017, with different implementation dates for construction, general industry, and hydraulic fracturing (fracking). OSHA projects that the new crystalline silica standards will prevent 642 deaths per year, costing employers just over $1 billion annually. The net monetary benefits of the new standards are projected to be $7.6 billion annually based on reduced mortality and morbidity related to exposure to crystalline silica. Groups representing employers, manufacturers, and labor filed court challenges to the new standards. On December 22, 2017, the U.S. Court of Appeals for the D.C. Circuit upheld the new standards. |
Since 1917, United States military services have researched and employed unmanned aerial vehicles (UAVs). Over that time, they have been called drones, robot planes, pilotless aircraft, RPVs (remotely piloted vehicles), RPAs (remotely piloted aircraft) and other terms describing aircraft that fly under control with no person aboard. They are most often called UAVs, and when combined with ground control stations and data links, form UAS, or unmanned aerial systems. The Department of Defense (DOD) defines UAVs as powered, aerial vehicles that do not carry a human operator, use aerodynamic forces to provide vehicle lift, can fly autonomously or be piloted remotely, can be expendable or recoverable, and can carry a lethal or nonlethal payload. Ballistic or semi-ballistic vehicles, cruise missiles, and artillery projectiles are not considered UAVs by the DOD definition. UAVs are either described as a single air vehicle (with associated surveillance sensors), or a UAV system (UAS), which usually consists of three to six air vehicles, a ground control station, and support equipment. Although only recently procured in significant numbers by the United States, UAS were first tested during World War I, although not used in combat by the United States during that war. Indeed, it was not until the Vietnam War that the United States employed UAS such as the AQM-34 Firebee in a combat role. The Firebee exemplifies the versatility of UAS—initially flown in the 1950s as an aerial gunnery target and then in the 1960s as an intelligence-collection drone, it was modified to deliver payloads and flew its first flight test as an armed UAV in 2002. The military use of UAS in conflicts such as Kosovo (1999), Iraq (since 2003), and Afghanistan (since 2001) has illustrated the advantages and disadvantages of unmanned aircraft. UAS regularly make national headlines as they perform tasks historically performed by manned aircraft. UAS are thought to offer two main advantages over manned aircraft: they eliminate the risk to a pilot's life, and their aeronautical capabilities, such as endurance, are not bound by human limitations. UAS also protect the lives of pilots by performing those dull, dirty, or dangerous missions that do not require a pilot in the cockpit. UAS may also be cheaper to procure and operate than manned aircraft. However, the lower procurement cost of UAS can be weighed against their greater proclivity to crash, while the minimized risk to onboard crew can be weighed against the complications and hazards inherent in flying unmanned vehicles in airspace shared with manned assets. UAS use has increased for a number of reasons. Advanced navigation and communications technologies were not available just a few years ago, and increases in military communications satellite bandwidth have made remote operation of UAS more practical. The nature of the Iraq and Afghanistan wars has also increased the demand for UAS, as identification of and strikes against targets hiding among civilian populations required persistent surveillance and prompt strike capability, to minimize collateral damage. Further, UAS provide an asymmetrical—and comparatively invulnerable—technical advantage in these conflicts. For many years, the Israeli Air Force led the world in developing UAS and tactics. U.S. observers noticed Israel's successful use of UAS during operations in Lebanon in 1982, encouraging then-Navy Secretary John Lehman to acquire a UAS capability for the Navy. Interest also grew in other parts of the Pentagon, and the Reagan Administration's FY1987 budget requested notably higher levels of UAS funding. This marked the transition of UAS in the United States from experimental projects to acquisition programs. Initial U.S. capabilities came from platforms acquired from Israel. One such UAS, Pioneer, emerged as a useful source of intelligence at the tactical level during Operation Desert Storm, when Pioneer was used by Navy battleships to locate Iraqi targets for its 16-inch guns. Gulf War experience demonstrated the potential value of UAS, and the Air Force's Predator was placed on a fast track, quickly adding new capabilities. Debuting in the Balkans conflict, the Predator performed surveillance missions such as monitoring area roads for weapons movements and conducting battle damage assessment. Operations in Iraq and Afghanistan have featured the Air Force's Global Hawk, as well as adding a new mission that allows the Predator to live up to its name—armed reconnaissance. Reflecting a growing awareness and support for UAS, Congress has increased investment in unmanned aerial vehicles annually. The FY2001 investment in UAS was approximately $667 million. For FY2012, DOD has asked for $3.9 billion in procurement and development funding with much more planned for the outyears. DOD's inventory of unmanned aircraft increased from 167 to nearly 7,500 from 2002 to 2010. DOD's UAS research and development (R&D) funding has also grown, for a variety of reasons: UAS are considered a growth industry, many UAS are relatively inexpensive to produce, and new technology in miniaturization has helped accelerate the development of many UAS types. Congress has approached UAS development with strong encouragement tempered with concern. Notably, in 2000, Congress set the goal of making "one-third of the aircraft in the operational deep strike force aircraft fleet" unmanned. Congress has also directed the formation of joint program offices to ensure commonality among the services' UAS programs. Following expressed concern that DOD's "growing enthusiasm may well lead to a situation in which there is no clear path toward the future of UAS," Congress also required DOD to submit a UAS roadmap. In some instances, Congress has chastened DOD for what it saw as a leisurely rate of UAS acquisition and encouraged it to speed up this pace, or speed up the incorporation of certain capabilities. For example, in 1996, the House Armed Services Committee (HASC) supported legislation directing DOD to weaponize both the Predator and Hunter, but DOD opposed the initiative. Although this report focuses on the military uses of UAS, Congress's interest in UAS extends beyond the defense committees, as UAS capabilities have also led to their use in missions outside the military. The Department of Homeland Security operates UAS to help patrol U.S. borders, and Congress has questioned the efficacy of such operations. Further, the use of UAS in a variety of roles, but particularly as platforms for delivering lethal force, raises a number of legal issues of interest to Congress. In today's military, unmanned systems are highly desired by combatant commanders for their versatility and persistence. By performing tasks such as surveillance; signals intelligence (SIGINT); precision target designation; mine detection; and chemical, biological, radiological, nuclear (CBRN) reconnaissance, unmanned systems have made key contributions to the Global War on Terror. To be sure, manned systems could accomplish many if not all of the same goals. But "unmanned systems reduce the risk to our warfighters by providing a sophisticated stand-off capability that supports intelligence, command and control, targeting, and weapons delivery. These systems also improve situational awareness and reduce many of the emotional hazards inherent in air and ground combat, thus decreasing the likelihood of causing civilian noncombatant casualties." "UAVs have gained favor as ways to reduce risk to combat troops, the cost of hardware and the reaction time in a surgical strike" and "to conduct missions in areas that are difficult to access or otherwise considered too high-risk for manned aircraft or personnel on the ground." As a result, "The number of platforms in this category—R/MQ-4 Global Hawk-class, MQ-9 Reaper, and MQ-1 Predator-class unmanned aircraft systems (UAS)—will grow from approximately 340 in FY 2012 to approximately 650 in FY 2021." Some in the military also tout UAS's reduced cost of acquisition and operation when compared to manned platforms. However, the Congressional Budget Office cautions that savings cannot be taken for granted: Unmanned aircraft systems are usually less expensive than manned aircraft. Initial concepts envisioned very low-cost, essentially expendable aircraft. As of 2011, however, whether substantially lower costs will be realized is unclear. Although a pilot may not be on board, the advanced sensors carried by unmanned aircraft systems are very expensive and cannot be viewed as expendable.... Moreover, excessively high losses of aircraft can negate cost advantages by requiring the services to purchase large numbers of replacement aircraft. Intelligence gathering is UAS' traditional mission. In the 1960s, autonomous drones were used for reconnaissance in the Vietnam War and on strategic reconnaissance missions over denied areas. Early modern controllable UAS were used to loft cameras to allow units in the field to observe opposing forces beyond direct line of sight. Subsequently, longer-endurance systems introduced the ability to maintain surveillance on distant and moving targets. The first UAS were essentially unpiloted bombs, designed to fly in a particular direction until the fuel ran out, at which point the entire aircraft would plunge to the ground. Today, some UAS carry precision-guided weapons to attack ground targets, and more are being weaponized, although this is still adding strike capability to systems originally designed for reconnaissance. A separate class of UAS is being designed from the ground up to carry out combat missions. Called unmanned combat air vehicles, or UCAVs, these systems feature greater payload, speed, and stealth than current UAS. The Navy is investigating how UAS could deliver cargo to ships at sea, and the Marine Corps has awarded contracts to two firms to demonstrate how UAS might resupply units in Afghanistan. Early research is underway to develop the capability for an unmanned system to locate and possibly evacuate personnel behind enemy lines. Large UAS could eventually take on the aerial refueling task now performed by KC-10 and KC-135 tanker aircraft. Tanker flight profiles are relatively benign compared to many others, and they tend to operate far from enemy air defenses. Except for operating the refueling boom (to refuel Air Force aircraft), the refueling crew's primary job is to keep the aircraft flying straight, level, and at a steady speed. In July 2010, the Defense Advanced Research Projects Agency awarded a contract to demonstrate refueling by Global Hawk UAVs, and a March 2011 test demonstrated the Global Hawk's ability to receive refueling autonomously. The Global Hawk's 2001 trans-oceanic flights (from the United States to Australia and from the United States to Portugal) demonstrate the ability of current UAVs to fly missions analogous to aerial refueling missions. This same technology could allow UAVs to refuel manned aircraft. The second X-47B will be equipped to demonstrate refueling. A more difficult future task could be air-to-air combat. Although UAS offensive operations to date have focused on ground targets, UCAVs are being designed to carry air-to-air weapons and other systems that may allow them to undertake air superiority missions. DOD is experimenting with outfitting today's UAVs with the sensors and weapons required to conduct such a mission. In fact, a Predator has reportedly already engaged in air-to-air combat with an Iraqi fighter aircraft. In March 2003 it was reported that a Predator launched a Stinger air-to-air missile at an Iraqi MiG before the Iraqi aircraft shot it down. While this operational encounter may be a "baby step" on the way toward an aerial combat capability, newer UAS such as the X-47B, Avenger, and Phantom Ray are not being designed with acknowledged air-to-air capability. In short, UAS are expected to take on every type of mission currently flown by manned aircraft. Although UAS have a long history, only in the last 10-15 years have advances in navigation, communications, materials, and other technologies made a variety of current UAS missions possible. UAS are therefore still in a period of innovation, both in their design and how they are operated. This can be seen as analogous to military aircraft in the 1930s and 1940s, when technologies and doctrines evolved at a rapid rate to exploit the new technology, and also to the early Jet Age, when the military acquired many different models of aircraft with varying capabilities before settling on a force made up of large numbers of relatively few models based on lessons learned. Also, the period of UAS innovation has coincided with ongoing U.S. combat operations in Iraq, Afghanistan, and elsewhere. Demand for UAS capabilities in the field is essentially unconstrained. As new systems and capabilities have emerged, the availability of urgent-needs funding has allowed commanders to bring the latest technology into theater without lengthy procurement processes. Thus, instead of traditional competitions in which systems may be tested against each other in advance of operations, new UAS have been deployed directly to the field, where U.S. forces are able to experiment with and exploit their capabilities. The combination of funding, demand, and technological innovation has resulted in DOD acquiring a multiplicity of systems without significant effort to reduce the number of systems or consolidate functions across services. For example, the Office of the Secretary of Defense (OSD) is concerned that the Army and Air Force are unnecessarily developing two different electro-optical and infrared sensor payloads for Sky Warrior and Predator when a common payload could be achieved—currently the basic sensors are 80 percent common and manufactured by the same contractor. However, according to Army officials, the Air Force sensor is more expensive and has capabilities, such as high-definition video, for which the Army has no requirements. Therefore, the Army does not believe a fully common solution is warranted. It should be noted that the number of systems acquired does not correspond to the number of unique platforms. By installing different sensors, a mostly common airframe can be made to serve the requirements of multiple services. The General Atomics I-GNAT developed into the Air Force Predator and Reaper, which served as the basis for the Army Gray Eagle and DHS's Predator optimized for marine environments; Northrop Grumman's Air Force Global Hawk became, with different equipment, the Navy's Broad Area Maritime Surveillance (BAMS) system. This is not to say that the resulting systems are the same. Due to different requirements and payloads, a BAMS, for example, costs almost twice as much as a Global Hawk. This commonality may, however, provide an argument for those who advocate greater jointness in UAS development. In September 2007, the Secretary of Defense ordered creation of a UAS Task Force within the office of the Under Secretary of Defense for Acquisition, Technology and Logistics. The Task Force's charter gives it the responsibility to coordinate UAS requirements among the services, "promot[e] the development and fielding of interoperable systems and networks," and to "[s]hape DoD UAS acquisition programs to prioritize joint solutions." The charter does not give the Task Force the authority to terminate redundant programs nor compel their consolidation. Thus, development of UAS in DOD can be said to be federated, but not integrated. DOD also issues a biannual roadmap indicating what technologies and capabilities it expects to see in future systems, and attempting to project the requirements for broad UAS capabilities 25 years into the future. Development of UAS is still carried out by individual military services. UAS programs range from the combat tested—Pioneer, Hunter, Predator, and Global Hawk—to the not yet tested—the Air Force and Navy's Unmanned Combat Air Vehicles. Sizes and ranges of UAVs also vary greatly: the 8-inch-long Wasp Micro UAV has a combat radius of 5 nautical miles, while the 44-foot-long Global Hawk (the size of a medium sized corporate jet) has a combat radius of 5,400 nm. Table 1 outlines the total UAV inventory. When compared to the inventory of February 2003, which only included five major platforms and an inventory of 163 unmanned aircraft, the acceleration and expansion becomes clear. The 7454 UAVs include many second-generation derivatives, such as Predator B and BAMS, and some non-traditional vehicles, such as gMAV and T-Hawk. The increase in DOD's UAV inventory appears largely due to the rising demand for UAVs to branch out from the typical intelligence, surveillance and reconnaissance (ISR) applications and conduct a wider variety of missions. Predator B and Reaper are equipped with a strike capability, and many Predator As have been modified to carry weapons. Additionally, mine detection, border patrol, medical resupply, and force perimeter protection are increasingly considered as roles for UAS. In order to understand fully the pace and scope of UAS acquisition, a comparison between manned aircraft inventories and unmanned inventories may prove to be a useful tool. Figure 1 shows the ratio of manned to unmanned aircraft. Due to the recent acceleration in UAS production and drawdowns in manned aircraft, manned aircraft have gone from 95% of all DOD aircraft in 2005 to 59% today. Previously described as complements to, or augmentation of, manned aircraft, user demand and budgetary push have increasingly promoted UAS into a principal role. A significant congressional boost to UAS acquisition came in the conference report for the National Defense Authorization Act for Fiscal Year 2001, which expressed Congress's desire that "within ten years, one-third of U.S. military operational deep strike aircraft will be unmanned." This goal was seen at the time as very challenging, because DOD had no unmanned deep strike aircraft. Subsequently, the Fiscal 2007 Defense Authorization Act required the Secretary of Defense to "develop a policy, to be applicable throughout the Department of Defense, on research, development, test and evaluation, procurement, and operation of unmanned systems." The policy was required to include, among other elements, "A preference for unmanned systems in acquisition programs for new systems, including a requirement under any such program for the development of a manned system for a certification that an unmanned system is incapable of meeting program requirements." Thus, Congress changed the default assumption of new systems; instead of seeking unmanned systems to accomplish the same tasks as manned equivalents, unmanned systems would be developed to accomplish military tasks unless there was some need that the systems be manned. In addition to establishing acquisition pace, and scope of application, one significant congressional task may be to determine whether DOD's administrative processes and lines of authority within the acquisition process are effective for UAS development and acquisition. The management of DOD's development and acquisition programs received heightened attention in recent Congresses. Given that UAS are acquired by all four of the military services and the U.S. Special Operations Command, and that UAS acquisition is accelerating (for a growing list of applications), it appears that great potential exists for duplication of effort. This leads many to call for centralization of UAS acquisition authority, to ensure unity of effort and inhibit wasteful duplication. On the other hand, if UAS efforts are too centralized, some fear that competition and innovation may be repressed. Once viewed as a cheap alternative to manned aircraft, or even a "poor man's air force," some UAS are beginning to rival manned aircraft in cost. According to DOD's most recent estimate, the Global Hawk program will cost $13.9 billion to purchase 66 aircraft; a program acquisition unit cost of $211 million per UAV. The program has twice triggered Nunn-McCurdy breaches, which require DOD to notify Congress when cost growth on a major acquisition program reaches 15%. In 2005, development cost overruns led to an average unit cost growth of 18% per airframe and prompted appropriators to voice their concern ( H.R. 2863 , H.Rept. 109-119 , p. 174). In April 2011, a reduction in the number of Global Hawk Block 40 aircraft requested in the FY2012 budget from 22 to 11 caused overall Global Hawk unit prices to increase by 11%, again triggering Nunn-McCurdy. [T]he RQ-4 Global Hawk surveillance drone, by Northrop Grumman [NOC] has been criticized by the Air Force for higher than expected cost growth. [Under Secretary of Defense Ashton] Carter said that program is "on a path to being unaffordable" and will be studied in detail to determine what is causing the suspected inefficiencies. Much UAS cost growth appears to spring from factors that have also affected manned aircraft programs, such as "requirements creep" and inconsistent management practices. Global Hawk costs, for example, have been driven up by adding multiple sensors, which themselves increase cost, but also require larger wings and more powerful engines to carry the increased weight, which also increases cost. Although originally intended to carry one primary sensor at a time, DOD changed the requirement so that Global Hawk is to carry two or more primary sensors—which has increased the UAS's price. Global Hawk is not the only example of requirements creep. Originally considered a relatively modest UAS, the Joint Unmanned Combat Air System (J-UCAS) evolved into a large, long range aircraft with a heavy payload, which increased cost. J-UCAS was canceled in 2006. The frequent change and realignment of DOD's organizations with a role in UAS development illustrates the difficulties of establishing a comprehensive UAS management system. Over the years, management of UAS programs has gone full circle from the military services, to a Navy-run Joint Program Office (JPO), to the Defense Airborne Reconnaissance Office (DARO) and then back to the services, under the auspices of OSD. The JPO was established in 1988, but met criticism in Congress. The JPO was replaced by the Defense Airborne Reconnaissance Office (DARO), created in 1993 to more effectively manage DOD's disparate airborne reconnaissance programs, including UAS. DARO was disbanded in 1998, amid criticism of problems, redesigns, and accidents with the family of systems that it was formed to develop. It is unclear whether this criticism was completely legitimate, or whether it was generated by advocates of manned aviation, who sought to protect these established programs. Since DARO's demise, no single organization has managed DOD UAS efforts. General oversight authority resides within the Office of the Assistant Secretary of Defense for Command, Control, Communications and Intelligence (OASD(C3I)), while the military services manage program development and acquisition. In an effort to increase joint coordination of UAS programs operated by the services, OSD established the Joint UAV Planning Task Force in 2001. The task force, which falls under the authority of the Pentagon's acquisition chief (Under Secretary of Defense for Acquisition, Technology and Logistics), works to help standardize payload development, establish uniform interfaces, and promote a common vision for future UAS-related efforts. Subsequently, the Joint UAV Planning Task Force has been promoted to the top rung on the UAS management ladder. In lieu of creating an executive agent for UAS, the Deputy Secretary of Defense (DepSecDef) directed the formation of a UAS Task Force (TF). The TF was directed to identify to the Deputy Advisory Working Group (DAWG) and, where appropriate, assign lead organizations for issues related to the acquisition and management of UAS including interoperability, civil airspace integration, frequency spectrum and bandwidth utilization, ground stations, and airframe payload and sensor management. In order to help a common UAS vision become a reality, the task force, through the OSD, published three UAS Roadmaps in April 2001, December 2002, and August 2005. A more recent UAS roadmap was published in April 2009 as part of a DOD integrated roadmap that also included unmanned systems for ground and sea warfare. In March 2005 testimony to the House Armed Services Subcommittee on Tactical Air and Land Forces, the GAO criticized DOD for the lack of an "oversight body to guide UAV development efforts and related investment decisions," which ultimately does not allow DOD "to make sound program decisions or establish funding priorities." From the testimony, it would appear that the GAO envisioned a central authority or body to satisfy this role. In what appeared to be a move toward further management restructuring, reports in 2005 indicated that OSD was considering appointing one of the services as the executive agent and coordinator for UAS programs, a role the Air Force actively pursued. However, later that year the JROC announced that DOD had abandoned the notion of an executive agent in favor of two smaller organizations focusing on interoperability. The first, entitled the Joint UAV Overarching Integrated Product Team (OIPT), provides a forum for identification and problem solving of major interoperability and standardization issues between the services. A complementary Joint UAV Center of Excellence coordinates with the OIPT to improve interoperability and enhance UAS applications through the examination of sensor technologies, UAS intelligence collection assets, system technologies, training, and tactics. That command arrangement was revised in 2007, when the Deputy Secretary of Defense directed the formation of a UAS Task Force. The task force was directed to, "where appropriate, assign lead organizations for issues related to the acquisition and management of UAS including interoperability, civil airspace integration, frequency spectrum and bandwidth utilization, ground stations, and airframe payload and sensor management." That arrangement remains in place today. All four military services, the U.S. Special Operations Command (SOCOM), and the U.S. Coast Guard are developing and fielding UAS. Developing a coordinated, DOD-wide UAS investment strategy appears key to ensuring duplication is avoided and scarce resources are maximized. As part of its defense oversight role, Congress is positioned to arbitrate between competing UAS investments, or impact DOD's overarching investment plan. Several relevant questions seem apparent: How is UAS cost quantified? What is the most effective balance in spending between UAS and manned aircraft? How should DOD, Congress, and the UAS manufacturers balance cost with capability? Finally, what areas of investment are the most important to maximize UAS capabilities? When compared to other aircraft, the cost of an individual remotely piloted vehicle can be misleading. UAVs operate as part of a system, which generally consists of a ground control station, a ground crew including remote pilots and sensor operators, communication links, and often multiple air vehicles. Unlike a manned aircraft such as an F-16, these supporting elements are a requisite for the vehicle's flight. Consequently, analysts comparing UAV costs to manned aircraft may need to consider the cost of the supporting elements and operational infrastructure that make up the complete unmanned aviation system. Monitoring or evaluating UAS costs can also be complicated by budgeting conventions. While UAVs can be found in the "Aircraft Procurement, Air Force" account in that service's budget request documentation, the Army includes its UAS funding requests in "Other Procurement, Army." This account contains a broad range of dissimilar items. Also, because most UAS conduct Intelligence, Surveillance and Reconnaissance missions, some portion of their costs are covered in the Intelligence budget rather than the DOD budget, which complicates building a complete picture of cost. Once an adequate and uniform cost comparison mechanism or definition has been established, the next step for Congress may be to identify an appropriate balance in spending between UAS and manned aircraft. If the upward trend in UAS funding continues through 2013, as shown in Figure 3 , DOD is projected to have spent upwards of $26 billion on procurement, RDT&E, operations, and maintenance for UAS from 2001-2013. This number far exceeds the $3.9 billion spent on UAS from 1988-2000. Figure 3 demonstrates the total funding for UAS as a percentage of the total military aviation funding. As the pie chart shows, despite the recent acquisition of many UAS, such systems represent only 8% of all military aviation procurement funding. Cost savings have long been touted by UAS advocates as one of the advantages offered by unmanned aircraft over manned aircraft. However, critics point out that the acquisition cost savings are often negligible if one considers that money saved by not having a pilot in the cockpit must be applied to the "ground cockpit" of the UAS aircrew operating the UAV from the ground control station. Another cost question concerns personnel. Do UAS "pilots" cost less to train and keep proficient than pilots of manned aircraft? So although the air vehicle might be cheaper than a manned aircraft, the UAV system as a whole is not always less expensive. Additionally, UAS have a higher attrition rate and lower reliability rate than manned aircraft, which means that the operation and maintenance costs can be higher. On the other hand, UAS ground control stations are capable of simultaneously flying multiple UAVs, somewhat restoring the advantage in cost to the unmanned system. Congress has noted that, "while the acquisition per unit cost may be relatively small, in the aggregate, the acquisition cost rivals the investment in other larger weapon systems." At what threshold does an "expendable" UAV cost too much to lose? Sensors have consistently increased the cost of the air vehicle, according to Former Air Force Secretary James Roche. The inexpensive designs of small UAV air vehicles like the Desert Hawk and Dragon Eye are dwarfed by the cost of the lightweight electro-optical/infrared cameras that make up their payloads. On the other end of the size spectrum, the RQ-4B second generation Global Hawk's sensor payload represents approximately 54% of the vehicle's flyaway cost, which does not include the cost of the increased wingspan that shoulders the extra 1000 pounds of sensor suites. These costs are increasing due to the basic law of supply and demand. Growing demand, matched with a lack of commercial sensor equivalents, means that UAS sensor producers face little competition, which would help keep costs down. Growing sensor costs have prompted some observers to recommend equipping UAVs with self-protection devices, suggesting those UAVs are no longer considered expendable. Consequently, two schools of thought exist for employing UAVs in ways that could help balance cost with capability. One is to field many smaller, less expensive, and less capable UAVs controlled through a highly interconnected communications network. One example of this investment approach was included in the Army's developmental Future Combat System, which intended to link several relatively inexpensive UAVs like the Raven, the Shadow, and the Fire Scout with 18 other weapons platforms. None of these UAVs could individually shoulder all of the air duties required by the system, yet the robust communications network was expected to distribute the mission duties to allow each platform to provide its specialized task. A second approach advocates fielding fewer, more expensive, and more capable UAVs that are less networked with other systems, such as the autonomous Global Hawk. The Global Hawk serves as a high altitude, "all-in-one" surveillance platform capable of staying aloft for days at a time, yet does not operate in concert with any of its fellow UAV peers. Since 2003, programs at both ends of this spectrum have experienced delays and a reduction in funding. The Army's Future Combat System has experienced delays due to significant management and technology issues. Similarly, the highly capable Global Hawk has risen in cost and been the target of funding cuts. Finally, what areas of investment will yield the maximum effectiveness out of these UAS? Four specific issues stand out as the most pressing: interoperability, reliability, force multiplication/autonomy, and engine systems. UAS development has been marked by the slow advancement of interoperability. The future plans for UAS use within the framework of larger battlefield operations and more interconnected and potentially joint-service combat systems require UAS to communicate seamlessly between each other and numerous different ground components, and to also be compatible with diverse ground control systems. The lack of interconnectivity at these levels has often complicated missions to the point of reducing their effectiveness, as Dyke Weatherington, head of DOD's UAS planning taskforce, noted: "There have been cases where a service's UAV, if it could have gotten data to another service, another component, it may have provided better situational awareness on a specific threat in a specific area that might have resulted in different measures being taken." Advancing the interoperability of UAS has been a critical part of the OSD's investment plans. The Department of Defense has pushed forward with the establishment of communication between similar UAS to help facilitate interoperability among four system elements: First, DOD hopes to integrate an adequate interface for situational awareness, which will relay the objective, position, payload composition, service operator, and mission tasking procedure to other unmanned aircraft and potentially to ground elements. Second, a payload interface will allow the coherent transfer of surveillance data. Third, the weapons interface will constitute a separate transfer medium by which operators can coordinate these platforms' offensive capabilities. Finally, the air vehicle control interface will enable navigation and positioning from the ground with respect to other aircraft. Although the framework for these categories of interoperability has been established, the technology has been slow to catch up. The House of Representatives version of the FY2006 Defense Authorization Act ( H.R. 1815 , H.Rept. 109-89 ) took a major step to encourage inter-platform communication. The members of the House Armed Services Committee included a clause that called for the requirement of all tactical unmanned aerial vehicles throughout the services to be equipped with the Tactical Common Data Link, which has become the services' standardized communication tool for providing "critical wideband data link required for real-time situational awareness, as well as real time sensor and targeting data to tactical commanders." If UAS are to achieve the level of interoperability envisioned by the OSD, the services and industry will likely need to keep focused on achieving the Common Data Link communications system goal and invest appropriately to facilitate an expedited and efficient development process. The finite bandwidth that currently exists for all military aircraft, and the resulting competition for existing bandwidth, may render the expansion of UAS applications infeasible and leave many platforms grounded. Ultimately, the requirement for bandwidth grows with every war the United States fights. The increased use of UAS in Iraq and Afghanistan indicates that remotely piloted platforms' mass consumption of bandwidth will require a more robust information transfer system in the coming years. One approach to alleviating the bandwidth concern was the Transformational Satellite Communications (TSAT) project. DOD intended to use that laser and satellite communications system to provide U.S. Armed Forces with an unlimited and uninhibited ability to send and receive messages and critical information around the world without data traffic jams. However, the TSAT project was canceled in 2009. As another interim option, DOD has testified that a more autonomous UAV would require less bandwidth, since more data are processed on board and less data are being moved. However, it is unclear that autonomy will actually decrease bandwidth requirements since the transmission of data from the UAV's sensors drives the demand for bandwidth. As an example, a single Global Hawk, already an autonomous UAV, "requires 500Mbps bandwidth—which equates to 500 percent of the total bandwidth of the entire U.S. military used during the 1991 Gulf War." Another approach to alleviating the bandwidth problem is allowing UAVs to be operated from a manned stand-off aircraft such as a command and control aircraft with line of sight to the UAV. Stationing the mission control element of the UAV system in another aircraft instead of on the ground would reduce the reliance on satellites for beyond-line-of-sight communication, simplifying command and control. Experimentation is currently ongoing in this area, with the first step being controlling the UAV's sensor payload from an airborne platform. A 2010 media study reported that "Thirty-eight Predator and Reaper drones have crashed during combat missions in Afghanistan and Iraq, and nine more during training on bases in the U.S.—with each crash costing between $3.7 million and $5 million. Altogether, the Air Force says there have been 79 drone accidents costing at least $1 million each." In 2004 the Defense Science Board indicated that relatively high UAV mishap rates might impede the widespread fielding of UAVs. Although most UAV accidents have been attributed to human error, investment in reliability upgrades appears to be another high priority for UAS. The 2005 UAS Roadmap indicated that UAV mishap rates appeared to be much higher than the mishap rates of many manned aircraft. Table 3 shows the number of Class A Mishaps per 100,000 hours of major UAVs and comparable manned aircraft as of 2005. However, "(a)ccident rates per 100,000 hours dropped to 7.5 for the Predator and 16.4 for the Reaper last year (2009), according to the Air Force. The Predator rate is comparable to that of the F-16 fighter at the same stage, Air Force officers say, and just under the 8.2 rate for small, single-engine private airplanes flown in the U.S." In its 2004 study, the Defense Science Board (DSB) notes that manned aircraft over the past five decades have moved from a relatively high mishap rate to relatively low rates through advancements in system design, weather durability improvements, and reliability upgrades. It should be pointed out, however, that the UAS, with the exception of Predator, have total flight times that are significantly less the than the 100,000 hours used to calculate the mishap rate. Most aircraft tend to have a much higher mishap rate in their first 50,000 hours of flight than their second 50,000 hours of flight. Further, some of the UAS in Table 3 have flown numerous missions while still under development. Predator and Global Hawk, for instance, entered combat well prior to their planned initial operational capability (2005 for Predator, and 2011 for Global Hawk). It may be unfair to compare the mishap rates of developmental UAS with manned aircraft that have completed development and been modernized and refined over decades of use. The DSB report also suggests that nominal upgrades and investment—arguing even that many UAS will need little change—could produce substantial reductions in the UAV mishap rates. The 2005 UAS Roadmap proposes investments into emerging technologies, such as self-repairing "smart" flight control systems, auto take-off and recovery instruments, and heavy fuel engines, to enhance reliability. Also, the incorporation of advanced materials—such as high temperature components, light-weight structures, shape memory alloys, and cold weather tolerance designs that include significant de-icing properties—will be expected to improve the survivability of UAS in adverse environments. One of the most attractive and innovative technological priorities for UAS is to enable one ground operator to pilot several UAVs at once. Currently most UAS require at least two ground operators; one to pilot the vehicle and another to control the sensors. The end goal for UAS manufactures and users is to reduce the 2:1 operator-vehicle ratio and eventually elevate the autonomy and interoperability of UAS to the point where two or more vehicles can be controlled by one operator. If this technological feat is achieved, the advantage of UAS as a force-multiplier on the battlefield could provide a dramatic change in combat capability. The process of achieving this goal may require significant time and investments. As the 2005 UAS Roadmap notes, "Getting groups of UA to team (or swarm) in order to accomplish an objective will require significant investment in control technologies" with specific reference to distributed control technologies. Considering the two operator system currently in place for most UAS, the logical approach to reaching this technological advancement is to first invest in the autonomous flight capabilities of the UAVs, so as to reduce the workload for the complete UAS. The Global Hawk and the Scan Eagle possess significant automated flight capabilities, but their degree of actual flight autonomy can be debated due to the UAV's need for continuous operator intervention in poor weather conditions. The OSD quantifies the degree of UAV autonomy on a scale of 1 to 10; Table 4 shows the OSD's Autonomous Capability Levels for UAVs. In order for UAVs to achieve maximum use when being controlled by a single pilot, the UAV ACL must achieve a level of at least 8. Currently, the Global Hawk, which is considered by many the most autonomous UAV currently in service, maintains an ACL of approximately 2.5. FAA and the UAS industry are working with the Department of Defense in order to facilitate the universal development of "see and avoid" technology that would allow a UAV to operate autonomously and avoid approaching aircraft, potentially increasing the standard ACL for UAS to 4. Additionally, inter-UAS communication and the coordination associated with interoperability must match the autonomous flight abilities. Full automation of sensor capabilities would enable the lone operator to control a network of intelligence collecting drones. The first steps towards the "one-operator-per-several-UAVs" advancement are already underway. In 2005, the Air Force evaluated a Predator upgrade that allowed one operator to control the flight plan of four Predator UAVs during an exercise in which one UAV engaged a target and the other three hovered nearby on standby status. The next step is to consolidate the tasks of the four mission payload operators, each manning the sensors or weapons system on the four Predators, into one or fewer operators. Another technology under development is fuel cell-generated electric power. Supporters of fuel cells note that these devices could double the efficiency of mid-sized UAS and could reduce the aircrafts' acoustic and thermal signatures, effectively making them more difficult to detect and target. Air Combat Command is sponsoring the project with the goal to use the fuel cells in many of its smaller UAS, and the Air Force Research Laboratory flight tested a fuel cell-powered Puma UAV in 2007. "With a power system using a chemical hydride fuel, the UAV demonstrated flight endurance of more than 7 hr., versus 2.5 hr. for the standard Puma." Some key technologies that will enable future UAS include: lightweight, long endurance battery and/or alternative power technology, effective bandwidth management/data compression tools, stealth capability and collaborative or teaming technologies that will allow UAS to operate in concert with each other and with manned aircraft. A critical enabler allowing UAS access to U.S. National and ICAO airspace will be a robust on-board sense and avoid technology. The ability of UAS to operate in airspace shared with civil manned aircraft will be critical for future peacetime training and operations. There is also a need for open architecture systems that will allow competition among many different commercial UAS and ground control systems allowing DoD to "mix and match" the best of all possible systems on the market. Technology enablers in propulsion systems coupled with greater energy efficiency of payloads are required to extend loiter time and expand the missions of UAS to include Electronic Attack and directed energy. Congress may ask if the production of different UAS with relatively similar performance capabilities constitutes unnecessary duplication. Critics of expanded UAS roles often argue that the production of similar platforms is unnecessary, considering that a consolidated inventory—hypothetically consisting of only the RQ-4B Global Hawk, the RQ/MQ-1 Predator and the RQ-7 Shadow—could perform and fulfill the same duties as the expanded inventory. According to GAO, for example, Although several unmanned aircraft programs have achieved airframe commonality, service-driven acquisition processes and ineffective collaboration are key factors that have inhibited commonality among subsystems, payloads, and ground control stations. For example, the Army chose to develop a new sensor payload for its Sky Warrior, despite the fact that the sensor currently used on the Air Force's Predator is comparable and manufactured by the same contractor. To support their respective requirements, the services also make resource allocation decisions independently. DOD officials have not quantified the potential costs or benefits of pursuing various alternatives, including common systems. To maximize acquisition resources and meet increased demand, Congress and DOD have increasingly pushed for more commonality among unmanned aircraft systems. Table 5 shows a comparison of the performance specifications of UAS with electro-optical and infra-red sensors. The chart indicates that a majority of such UAS feature an endurance of 5 to 24 hours, an altitude of 10,000-25,000 ft, max speeds between 105 and 125 knots and radiuses of 100 to 150 nm. The 2011 program acquisition unit cost for the MQ-9 Reaper is $28.4 million, just over half the $55 million estimate for the F-16 Falcon. A simple payload comparison shows that the F-16 can carry approximately four times the payload of the Reaper (10,750 lbs vs. 2,500 lbs). Further, the F-16 is a versatile combat aircraft that can be used to perform many missions that the Reaper cannot. This may suggest that using manned aircraft for air-to-ground combat may generally prove more cost effective than using UAS, and that the UAS's unique combat capabilities may be most valued in niche circumstances, such as when manned aircraft would be in extreme danger. Other missions for which UAS appear useful, or are being considered in the near term, include electronic attack (also called stand-off jamming, or escort jamming), and psychological operations, such as dropping leaflets. UAS such as the Army's Shadow have been evaluated for their capability to deliver critical medical supplies needed on the battlefield. While UAS use in foreign theaters is well established, one of the most commonly discussed new mission areas for UAS is homeland defense and homeland security. The Coast Guard and U.S. Border Patrol already employ UAS such as the Eagle Eye and Predator to watch coastal waters, patrol the nation's borders, and protect major oil and gas pipelines. It appears that interest is growing in using UAS for a variety of domestic, and often non-defense roles. Long-duration law enforcement surveillance, a task performed by manned aircraft during the October 2002 sniper incident near Washington, DC, is one example. The U.S. Department of Transportation has studied possible security roles for UAS, such as following trucks with hazardous cargo, while the Energy Department has been developing high-altitude instruments to measure radiation in the atmosphere. UAS might also be used in sparsely populated areas of the western United States to search for forest fires. Following the widespread destruction of Hurricane Katrina, some suggest that a UAS like Global Hawk could play roles in "consequence management" and relief efforts. Also, UAS advocates note that countries like South Korea and Japan have used UAS for decades for crop dusting and other agricultural purposes. Historically, UAS were predominately operated by DoD in support of combat operations in military controlled airspace; however, UAS support to civil authorities (JTF Katrina in 2005, U.S. Border surveillance, and fire suppression) continues to expand. This expansion, coupled with the requirement to train and operate DoD and [other government agency] assets, highlights the need for routine access to the [national airspace system] outside of restricted and warning areas, over land and water. Heavier-than-air UAS may not always be the preferred platforms for these new roles and applications. Other options could include manned aircraft, blimps, and space satellites. Each platform offers both advantages and disadvantages. Manned aircraft provide a flexible platform, but risk a pilot's life. Some of the country's largest defense contractors are competing to develop unmanned blimps that may be capable of floating months at a time at an altitude of 70,000 feet and carrying 4,000 pounds of payload. OSD's UAS Roadmap includes a section on lighter-than-air blimps and tethered "aerostat" platforms, which OSD indicates to be important for a variety of roles, including psychological operations, spotting incoming enemy missiles and border monitoring. Furthermore, these platforms could provide services equivalent to many border surveillance UAS, but their decreased dependency on fuel could reduce operations costs. One drawback to these lighter-than-air platforms is their lack of maneuverability and speed relative to UAVs like the Global Hawk; their long persistence once on station may be somewhat offset by the time required for them to relocate in response to new taskings. Nonetheless, many major UAS manufacturers are preparing—and, in some cases, testing—lighter-than-air systems that could carry out a variety of missions for homeland security. Space satellites offer many benefits; they are thought to be relatively invulnerable to attack, and field many advanced capabilities. However, tasking the satellites can be cumbersome, especially with competing national priorities. The limited number of systems can only serve so many customers at one time. Additionally, some satellites lack the loitering capability of UAS, only passing over the same spot on Earth about once every three days. Due to the high costs of space launches, UAVs like Global Hawk are being considered for communication relays as substitutes for low-orbiting satellite constellations. Not all of these new UAS applications are uncontroversial or easily implemented. UAS advocates state that in order for UAS to take an active role in homeland security, law enforcement, aerial surveying, crop dusting, and other proposed civilian uses, Federal Aviation Administration (FAA) regulations and UAS flight requirements must approach a common ground. According to FAA spokesman William Shumann, the primary challenge in finding this common ground is "to develop vehicles that meet FAA safety requirements if they want to fly in crowded airspace." The August 2003 announcement that the FAA had granted the Air Force a certificate of authorization for national airspace operation signified the first steps in the reconciliation of these discrepancies. Upgrading UAS collision avoidance capabilities, often referred to as "sense and avoid" technology, appears to be a critical part in the next step of reaching the UAS-airspace common ground. The FAA's Unmanned Aircraft Systems Working Group is working with the Department of Defense to facilitate safe UAS operations and the adequacy of flight requirements. The schedule for integrating UAS into the national airspace remains contentious. Industry has expressed frustration at not being able to test new UAS from their own test facilities due to airspace restrictions. Also: DOD has pioneered UAS applications for wartime use and, in 2007, was the major user of UAS, primarily for ongoing conflicts in Iraq and Afghanistan. While many of DOD's UAS operations currently take place outside the United States, DOD needs access to the national airspace system for UAS to, among other things, transit from their home bases for training in restricted military airspace or for transit to overseas deployment locations. In November 2009, Secretary of the Air Force Michael Donley and FAA Administrator Randy Babbitt co-moderated an industry forum on UAS in the national airspace system. At that event, Administrator Babbitt said: In order for us to get to the place where the UAS can become a viable, accepted part of the national airspace system, we have to make sure that sense-and-avoid is more than a given—it must be a guarantee. Without a pilot who can look and scan to the left and the right—just the way you and I do when we're backing out of a parking space—there's a perceived level of risk that the American public isn't ready for. The issue of when and how UAS will be allowed to operate in U.S. airspace continues to evolve, and continues to be of interest to Congress. The House passed a proposed FAA reauthorization bill in 2011 which "includes a provision requiring FAA to develop a comprehensive plan within nine months of enactment to safely integrate commercial unmanned aircraft systems (UASs) in the national airspace system. The bill further specifies that this integration is to be completed as soon as possible, but not later than September 30, 2012, and authorizes such sums as may be necessary to carry out the implementation plan." A companion Senate bill "includes a provision requiring FAA to develop a plan for accelerating the integration of UASs into the National Airspace System within one year of enactment." More detailed information on this issue can be found in CRS Report R41798, Federal Aviation Administration (FAA) Reauthorization: An Overview of Legislative Action in the 112 th Congress . The defining characteristic of UAS is that they are "unmanned" or "unpiloted." However, this may be a misnomer. "There's nothing unmanned about them," [former Air Force Lt Gen David] Deptula said. It can take as many as 170 persons to launch, fly, and maintain such an aircraft as well as to process and disseminate its ISR products. Recruitment and retention is a perennial congressional issue that may be receiving increased attention due to the operational stresses associated with the ongoing efforts to counter terrorism. What impact might widespread deployment of UAS have on military personnel? If UAS are introduced into the force in large numbers, might personnel issues arise? It has not always been easy for the aviation culture to adapt to flying aircraft from the ground. The Air Force has realized the retention implications of requiring rated pilots to fly their UAS, and has offered enticements such as plum assignments after flying the UAS, and allowing pilots to keep up their manned flying hours during their UAS tour of duty. Historically, many believed that as more UAS were fielded, recruitment and retention would suffer because those inclined to join the military would prefer to fly manned aircraft instead of unmanned aircraft. This may be the case in some instances. The future impact of DOD's UAS programs on recruitment, however, is more complicated than this argument suggests. The recruitment and retention situation varies among the services and for different types of personnel. The Air Force and Navy are actively trying to reduce their number of uniformed personnel. Thus, possible reduced enlistments due to increased UAS use might not have the anticipated negative impact. A central question related to the potential impact of increased UAS employment on personnel is "what qualifications are required to operate UAS?" Currently, the Air Force requires Predator and Global Hawk operators to be pilot-rated officers. Other services do not require that status for their UAS operators. This means that, in the other services, there is no competition between manned and unmanned aircraft for potentially scarce pilots. Many people enlist in military service with no desire or intention to fly manned aircraft. Some wish to fly, but lack physical qualifications, such as good eyesight. The increased fielding of UAS may encourage some to enlist because it offers them an opportunity to "fly" that they may not have had otherwise. Further, those inclined to fly manned aircraft may not be as disinclined to fly UAS as was believed in the past. Flying armed UAS may be more appealing to these personnel than is flying non-armed UAS. Also, flying UAS may be an attractive compromise for certain personnel. While it may not confer all the excitement of flying a manned aircraft, it also avoids many of the hardships (e.g., arduous deployments and potential harm). The Air Force believes that flying UAS from control stations in the United States will be attractive to some in the reserve component who may be disinclined to experience an active duty lifestyle consistent with flying manned aircraft. Also, not all UAS compete with manned aircraft for pilots. Those UAS that are pre-programmed and operate autonomously (like Global Hawk) do not require a pilot, unlike the Predator and other remotely piloted aircraft. The Air Force maintains that their UAS are more technologically and operationally sophisticated than other UAS, and a trained pilot is required to employ these UAS most effectively. As UAS autonomy, or command and control, matures, or if personnel issues for the Air Force become more troublesome, it, or Congress, may decide to review the policy of requiring pilot-rated officers to operate UAS. Increased employment of UAS could potentially boost enlistment in other specialties, if they are perceived as being effective in their missions. If, for example, those inclined to enlist in infantry positions perceive UAS to offer improved force protection and CAS capabilities over today's manned aircraft, these potential recruits may have fewer qualms about the potential hazards of combat. Defense industrial base issues perennially confront Congress. Is U.S. industry becoming too dependent on foreign suppliers? Do foreign competitors get government subsidies that put U.S. firms at a competitive disadvantage? Should Congress take steps to encourage or discourage defense industry consolidation? Should Congress take steps to promote competition in the defense industrial base? Should Congress takes steps to protect U.S. defense industries in order to safeguard technologies or processes critical to national defense? It appears that DOD's pursuit of UAS presents several interrelated issues relevant to the defense industrial base. Some commentators argue that increasing acquisition of UAS may take funds from manned aircraft programs, and the technical expertise required to design and perhaps build manned combat aircraft could erode. Many observers point out that the ability to produce world class combat aircraft is a distinct U.S. comparative advantage, and should be guarded closely. Others disagree that the pursuit of UAS could harm the industrial base. They argue that the F-35 Joint Strike Fighter (JSF) is likely to be the last manned tactical fighter, and that the industrial base is naturally evolving toward the skills and processes required to make increasingly advanced UAS. Those who fear manned industrial base atrophy argue that the future of UAS is overrated, and that demand will continue for tactical manned aircraft in the post-JSF timeframe. In their eyes, crucial skills and technologies could thus be lost by concentrating only on unmanned aircraft design, possibly causing U.S. dominance in tactical aircraft design to wane. These proponents point out that UAS have been around for almost a century, yet only recently became operationally effective, and are not likely to replace manned aircraft in the near future. Others disagree, and believe that critical manned aircraft design skills are not jeopardized by increased pursuit of UAS because there is considerable commonality between manned and unmanned combat aircraft. Except for the obvious lack of a cockpit, unmanned combat aircraft may require stealthy airframes, advanced avionics, and high performance engines just like manned combat aircraft. Also, major defense contractors have already begun to shift to unmanned aircraft design in order to stay competitive. This is because UAS are beginning to play a prominent role in warfare, as seen in Operations Enduring Freedom and Iraqi Freedom. The same skills and technologies required for building manned aircraft will likely lend themselves to unmanned aviation design as well. Companies that have lost out in recent aviation contracts, such as Boeing and the JSF in 2001, are looking towards unmanned bombers and fighters as prospects for growth. Were Boeing to design manned aircraft in the future, the critical skills needed would still be present, according to this argument. Boeing acquired UAS maker Insitu in 2008. Northrop Grumman Corp., as another example, has created a new business unit to aggressively pursue UAS contracts, and acquired Scaled Composites in 2007 in part for UAS design expertise. Others would argue that maintaining a healthy U.S. defense industrial base depends, in part, on how well U.S. firms compete for the global UAS market. One survey finds that in 2011, there are 680 different UAS programs worldwide, up from 195 in 2005. Another estimates that global UAS expenditures will double from $1.7 billion in 2011 to $3.5 billion in 2020. The global market for combat aircraft alone, at approximately $15.8 billion in 2011, dwarfs the UAS market. But the rate of growth is projected to be much slower, peaking at approximately $21 billion in 2017, and dropping to approximately $19 billion in 2020. Thus, some would argue that much new business is likely to be generated in the UAS market, and if U.S. companies fail to capture this market share, European, Russian, Israeli, Chinese, or South African companies will. From this perspective, capturing this new business, and nurturing industrial expertise in UAS challenge areas (e.g., autonomous flight, control of multiple vehicles, command and control, communications bandwidth) would be an effective way to keep U.S. industry competitive and healthy. As U.S. companies compete for business in a growing international UAS marketplace, concerns about the proliferation of these systems may grow. Are steps required—and if so, what might they be—to control the spread of UAS? As part of its defense and foreign policy oversight, Congress may examine whether a balance must be struck between supporting legitimate U.S. exports and curbing the spread of UAS technologies to dangerous groups or countries. Advances in UAS technology and their expanding role in national security lead to a number of possible questions for congressional consideration. They may include: Should Congress increase, reduce, or approve DOD's proposed overall funding level for UAS? Budget impact: How might an increased reliance on UAS affect future DOD funding needs? Would it permit a net reduction in DOD funding requirements for performing a given set of missions, and if so, by how much? If funding constraints require choices to be made among DOD UAS programs, what are some of the key potential choices? Choices may include whether to reduce the number of UAS programs, buy fewer UAS overall, defer purchase of more sophisticated UAS, or other choices. How should the effectiveness of UAS be evaluated? Number of aircraft procured? Number of UAS tracks supported? Area under surveillance by UAS? Suppression or elimination of a particular threat or category of threats? In terms of developing, procuring, and integrating UAS into their operations, are DOD and the services moving too slowly, too quickly, or at about the right speed? Are the services adequately implementing their UAS road maps? Should the current requirement for issuing road maps every two years be changed, and if so, how? Can a standard metric be established to determine the optimal pace? Who should manage the development and procurement of DOD UAS? Should management of at least some of these programs be centralized? If so, where in DOD should the central authority reside? Air Force Chief of Staff General Norton Schwartz made the case that "Ideally, what you want to do is have the U.S. government together in a way that allows us to get the best capability…. An example is BAMS and Global Hawk. Why should the Navy and Air Force have two separate depots, ground stations and training pipelines for what is essentially the same airplane with a different sensor? I think there is lots of opportunity for both of us to make better uses of resources." Are current service policies regarding who can operate a UAS satisfactory? If not, how should they be changed? Should there be a uniform, DOD-wide policy? Should DOD consider using a mix of uniformed and civilian personnel for operating UAS, particularly those that are not used for firing weapons (somewhat similar to how Military Sealift Command ships are operated by a mix of uniformed and civilian personnel)? What would be the potential advantages and disadvantages of such an arrangement for operating UAS? What is an appropriate role for contractors in operating military UAS? What new UAS capabilities are most needed? Should priority be given to incremental increases in capability versus ambitious technological leaps? What is the importance of maintaining the U.S. technological lead in UAS? Are current FAA limits on DOD access to domestic U.S. flight facilities for developing UAS hindering the development of DOD UAS? What are the relevant factors and capabilities involved, and do they make a persuasive case for the change or retention of current limits? In recent years, the pace of UAS development has accelerated, and the scope of UAS missions and applications has expanded. How should these efforts be managed so that they are cost-efficient, effective, and interoperable? In its eagerness to deploy UAS, does DOD risk duplication of effort between various programs? Are DOD UAS acquisition plans responsive to congressional direction? Are UAS being developed fast enough? Are they being developed too fast? Has DOD developed an appropriate plan and structure for incorporating UAS into future military capabilities? Investment priorities could change as the introduction of UAS into the U.S. inventory shifts the balance between manned and unmanned capabilities. Congress, as part of its defense oversight responsibilities, may assess DOD's current UAS efforts to verify that they match up with new investment goals and strategies. Conventional wisdom states that UAS are cheap, or cost-effective. Is this true today? How do UAS costs compare to manned aircraft costs? UAS have traditionally been used for reconnaissance and surveillance, but today they are being employed in roles and applications that their designers never envisioned. The unanticipated flexibility and capability of UAS have led some analysts to suggest that more, if not most, of the missions currently undertaken by manned aircraft could be turned over to unmanned aerial platforms, and that manned and unmanned aircraft could operate together. Future Congresses may have to contemplate the replacement of a significant portion of the manned aircraft fleet with unmanned aircraft. This section addresses the program status and funding of some of the most prominent UAS programs being pursued by DOD, and most likely to compete for congressional attention. This section does not attempt to provide a comprehensive survey of all UAS programs, nor to develop a classification system for different types of UAS (e.g., operational vs. developmental, single mission vs. multi mission, long range vs. short range). One exception is a short subsection below titled "Small UAVs." The UAVs described in this section are distinguished from the proceeding UAVs by being man-portable and of short range and loiter time. These smaller UAVs are not currently, and are unlikely to be, weaponized. The services do not provide as detailed cost and budget documentation for these UAVs as they do for major UAS programs. Individually, these UAVs appear very popular with ground forces, yet do not necessarily demand as much congressional attention as larger UAS programs like Predator or Global Hawk. As a whole, however, these small, man-portable UAVs appear likely to increasingly compete with major UAS programs for congressional attention and funding. Through its high-profile use in Iraq and Afghanistan and its multi-mission capabilities, the MQ-1 Predator has become the Department of Defense's most recognizable UAS. Developed by General Atomics Aeronautical Systems in San Diego, CA, the Predator has helped to define the modern role of UAS with its integrated surveillance payload and armament capabilities. Consequently, Predator has enjoyed accelerated development schedules as well as increased procurement funding. The wide employment of the MQ-1 has also facilitated the development of other closely related UAS (described below) designed for a variety of missions. System Characteristics . Predator is a medium-altitude, long-endurance UAS. At 27 feet long, 7 feet high and with a 48-foot wingspan, it has long, thin wings and a tail like an inverted "V." The Predator typically operates at 10,000 to 15,000 feet to get the best imagery from its video cameras, although it has the ability to reach a maximum altitude of 25,000 feet. Each vehicle can remain on station, over 500 nautical miles away from its base, for 24 hours before returning home. The Air Force's Predator fleet is operated by the 15 th and 17 th Reconnaissance Squadrons out of Creech Air Force Base, NV; the 11 th Reconnaissance Squadron provides training. A second control station has been established at Whiteman AFB, MO. Further, "[t]here are plans to set up Predator operations at bases in Arizona, California, New York, North Dakota, and Texas." The Air Force has about 175 Predators; the CIA reportedly owns and operates several Predators as well. Mission and Payload . The Predator's primary function is reconnaissance and target acquisition of potential ground targets. To accomplish this mission, the Predator is outfitted with a 450-lb surveillance payload, which includes two electro-optical (E-O) cameras and one infrared (IR) camera for use at night. These cameras are housed in a ball-shaped turret that can be easily seen underneath the vehicle's nose. The Predator is also equipped with a Multi-Spectral Targeting System (MTS) sensor ball which adds a laser designator to the E-O/IR payload that allows the Predator to track moving targets. Additionally, the Predator's payload includes a synthetic aperture radar (SAR), which enables the UAS to "see" through inclement weather. The Predator's satellite communications provide for beyond line-of-sight operations. In 2001, as a secondary function, the Predator was outfitted with the ability to carry two Hellfire missiles. Previously, the Predator identified a target and relayed the coordinates to a manned aircraft, which then engaged the target. The addition of this anti-tank ordnance enables the UAS to launch a precision attack on a time sensitive target with a minimized "sensor-to-shoot" time cycle. Consequently, the Air Force changed the Predator's military designation from RQ-1B (reconnaissance unmanned) to the MQ-1 (multi-mission unmanned). The air vehicle launches and lands like a regular aircraft, but is controlled by a pilot on the ground using a joystick. A slightly larger, longer-endurance version of the Predator, the Army's MQ-1C Grey Eagle entered low-rate initial production on March 29, 2010. The Grey Eagle can remain aloft for 36 hours, 12 hours longer than its Air Force sibling. An Army platoon operates four aircraft with electro-optical/infrared and/or laser rangefinder/designator payloads, communications relay equipment, and up to four Hellfire missiles. Each platoon includes two ground control stations, two ground data terminals, one satellite communication ground data terminal, one portable ground control station, one portable ground data terminal, an automated takeoff and landing system, two tactical automatic landing systems, and ground support equipment. In total, the program will be 124 aircraft, plus 21 attrition aircraft and 7 schoolhouse aircraft, for a total of 152 aircraft. The average procurement unit cost of a Grey Eagle system is $114.1 million. The MQ-9 Reaper, formerly the "Predator B," is General Atomics' follow-on to the MQ-1. The Reaper is a medium- to high-altitude, long-endurance Predator optimized for surveillance, target acquisition, and armed engagement. While the Reaper borrows from the overall design of the Predator, the Reaper is 13 feet longer and carries a 16-foot-longer wingspan. It also features a 900 hp turboprop engine, which is significantly more powerful than the Predator's 115 hp engine. These upgrades allow the Reaper to reach a maximum altitude of 50,000 feet, a maximum speed of 225 knots, a maximum endurance of 32 hours, and a maximum range of 2,000 nautical miles. However, the feature that most differentiates Reaper from its predecessor is its ordnance capacity. While the Predator is outfitted to carry 2 100-pound Hellfire missiles, the Reaper now can carry as many as 16 Hellfires, equivalent to the Army's Apache helicopter, or a mix of 500-pound weapons and Small Diameter Bombs. As of February 4, 2011, General Atomics Aeronautical Systems had delivered 65 of 399 planned Reapers, 43 of which are operationally active. The MQ-9 is operated by the 17 th Reconnaissance Squadron and the 42 nd Attack Squadron, both at Creech Air Force Base, NV, and the 29 th Attack Squadron at Holloman AFB, NM. Program Status . Predator–family UAS are operated as part of a system, which consists of four air vehicles, a ground control station, and a primary satellite link. The unit cost in FY2009 for one Predator system was approximately $20 million, while the average procurement unit cost for a Reaper system was $26.8 million. Northrop Grumman's RQ-4 Global Hawk has gained distinction as the largest and most expensive UAS currently in operation for the Department of Defense. Global Hawk incorporates a diverse surveillance payload with performance capabilities that rival or exceed most manned spy planes. However, Pentagon officials and Members of Congress have become increasingly concerned with the program's burgeoning cost, which resulted in Nunn-McCurdy breaches in April 2005 and April 2011. Also, the RQ-4B Block 30 was deemed "not operationally suitable" due to "low air vehicle reliability" by the office of Operational Test and Evaluation in May 2011. System Characteristics . At 44 feet long and weighing 26,750 lbs, Global Hawk is about as large as a medium sized corporate jet. Global Hawk flies at nearly twice the altitude of commercial airliners and can stay aloft at 65,000 feet for as long as 35 hours. It can fly to a target area 5,400 nautical miles away, loiter at 60,000 feet while monitoring an area the size of the state of Illinois for 24 hours, and then return. Global Hawk was originally designed to be an autonomous drone capable of taking off, flying, and landing on pre-programmed inputs to the UAV's flight computer. Air Force operators have found, however, that the UAS requires frequent intervention by remote operators. The RQ-4B resembles the RQ-4A, yet features a significantly larger airframe. In designing the B-model, Northrop Grumman increased the Global Hawk's length from 44 feet to 48 feet and its wingspan from 116 feet to 132 feet. The expanded size enables the RQ-4B to carry an extra 1000 pounds of surveillance payload. Mission and Payload . The Global Hawk UAS has been called "the theater commander's around-the-clock, low-hanging (surveillance) satellite." The UAS provides a long-dwell presence over the battlespace, giving military commanders a persistent source of high-quality imagery that has proven valuable in surveillance and interdiction operations. The RQ-4A's current imagery payload consists of a 2,000-lb integrated suite of sensors much larger than those found on the Predator. These sensors include an all-weather SAR with Moving Target Indicator (MTI) capability, an E-O digital camera and an IR sensor. As the result of a January 2002 Air Force requirements summit, Northrop Grumman expanded its payload to make it a multi-intelligence air vehicle. The subsequent incarnation, the RQ-4B, is outfitted with an open-system architecture that enables the vehicle to carry multiple payloads, such as signals intelligence (SIGINT) and electronic intelligence (ELINT) sensors. Furthermore, the classified Multi-Platform Radar Technology Insertion Program (MP-RTIP) payload will be added in order to increase radar capabilities. These new sensor packages will enable operators to eavesdrop on radio transmissions or to identify enemy radar from extremely high altitudes. Future plans include adding hyper-spectral sensors for increased imagery precision and incorporating laser communications to expand information transfer capabilities. The end goal is to field a UAS that will work with space-based sensors to create a "staring net" that will prevent enemies from establishing a tactical surprise. In August 2003, the Federal Aviation Administration granted the Global Hawk authorization to fly in U.S. civilian airspace, which further expanded the system's mission potential. This distinction, in combination with the diverse surveillance capabilities, has led many officials outside the Pentagon to consider the Global Hawk an attractive candidate for anti-drug smuggling and Coast Guard operations. Program Status . Developed by Northrop Grumman Corporation of Palmdale, CA, Global Hawk entered low-rate initial production in February 2002. The Air Force has stated that it intends to acquire 51 Global Hawks, at an expected cost of $6.6 billion for development and procurement costs. As of November 2009, the Air Force possessed 7 RQ-4As and 3 RQ-4Bs. Another 32 Global Hawks had been authorized and appropriated through FY2011. According to the most recent Selected Acquisition Report, the current average procurement unit cost for the Global Hawk has reached $140.9 million in current dollars. In April 2005, the Air Force reported to Congress that the program had overrun by 18% as a result of an "increasing aircraft capacity to accommodate requirements for a more sophisticated, integrated imagery and signals intelligence senor suite." A Government Accountability Office report in December 2004 noted that the program had increased by nearly $900 million since 2001 and recommended delaying the purchase of future Global Hawks until an appropriate development strategy could be implemented. The rising costs of the UAV and accusations of Air Force mismanagement have caused concern among many in Congress and in the Pentagon as well as facilitating an overall debate on the Air Force's development strategy. Following a 2010 Defense Acquisition Board review of the Global Hawk program, Air Force acquisition executive David Van Buren told reporters that he is "not happy" with the pace of the program, both on the government and the contractor side. Chief Pentagon arms buyer Ashton Carter also criticized the program, saying that it was "on a path to being unaffordable." In April 2011, a reduction in the number of Global Hawk Block 40 aircraft requested in the FY2012 budget from 22 to 11 caused overall Global Hawk unit prices to increase by 11%, again triggering Nunn-McCurdy. In its markup of the FY2011 defense authorization bill, the House Armed Services Committee expressed concern "that differing, evolving service unique requirements, coupled with Global Hawk UAS vanishing vendor issues, are resulting in a divergence in each service's basic goal of maximum system commonality and interoperability, particularly with regard to the communications systems." The bill report directs the Under Secretary of Defense for Acquisition, Technology, and Logistics to certify and provide written notification to the congressional defense committees by March 31, 2011, that he has reviewed the communications requirements and acquisition strategies for both Global Hawk and BAMS. The subcommittee wants assurance that the requirements for each service's communications systems have been validated and that the acquisition strategy for each system "achieves the greatest possible commonality and represents the most cost effective option" for each program. A May 20, 2011, report from the Air Force Operational Test and Evaluation Center found the Global Hawk Block 20/30 to be "effective with significant limitations ... not suitable and partially mission capable." The report cited "lackluster performance of the EISS imagery collector and ASIP sigint collectors at range" rather than issues with the Global Hawk airframe itself. The Navy's Broad Area Maritime Surveillance system is based on the Global Hawk Block 20 airframe but with significantly different sensors from its Air Force kin. This, coupled with a smaller fleet size, results in a higher unit cost. "The air service's drone costs $27.6 million per copy, compared to an expected $55 million per BAMS UAV, including its sensors and communications suite…. At 68 aircraft, the BAMS fleet will be the world's largest purchase of long-endurance marinized UAVs." System Characteristics and Mission . "BAMS ... provides persistent maritime intelligence, surveillance, and reconnaissance data collection and dissemination capability to the Maritime Patrol and Reconnaissance Force. The MQ-4C BAMS UAS is a multi-mission system to support strike, signals intelligence, and communications relay as an adjunct to the MMA/P-3 community to enhance manpower, training and maintenance efficiencies worldwide." "The RQ-4 ... features sensors designed to provide near worldwide coverage through a network of five orbits inside and outside continental United States, with sufficient air vehicles to remain airborne for 24 hours a day, 7 days a week, out to ranges of 2000 nautical miles. Onboard sensors will provide detection, classification, tracking and identification of maritime targets and include maritime radar, electro-optical/infra-red and Electronic Support Measures systems. Additionally, the RQ-4 will have a communications relay capability designed to link dispersed forces in the theater of operations and serve as a node in the Navy's FORCEnet strategy." "The drones ... will collect information on enemies, do battle-damage assessments, conduct port surveillance and provide support to Navy forces at sea. Each aircraft is expected to serve for 20 years." Program Status . The Administration's FY2012 budget request documents place Milestone C for BAMS in the third quarter of FY2013, with initial operational capability in the first quarter of 2016. "Since Milestone B for the Navy BAMS UAS program, identifying opportunities for the RQ-4-based BAMS and Global-Hawk programs has been a significant interest item for the UAS TF and has been well documented within the Department." In one effort to integrate development, on June 12, 2010, the Navy and Air Force concluded a Memorandum of Agreement (MOA) regarding their Global Hawk and BAMS programs, which use a common airframe. "Shared basing, maintenance, command and control, training, logistics and data exploitation are areas that could be ripe for efficiencies, says Lt. Gen David Deptula, Air Force deputy chief of staff for intelligence, surveillance and reconnaissance…. Also, a single pilot and maintenance training program is being established at Beale AFB, Calif., for both fleets." However, issues still exist over common control stations and whether one service's pilots should be able to operate the other service's aircraft. Now in deployment, the Fire Scout was initially designed as the Navy's choice for an unmanned helicopter capable of reconnaissance, situational awareness, and precise targeting. Although the Navy canceled production of the Fire Scout in 2001, Northrop Grumman's vertical take-off UAV was rejuvenated by the Army in 2003, when the Army designated the Fire Scout as the interim Class IV UAV for the future combat system. The Army's interest spurred renewed Navy funding for the MQ-8, making the Fire Scout DOD's first joint UAS helicopter. System Characteristics and Mission . Northrop Grumman based the design of the Fire Scout on a commercial helicopter. The RQ-8B model added a four-blade rotor to reduce the aircraft's acoustic signature. With a basic 127-pound payload, the Fire Scout can stay aloft for up to 9.5 hours; with the full-capacity sensor payload, endurance diminishes to roughly 6 hours. Fire Scout possesses autonomous flight capabilities. The surveillance payload consists of a laser designator and range finder, an IR camera and a multi-color EO camera, which when adjusted with specific filters could provide mine-detection capabilities. Fire Scout also currently possesses line-of-sight communication data links. Initial tests of an armed Fire Scout were conducted in 2005, and the Navy expects to add "either Raytheon's Griffin or BAE's Advanced Precision Kill Weapon System" small missiles to currently deployed Fire Scouts soon. Discussions of future missions have also covered border patrol, search and rescue operations, medical resupply, and submarine spotting operations. Program Status . Six production MQ-8 air vehicles have been delivered to date. The Pentagon's 2009 UAS Roadmap estimates a future inventory of 131 RQ-8Bs for the Navy to support the Littoral Combat Ship class of surface vessels. The Army had intended to use the Fire Scout as the interim brigade-level UAV for its Future Combat System program, but canceled its participation in January, 2010. A Fire Scout attracted media attention in August 2010, when it flew through Washington, DC, airspace after losing its control link. "A half-hour later, Navy spokesmen said, operators re-established control and the drone landed safely." The FIRE-X project, recently designated MQ-8C but continuing the Fire Scout name, is a developmental effort to adapt the Fire Scout software and navigation systems to a full-size standard helicopter. The Navy "is to award Northrop Grumman a contract to supply 28 MQ-8C Fire Scout ... to be fielded by the first quarter of 2014 to meet an urgent operational requirement." Fire Scout can fly for 8 hours with a maximum range of 618 nautical miles? Well, Fire-X will fly for 15, with a max range of 1227. Fire Scout tops out at 100 knots? Fire-X can speed by at 140. Fire-X will carry a load of 3200 lbs. to Fire Scout's 1242. All this talk from a drone helicopter that just took its first flight in December.... Fire-X isn't going to be a big departure from Fire Scout, though. The BRITE STAR II and other radars will remain on board, as will its software for relaying information to a ship. Although publicly acknowledged to exist, most information about the Lockheed Martin RQ-170 Sentinel is classified. First photographed in the skies over Afghanistan, but also reportedly in operation from South Korea, the RQ-170 is a tailless "flying wing" stealthier than other current U.S. UAS. An RQ-170 was reported to have performed surveillance and data relay related to the operation against Osama bin Laden's compound on May 1, 2011. The government of Iran claimed on December 2, 2011, to be in possession of an intact RQ-170 following its incursion into Iranian airspace. System Characteristics . Built by Lockheed Martin, the RQ-170 has a wingspan of about 65 feet and is powered by a single jet engine. It appears to have two sensor bays (or satellite dish enclosures) on the upper wing surface. Although an inherently low-observable blended wing/fuselage design like the B-2, the RQ-170's conventional inlet, exhaust, and landing gear doors suggest a design not fully optimized for stealth. Potential Mission and Payload . "The RQ-170 will directly support combatant commander needs for intelligence, surveillance and reconnaissance to locate targets." Program Status . "The RQ-170 is a low observable unmanned aircraft system (UAS) being developed, tested and fielded by the Air Force." No further official status is available. Originally co-developed by Israel Aircraft Industries and TRW (now owned by Northrop Grumman) for a joint U.S. Army/Navy/Marine Corps short-range UAS, the Hunter system found a home as one of the Army's principal unmanned platforms. The service has deployed the RQ-5A for tactical ISR in support of numerous ground operations around the world. At one time, the Army planned to acquire 52 Hunter integrated systems of eight air vehicles apiece, but the Hunter program experienced some turbulence. The Army canceled full-rate production of the RQ-5A in 1996, but continued to use the seven systems already produced. It acquired 18 MQ-5B Hunter IIs through low-rate initial production in FY2004 and FY2005. The MQ-5B's design includes longer endurance and the capability to be outfitted with anti-tank munitions. Both variants are currently operated by the 224 th Military Intelligence Battalion out of Fort Stewart, GA; by the 15 th Military Intelligence Battalion out of Ft. Hood, TX; and by 1 st Military Intelligence Battalion out of Hohenfels, Germany. System Characteristics . The RQ-5A can fly at altitudes up to 15,000 feet, reach speeds of 106 knots, and spend up to 12 hours in the air. Weighing 1,600 pounds, it has an operating radius of 144 nautical miles. The MQ-5B includes an elongated wingspan of 34.3 feet up from 29.2 feet of the RQ-5A and a more powerful engine, which allows the Hunter II to stay airborne for three extra hours and to reach altitudes of 18,000 feet. The Hunter system consists of eight aircraft, ground control systems and support devices, and launch/recovery equipment. In FY2004, the final year of Hunter procurement, a Hunter system cost $26.5 million. Mission and Payload . The Army has mostly used the Hunter system for short- and medium-range surveillance and reconnaissance. More recently, however, the Army expanded the Hunter's missions, including weaponization for tactical reconnaissance/strike operations with the GBU-44/B Viper Strike precision guided munition, which can designate targets either from the munition's laser, from another aerial platform, or from a ground system. This weapon makes the Hunter the Army's first armed UAS. "Also, in 2004, the Department of Homeland Security, Customs and Border Protection Bureau, and Office of Air and Marine utilized Hunter under a trial program for border patrol duties. During this program, the Hunter flew 329 flight hours, resulting in 556 detections." Program Status . The Army halted Hunter production in 2005. As of May 2011, 45 Hunter UAVs were still in operation and periodically receiving upgrades and modifications. In August 2005, the Army awarded General Atomics' Warrior UAS (which later became Grey Eagle) the contract for the Extended Range-Multi Purpose UAS program over the Hunter II. The RQ-7 Shadow found a home when the Army, after a two-decade search for a suitable system, selected AAI's close range surveillance platform for its tactical unmanned aerial vehicle (TUAV) program. Originally, the Army, in conjunction with the Navy explored several different UAVs for the TUAV program, including the now-cancelled RQ-6 Outrider system. However, in 1997, after the Navy pursued other alternatives, the Army opted for the low-cost, simple design of the RQ-7 Shadow 200. Having reached full production capacity and an IOC in 2002, the Shadow has become the primary airborne ISR tool of numerous Army units around the world and is expected to remain in service through the decade. The Administration's FY2011 budget request did not include funding for Shadow aircraft, although it did include continued RDT&E funding for Shadow. System Characteristics . Built by AAI Corporation (now owned by Textron), the Shadow is 11 feet long with a wingspan of 13 feet. It has a range of 68 nautical miles, a distance picked to match typical Army brigade operations, and average flight duration of five hours. Although the Shadow can reach a maximum altitude of 14,000 feet, its optimum level is 8,000 feet. The Shadow is catapulted from a rail-launcher, and recovered with the aid of arresting gear. The UAS also possesses automatic takeoff and landing capabilities. The upgraded version, the RQ-7B Shadow, features a 16-inch greater wingspan and larger fuel capacity, allowing for an extra two hours of flight endurance. Mission and Payload . The Shadow provides real-time reconnaissance, surveillance, and target acquisition information to the Army at the brigade level. A potential mission for the Shadow is the perilous job of medical resupply. The Army is considering expanding the UAS's traditional missions to include a medical role, where several crucial items such as blood, vaccines, and fluid infusion systems could be delivered to troops via parachute. For surveillance purposes, the Shadow's 60-pound payload consists of an E-O/IR sensor turret, which produces day or night video and can relay data to a ground station in real-time via a line-of-sight data link. As part of the Army's Future Combat System plans, the Shadow will be outfitted with the Tactical Common Data Link currently in development to network the UAS with battalion commanders, ground units, and other air vehicles. The Marine Corps is considering how to arm Shadow. Program Status . The Army and Marine Corps currently maintain an inventory of 364 Shadow UAVs. The program cost for a Shadow UAV system—which includes four vehicles, ground control equipment, launch and recovery devices, remote video terminals, and High Mobility Multipurpose Wheeled Vehicles for transportation—reached $11.1 million in current year dollars for FY2008. The Army procured 102 systems through 2009. In FY2012, the Army requested $25 million for 20 Shadow aircraft to replace combat losses, and approximately $200 million for payload upgrades. AeroVironment's Dragon Eye is a backpack-carried, battery-operated UAV employed by the Marines at the company level and below for reconnaissance, surveillance, and target acquisition. Dragon Eye features a 3.8-foot rectangular wing, twin propellers, and two camera ports each capable of supporting day-light electro-optical cameras, low-light TV cameras, and infrared cameras. The compact and lightweight design of the UAV allows an operational endurance of 45 minutes and can travel as far as 2.5 nautical miles from the operator. Low-rate-initial-production of 40 aircraft began in 2001. After a 2003 operational assessment, the Marine Corps awarded AeroVironment a contract to deliver approximately 300 systems of full-rate-production Dragon Eyes. However, that contract was later revised to acquire Raven UAS instead. One Dragon Eye system consists of three air vehicles and one ground station. The final Marine Corps procurement budget request in FY2006 anticipated the current unit cost per Dragon Eye system as $154,000. Although procurement of this early UAS began in 1990, the electric-powered Pointer has seen service in Operation Enduring Freedom (OEF) and Operation Iraqi Freedom (OIF). Pointer is a short-range reconnaissance and battlefield surveillance UAV developed by AeroVironment. Its flight endurance (two hours) is greater than most similar small UAVs, in part due to its relatively large, 9-foot wingspan. That wingspan decreases portability of the 8.5-pound Pointer, and as a result, transportation of a Pointer system (two air vehicles and a ground control unit) requires two personnel. Although superseded by the Raven (below), Pointer remains a valued short-range ISR asset for the Air Force and Special Operations Command. Engineered from the basic design of the Pointer, the Raven is two-thirds the size and weight of its predecessor, with a much smaller control station, making the system man-portable. "The RQ-11A is essentially a down-sized FQM-151 Pointer , but thanks to improved technology can carry the same navigation system, control equipment, and payload." The Raven provides Army and SOCOM personnel with "over-the-hill" reconnaissance, sniper spotting, and surveillance scouting of intended convoy routes. The electric motor initiates flight once hand-launched by a running start from the ground operator. The vehicle is powered by an electric battery that needs to be recharged after 90 minutes, but deployed soldiers are equipped with four auxiliary batteries that can be easily charged using the 28 volt DC outlet in a Humvee. The vehicle lands via a controlled crash in which the camera separates from the body, which is composed of Kevlar plating for extra protection. Like the Pointer, the Raven can carry either an IR or an E-O camera and transmits real-time images to its ground operators. The relatively simple system allows soldiers to be trained in-theater in a matter of days. Raven systems can either be deployed in three-aircraft or two-aircraft configurations. "Raven was adopted as the US Army's standardised short range UAV system in 2004 with a total of 2469 air vehicles (including older RQ-11A series models) in operational service by mid 2007." "The US Army has an ongoing acquisition objective for about 2,200 Raven systems and has taken delivery of more than 1,300 to date." A three-aircraft system costs approximately $167,000. Developed by the Insitu Group (owned by Boeing) as a "launch-and-forget" UAV, the ScanEagle autonomously flies to points of interest selected by a ground operator. The ScanEagle has gained notice for its long endurance capabilities and relative low cost. The gasoline-powered UAV features narrow 10 foot wings that allow the 40-pound vehicle to reach altitudes as high as 19,000 feet, distances of more than 60 nautical miles, and a flight endurance of almost 20 hours. Using an inertially stabilized camera turret carrying both electro-optical and infrared sensors, ScanEagle currently provides Marine Corps units in Iraq with force-protection ISR and is also used by Special Operations Command. ScanEagle operations began in 2004, and continue today. Although ScanEagle was expected to cost about $100,000 per copy, the Navy and SOCOM have contracted for operations instead of procurement, with Boeing providing ISR services utilizing ScanEagle under a fee-for-service arrangement. ScanEagle is also in use by non-military organizations for surveillance purposes, including tracking whale migrations. In July 2010, the Department of the Navy awarded Insitu a two-year, $43.7 million contract for the design, development, integration, and test of the Small Tactical Unmanned Aircraft System (STUAS) for use by the Navy and Marine Corps to provide persistent maritime and land-based tactical reconnaissance, surveillance, and target acquisition (RSTA) data collection and dissemination. "For the USMC, STUAS will provide the Marine Expeditionary Force and subordinate commands (divisions and regiments) a dedicated ISR system capable of delivering intelligence products directly to the tactical commander in real time. For the Navy, STUAS will provide persistent RSTA support for tactical maneuver decisions and unit-level force defense/force protection for Navy ships, Marine Corps land forces, and Navy Special Warfare Units." Payloads include day/night video cameras, an infrared marker, and a laser range finder, among others. STUAS can be launched and recovered from an unimproved expeditionary/urban environment, as well as from the deck of Navy ships. STUAS uses Insitu's Integrator airframe, which uses common launch, control, and recovery equipment with ScanEagle. STUAS has a takeoff weight of up to 125 pounds with a range of 50 nautical miles. However, STUAS will be procured and operated by the services rather than operated on a fee-for-service basis because "the Scan Eagle's current fee-for-service contract limits the way the UAS is deployed ... with Boeing/Insitu employees usually operating the aircraft in the field due to liability issues." Procuring the system will allow the services to train their own operators. Initial operating capability is expected in the fourth quarter of FY2013. In the mid-1990s, the Pentagon began developing a UAS designed primarily for combat missions. The result was two separate Unmanned Aerial Combat Vehicles (UCAV) programs, the Air Force's UCAV and the Navy's UCAV-N demonstrator program. The Air Force favored Boeing's X-45 for its program, while Northrop Grumman's X-47 Pegasus and Boeing's X-46 competed for the Navy's project. However, in June 2003, the Pentagon merged the two programs in order to establish the Joint Unmanned Combat Air System (J-UCAS) project under the management of the Defense Advanced Research Projects Agency (DARPA). The objective of the J-UCAS merger was to create a flexible offensive network in which the air and ground elements are adapted to meet specific combat missions. As part of Program Budget Decision (PBD) 753 in December 2004, DARPA was ordered to transfer administration of the J-UCAS resources to Air Force. J-UCAS was cancelled in 2006. The total money spent on the J-UCAS/UCAV program, which reached more than $1.45 billion in RDT&E funding, made it one of the most expensive UAS ventures undertaken by DOD. Subsequently, in May 2010, the Navy issued a Request for Information for a carrier-borne UCAV called UCLASS, seeking ideas on a stealthy strike/surveillance platform that could operate alongside manned aircraft as part of a carrier air wing by the end of 2018. The notional system would comprise four to six aircraft capable of autonomous operation from Nimitz- and Ford-class carriers, with an unrefueled endurance of 11-14 hours and the capability for both hose-and-drogue and boom-and-probe aerial refueling. Another significant attribute of UCLASS is that—unlike most current UAS that are designed to operate only in permissive or lightly defended environments—UCLASS "must be capable of operating in hostile airspace, which means the aircraft design must feature low-observable traits." Navy Secretary Ray Mabus said that "The notion here is that—just like the F-35 carrier version—it is going to be stealthy. It is going to be low observable," he says. "And, if you are going to integrate an airplane into the carrier air wing, it should be able to go into contested airspace." The Navy has awarded UCLASS concept study contracts to Boeing, General Atomics Aeronautical Systems, Lockheed Martin, and Northrop Grumman. The UCLASS request for proposal is expected in fall 2011. Likely UCLASS contenders include the following: Northrop Grumman's X-47B, an advanced version of the X-47A UCAV-N contender, is nearly 36 feet long, with a wingspan of 62 feet. The increased wingspan in combination with the Pratt & Whitney F100-220U turbojet engine may allow X-47B an endurance of nine hours and range of 1,600 nautical miles. The X-47B features folding wing-tips that cut down on size, making it more suitable for storage aboard an aircraft carrier. System Characteristics . 36 feet long with a wingspan of 50 feet; single GE F404-102D engine. The X-45C was expected to achieve speeds of 450 knots and altitudes of 40,000 feet, with a flight duration of up to seven hours and a range of 1,200 nautical miles. Program Status . First flown on May 27, 2011, Phantom Ray is a development of Boeing's X-45C J-UCAS contender. Although it is a company-funded one-off demonstrator, it is expected to contend for the Navy's UCLASS program. General Atomics is currently developing a third generation Predator that uses a turbojet engine to fly long-endurance, high-altitude surveillance missions. The Avenger (formerly "Predator C") will reportedly use the fuselage of the Reaper, but will be similar to Northrop Grumman's Global Hawk in payload capacity and flight performance. General Atomics confirmed its offer of the "Sea Avenger" variant for the UCLASS competition in 2010. With a 41-foot long fuselage and 66-foot wingspan, the Avenger is capable of staying in the air for up to 20 hours, and operating at up to 50,000 feet. Powered by a 4,800-lb. thrust Pratt & Whitney PW545B jet engine, it can fly at over 400 knots—50 percent faster than the turboprop-powered Reaper unmanned plane, and more than three times as quick as the Predator. General Atomics says the first Avenger is now flying two to three times a week.... A second and third Avenger are now in production. It'll be a little longer than the first—44 feet—and able to haul a 6,000 pound payload. That's a 50 percent improvement over what the Reaper can carry. Lockheed is also reported to be interested in entering an RQ-170 variant in the UCLASS competition. Tactical UAS, ranging from Raven to Reaper, have become familiar, and the prototypes of combat UAS like UCLASS are already in the air. But a new class of UAS is under development that would move beyond the endurance and range of Global Hawk to provide much more persistent platforms for ISR, data relay, and other purposes. Among these HALE, for high altitude long endurance systems, are: Proposed by the Boeing Phantom Works, Phantom Eye would use hydrogen-fueled automobile engines to carry a 3,000-pound payload for 10 days. A 150-foot wingspan demonstrator version hopes to achieve "up to four days of endurance at 65,000 ft." with a first flight in autumn 2011. In 2009, Aurora Flight Sciences unveiled the Orion, which would use hydrogen-fueled diesel engines to carry a 2,600-pound payload at 30,000 feet, or a 1,000-pound payload for 10 days at 15,000-20,000 feet. Its demonstrator version is designed to reach 5-day endurance with the same payload. Orion is part of a system called MAGIC, an acronym for Medium-Altitude Global ISR and Communications, being developed by under a $4.7-million contract from the Air Force Research Laboratory. A third hydrogen-powered HALE contender, AeroVironment's Global Observer "can fly as high as 65,000 feet for five to seven days while carrying a 400-pound payload." It is optimized for "persistent communications and remote sensing." Global Observer flew for the first time in 2010, but the first test aircraft crashed in April 2011. Several firms (Lockheed Martin, MAV6, Northrop Grumman, and others) are developing unmanned airships for long- to extremely long-endurance missions. "In comparison with unmanned fixed-wing aircraft, such as the Global Hawk or Reaper, an airship ... would have a similar payload and substantially longer endurance but considerably slower cruise speed." The Army's High Altitude Airship program "has the long-term objective of building an airship capable of carrying a 2,000-pound payload and generating 15 kilowatts of power (to run the payload and aircraft systems) at 65,000 feet for more than 30 days." | Unmanned aerial systems comprise a rapidly growing portion of the military budget, and have been a long-term interest of Congress. At times, Congress has encouraged the development of such systems; in other instances, it has attempted to rein in or better organize the Department of Defense's efforts. Unmanned aircraft are commonly called unmanned aerial vehicles (UAVs), and when combined with ground control stations and data links, form UAS, or unmanned aerial systems. The use of UAS in conflicts such as Kosovo, Iraq, and Afghanistan, and humanitarian relief operations such as Haiti, revealed the advantages and disadvantages provided by unmanned aircraft. Long considered experimental in military operations, UAS are now making national headlines as they are used in ways normally reserved for manned aircraft. Conventional wisdom states that UAS offer two main advantages over manned aircraft: they are considered more cost-effective, and they minimize the risk to a pilot's life. For these reasons and others, DOD's unmanned aircraft inventory increased more than 40-fold from 2002 to 2010. UAVs range from the size of an insect to that of a commercial airliner. DOD currently possesses five UAVs in large numbers: the Air Force's Predator, Reaper, and Global Hawk; and the Army's Hunter and Shadow. Other key UAV developmental efforts include the Air Force's RQ-170 Sentinel; the Navy's Unmanned Carrier-Launched Airborne Surveillance and Strike (UCLASS), MQ-8 Fire Scout, and Broad Area Maritime Surveillance (BAMS) UAV; and the Marine Corps's Small Tactical Unmanned Aerial System. In the past, tension existed between the services' efforts to acquire UAS and congressional initiatives to encourage a consolidated DOD approach. Some observers argue that the result has been a less than stellar track record for UAS programs. However, reflecting the growing awareness and support in Congress and the Department of Defense for UAS, investments in unmanned aerial vehicles have been increasing every year. DOD spending on UAS has increased from $284 million in FY2000 to $3.3 billion in FY2010. Congressional considerations include the proper pace, scope, and management of DOD UAS procurement; appropriate investment priorities for UAS versus manned aircraft; UAS future roles and applications; legal issues arising from the use of UAS; issues of operational control and data management; personnel issues; industrial base issues; and technology proliferation. |
In the mid-1990s, the Army began fielding the M-4 carbine, a lighter, more compact version of the Vietnam-era M-16 rifle. Both M-16 and M-4 carbines are 5.56 mm caliber weapons and are primarily manufactured by Colt Defense LLC, Hartford, CT. Army officials are said to be satisfied with the M-16 family of weapons and have suggested that the M-16 is "simply too expensive to replace with anything less than a significant leap in technology." The Army's "leap ahead" program to replace the M-16 family of weapons—the Objective Individual Combat Weapon (OICW) program—began in 1994, and one weapon evaluated in that program, Heckler & Koch's XM-8 assault rifle, was considered by some as the M-16's/M-4's replacement. As late as 2005, the XM-8 was reportedly close to being officially approved as the Army's new assault rifle, but alleged acquisition and bureaucratic conflicts compelled the Army to cancel the XM-8 in October 2005. The Army plans to continue its procurement of M-16s and M-4s for "years to come," while some in Congress have called for an "open competition" to choose a successor to the M-16 and M-4 assault rifles. The M4 Carbine Improvement Program will evaluate the following potential improvements: Heavier barrel for better performance during high rates of fire. Replacing the direct-gas system with a piston gas system. Improving trigger pull. Strengthening the rail system. Adding ambidextrous controls. Adding a round-counter to track number of total rounds fired. The option of a heavier barrel is being considered in response to concerns about barrel warping and erosion during high rates of fire. The M4 currently has a system that uses the gas generated by a cartridge firing to cycle the next round into the weapon's receiver. This reduces the number of moving parts in the rifle in comparison to the gas-piston system and offers potential improvements in the weapon's stability when firing; however, it also results in greater amounts of heat and carbon deposits in the receiver, which can lead to the weapon's malfunctioning. The rail along the top of the rifle's receiver lends stability to the weapon and also serves as the mount for weapon attachments. Increasing its strength without adding weight to the weapon may be possible with the use of new composite materials or metal alloys. A round counter would make it possible to better evaluate when an individual weapon should be refurbished or replaced. The assessment of these options is being undertaken by an integrated product team comprising representatives from the Infantry Center; the Armament, Research, Development, and Engineering Center; the Program Executive Office Soldier; and each of the other armed services. The Army intends to conduct an open competition for a successor to the M4. Its proposal is before the Joint Requirements Oversight Council for approval and, if approved as expected, would permit the Army to solicit submissions from the small arms industry by this fall. The competition will be open to all manufacturers and is intended to provide an evaluation of the full range of weapons available. Complete results of the competition and selection of a new carbine are not expected before FY2013, and it is anticipated that it would then take another three to four years to fully field the new weapons. Reports suggest that soldiers have expressed concerns regarding the reliability and lethality of the M-4. Reliability can be described as "the probability that an item can perform its intended function for a specified interval under stated conditions" and lethality as "the killing or stopping power of a bullet when fired from a weapon." Other reports, however, suggest that the M-4 has performed well and been generally well-received by troops. In February 2001, USSOCOM published a study and analysis of alternatives focused on the M-4A1 carbine used by USSOCOM units. The study concludes that the M-4A1 design was fundamentally flawed—in part due to barrel and gas tube shortening—and that a variety of factors "led to alarming failures of the M-4A1 in operations under the harsh conditions and heavy firing schedules common in SOF training and operations." While USSOCOM concluded in 2001 that the M-4A1 carbine in its current configuration did not meet SOF requirements, USSOCOM noted that the shortfalls that they identified had not become evident in conventional Army units that used the M-4, likely due to the "newness" of the weapon and the lower firing schedules of conventional unit training. USSOCOM further noted that the M-4 met or exceeded the Army's specifications for reliability and that the M-4 met the needs of the conventional Army. In July 2003, the Army published a report to assess small arms performance during Iraqi Freedom. Army personnel interviewed over 1,000 soldiers to assess what "worked well and what did not." The assessment was generally favorable toward all small arms examined and did not employ any discernable analytic metrics. The assessment stated that the M-4 was "by far the preferred individual weapon across the theater of operations" and recommended in the "near term replace the M-16 with the M-4 as the standard issue weapon." But without any corresponding analytical data, some might question the validity of the Army's assessment. In December 2006, the Center for Naval Analyses (CNA) published a survey and study at the request of the Army's Project Manager-Soldier Weapons of 2,600 soldiers who had returned from Iraq and Afghanistan and who had engaged in a firefight using a variety of small arms. Some of the M-4-specific observations were as follows: Over 50% of soldiers using the M-4 and M-16 reported that they never experienced a stoppage [malfunction] while in theater, to include during training firing of the weapons (p. 2). Frequency of disassembled cleaning had no effect on the occurrences of stoppages. Variations in lubrication practices, such as the type of lubrication used and the amount of lubrication applied, also had little effect on stoppages. Using a dry lubricant decreased reports for stoppages only for M-4 users (p. 3). Of soldiers surveyed who used the M-4, 89% reported being satisfied with their weapon (p. 11). Of M-4 users, 20% recommended a larger bullet for the M-4 to increase lethality (p. 30). Regarding M-16s and M-4s, many soldiers and experts in theater commented on the limited ability to effectively stop targets, saying that those personnel targets who were shot multiple times were still able to continue fighting (p. 29). Although M-4 critics cite this report as evidence of unsuitability of the M-4, it might also be interpreted as a favorable report on the M-4's overall reliability and acceptance by soldiers. The "larger bullet" recommendation for lethality purposes may, in fact, be a valid recommendation based on observations from Iraq and Afghanistan, but the "bigger bullet debate" has been a source of contention for many small arms experts ever since the Army adopted the 5.56 mm M-16 during Vietnam in lieu of the 7.62 mm M-14 rifle. In USSOCOM's February 2001 study, a number of M-4 reliability problems were documented. The USSOCOM report described the M-4's shortened barrel and gas tube as a "fundamentally flawed design," which contributed to failures extracting and ejecting spent cartridges during firing. In recognition of these reported deficiencies, the 1 st Special Forces Operational Detachment-Delta, also referred to as "Delta Force," reportedly began working with German arms manufacturer Heckler & Koch to replace the M-4's gas system with a piston operating system to improve reliability and increase parts life. In 2004, Delta reportedly replaced their M-4s with the HK-416—a weapon that combines the operating characteristics of the M-4 with the piston operating system. In addition to reliability problems detailed in USSOCOM's February 2001 study, another possible reason that USSOCOM might have wanted to replace the M-4 carbine is that the M-4 was a weapon procured by the Department of Defense and subject to military standards and the technical data package, meaning that USSOCOM could not make changes to the weapon. If USSOCOM became the procurement agency for a new carbine, then they could direct the carbine's manufacturer to make changes and modifications. In early 2003, USSOCOM officials initiated efforts to identify potential new combat rifle capabilities. From May through August 2004, USSOCOM evaluated 12 weapons from nine different manufacturers. In November 2004, USSOCOM awarded a contract to FNH USA to develop the Special Operations Combat Assault Rifle (SCAR). The SCAR will come in two variants—the heavy 7.62 mm SCAR-H and the light 5.56 mm SCAR-L. Each variant will accommodate three different barrels—a standard 35.7 cm barrel, a 25.5 cm close-combat barrel, and a sniper variant barrel. All barrels reportedly will take less than five minutes to switch. The SCAR-L is intended to replace USSOCOM M4-A1 carbines. In April 2009, the first 600 of 1,800 SCARs to be issued to USSOCOM were fielded to units of the 75 th Ranger Regiment, and reports suggest that the Rangers will deploy into combat with the SCAR. Because this is the first known large-scale deployment of this weapon into combat, there will likely be a significant amount of evaluation of the SCAR's reliability and performance. These evaluations may prove useful to the Army as it examines the future of small arms. In April 2007, Senator Tom Coburn (R-Oklahoma) sent a letter to then Acting Secretary of the Army Peter Geren questioning why the Army planned to spend $375 million on M-4 carbines through FY2009 "without considering newer and possibly better weapons available on the commercial market." Senator Coburn's letter also cited M-4 reliability and lethality concerns and called for a competition to evaluate alternatives to the M-4, citing a need to conduct a "free and open competition." The Army initially agreed to begin the tests in August 2007 at the Army Test and Evaluation Center at Aberdeen Proving Ground, MD, but then postponed the test until December 2007. The test evaluated the M-4 against the HK-416, the HK-XM8, and the FNH SCAR, with each weapon firing 6,000 rounds under sandstorm conditions. Officials reportedly evaluated 10 each of the four weapons, firing a total of 60,000 rounds per model resulting in the following: XM-8, 127 stoppages; FNH SCAR, 226 stoppages; HK-416, 233 stoppages; and the M-4, 882 stoppages. On December 17, 2007, when the Army briefed Congress and the press, the Army reportedly claimed that the M-4 suffered only 296 stoppages during the test, explaining that the stoppage discrepancy from the original 882 M-4 stoppages reported could have been due to the application of the Army Test and Evaluation Center's post-test Reliability, Availability, and Maintainability (RAM) Scoring Conference. This process attributes failures to such factors as operator error or part failure and, as an example, if evaluators linked 10 stoppages to a broken part on a weapon, they could eliminate nine of the stoppages and count only one failure for reporting purposes. The M-4's developer, Colt Defense, LLC, contends that there were a number of factors during the test that might have resulted in testing discrepancies. Among the issues raised, the Colt M-4 carbines used for the test were drawn from the Army's inventory and did not meet military specifications but were used in the test, whereas weapons tested from other manufacturers were provided from the manufacturers. Another point of contention was that the M-4 carbines were three-round burst weapons and the other weapons tested were fully automatic. It was also alleged that testers did not know how to operate the three-round burst M-4s in both the laboratory environment and in a related test at Aberdeen Proving Grounds and, therefore, mistakenly reported M-4 stoppages, resulting in inflated results. Given these and other allegations, it is possible that testing conditions during the December 2007 test were not consistent, calling into question the validity of the results. On January 21, 2009, the Secretary of the Army provided the House and Senate Armed Services Committees with the findings of the U.S. Army Infantry Center Small Arms Capabilities-Based Assessment (CBA), which had been completed in April 2008. The Army, as the Department of Defense (DOD) Executive Agent for Small Arms (SA), conducted the Small Arms CBA to establish and support a small arms acquisition strategy through 2015. This analysis examined 10 tasks, as described below: 1. Engage threat personnel with SA fire. 2. Engage threat personnel that are in defilade. 3. Engage threats with precision SA fire. 4. Engage threats with SA volume fire. 5. Acquire personnel and vehicle targets. 6. Determine range to target. 7. Mark or tag targets. 8. Breach existing entry points. 9. Avoid detection caused by weapon signature. 10. Operate and maintain weapons. Based on analysis, the study team identified 25 capability gaps associated with the 10 aforementioned tasks, as well the overall requirement from individual soldiers and their leaders that they required "greater lethality" and "more knockdown power." The study team identified a number of non-material and material recommendations to address the identified capability gaps. Non-material solutions—which are preferable because they can be implemented relatively quickly and inexpensively—included improving training, updating doctrine, using additional SA ancillary devices (example: optics), developing a Small Arms Weapons Expert Program at battalion and brigade level, and adding a weapons repairman at company level. Material solutions included developing special airburst munitions to engage defilade targets; developing ammunition that would be more lethal at short ranges (0 to 200 meters); improving breaching and non-lethal marking 40 mm rounds; improving combat optics; developing a new weapon system for vehicle and aircraft crews that provides greater maneuverability in confined spaces and provides more firepower than a pistol; and developing SA weapons that require fewer and simpler tools to maintain and that would require less cleaning and lubrication. Another recommendation was that any new SA developed to meet these capability gaps needed to contribute to lightening the soldier's overall combat load. The study identified 42 separate Ideas for Material Solutions (IMAs) to address capability gaps that required a material solution. Of these 42 IMAs, 13 involved creating new munitions or improving existing munitions, and 10 involved aiming devices, optics, or laser designators; only 7 IMAs suggested modifying current SAs or developing new SAs. Other IMAs included suggestions such as improving munitions propellants and improving weapon magazines. Secretary Geren's January 21, 2009, letter to House and Senate Armed Service Committee Leadership stated that "following the completion of the CBA, the Army decided to update the requirement for combat rifle/ carbine and compete this updated requirement in an open competition." The Army's SA CBA appears to be a comprehensive assessment of DOD's small arms requirements that incorporates a great amount of analytical data and many observations derived from combat operations in Iraq and Afghanistan. It can be argued that the CBA does not present a compelling case to develop and acquire a new combat rifle or carbine. Many of the CBA's recommended material solutions involve improved or new munitions or ancillary items such as optics or weapons magazines. The CBA does call for the development of a new SA system for vehicle and aircraft crew and an extended-range heavy machine gun, but nowhere explicitly calls for a new combat rifle or carbine. It is possible that many of the CBA's proposed material solutions might be readily adaptable to current combat rifles (M-16s) and carbines (M-4s) with little or no modification to the weapon. In this regard, a totally new design might be required only if new munitions, optics, other ancillary items, and reliability improvements are totally incompatible with SAs currently in use. The majority of the deficiencies cited in the SA CBA do not directly fault the current combat rifle or carbine, but instead call for ammunition, sight, and optic improvements, which might not in and of themselves appear to justify undertaking a potentially lengthy and costly development and procurement effort. Based in part on the results of the Small Arms CBA, the Army issued a request for information in August 2008 to the small arms industry seeking information on "the state of the art in small arms technologies." This request is viewed by some as the first step in a carbine competition that the Army intends to conduct sometime in 2009 after Colt Defense turns over the M-4's technical data rights in June 2009. The Army plans to release a request for proposal (RFP) in the late summer of 2009 requesting prototype weapons for testing. Army officials have stated that they will consider other caliber weapons other than the current 5.56mm. Factors that the Army will consider in its evaluation are improved accuracy, durability in all environments, and modularity. DOD is currently conducting a service-wide review of small arms requirements that some believe could "challenge the Army's decision to search for a new carbine." This review involves small arms experts from each service as well as experts from the small arms industry and is intended to "map out a common strategy for the Defense Department's individual and crew-served weapons needs." The DOD review team is currently said to be reviewing the Army's Small Arms CBA and was supposed to have developed a set of conclusions by the end of May 2009. Based on the aforementioned studies and tests, there appears to be not only a wide range of opinions as to the M-4's reliability and lethality, but also questions if testing of the M-4 has been consistent and whether performance results are indeed accurate. If the Army does opt to replace the M-4 and the competition involves comparative testing, efforts might be undertaken to ensure consistency between test weapons. As previously noted, the Army is basing its upcoming carbine competition to a large extent on the Small Arms CBA, which some believe does not present a compelling case to launch a competition to replace the M-4. According to reports, DOD—as part of its joint small arms review—is supposed to shortly reach a number of conclusions about the Army's Small Arms CBA that might be relevant to any planned M-4 replacement competition. The results of DOD's review might possibly support the Army's planned M-4 replacement competition or instead suggest an alternative course of action. Congress might benefit from examining the results of DOD's service-wide small arms review as it considers the future of the Army's small arms modernization efforts. It has been suggested that USSOCOM's decision to adopt the FNH SCAR has implications for the Army. In one sense, the SCAR is the first modular small arms system adopted by the military. The SCAR-L and SCAR-H will replace the following weapons: M-4A1, MK-18 close quarter carbine, MK-11 sniper security rifle, MK-12 special purpose rifle, and the M-14 rifle. There is also a 90% parts commonality between the SCAR-L and SCAR-H, including a common upper receiver and stock and trigger housing and an enhanced grenade launcher can be attached to either model. While the SCAR might not meet all of the conventional Army's requirements, its adaptability in terms of missions (close quarters combat to long-range sniper operations), being able to rapidly convert from a 5.56 mm to a 7.62 mm weapon, and the ability to accommodate a variety of modifications such as grenade launchers and special optics, might be factors worth considering as the "modular Army" plans future small arms programs. The Rangers' forthcoming combat deployment with the SCAR and associated lessons learned and performance and lethality data might also have implications for future Army small arms development and acquisition efforts. | The M-4 carbine is the Army's primary individual combat weapon for infantry units. While there have been concerns raised by some about the M-4's reliability and lethality, some studies suggest that the M-4 is performing well and is viewed favorably by users. The Army is undertaking both the M4 Carbine Improvement Program and the Individual Carbine Competition, the former to identify ways to improve the current weapon, and the latter to conduct an open competition among small arms manufacturers for a follow-on weapon. An integrated product team comprising representatives from the Infantry Center; the Armament, Research, Development, and Engineering Center; the Program Executive Office Soldier; and each of the armed services will assess proposed improvements to the M4. The proposal for the industry-wide competition is currently before the Joint Requirements Oversight Council, and with the anticipated approval, solicitation for industry submissions could begin this fall. It is expected, however, that a selection for a follow-on weapon will not occur before FY2013, and that fielding of a new weapon would take an additional three to four years. This report will be updated as events warrant. |
The term "outsourcing" has recently assumed a prominent place in the public debate over economic policy. In general, the debate concerns the impact various federal policies are thought to have on outsourcing, including the policy that is the focus of this report, taxes. But "outsourcing" is not a formally-defined term of economic theory, and has no specific meaning in economics. And its usage in the popular debate varies. Thus, the first step in applying economic analysis to the outsourcing debate is to clarify the term's meaning—to define it, using terms that do have a precise meaning in economic theory. In one common usage, outsourcing simply means the use by a firm of inputs produced outside the firm, either by foreigners or unrelated domestic firms—the important fact is simply that someone else performs the function. Here, a firm's manager might speak of "outsourcing" a task, meaning that another firm does that particular job. Similarly, outsourcing sometimes refers to the use by government agencies of services provided by the private sector—for example, legislation has recently been introduced in Congress that would "outsource" certain debt-collection functions of the Internal Revenue Service. The focus of this report, however, is the international economy; its analysis is confined to what might be termed "offshore" outsourcing. But here, too, the term's usage varies. For example, one focus of the recent public debate has been the use by U.S. firms of skilled foreign technological workers who reside and work abroad, but who provide services to customers in the United States. A prominent example of this usage is in the 2004 Economic Report of the President , which cited "the increased use of offshore outsourcing in which a company relocates labor-intensive service industry functions to another country." The report, along with a subsequent statement by the President's chief economic advisor that such outsourcing "is just a new way of doing international trade" sparked a heated debate in Congress and elsewhere. In economic terms, this particular usage of outsourcing refers to international trade, specifically the importation of services. A second use of "outsourcing" has also referred to international trade, but to flows of goods rather than services. This use may have been more frequent in past years than in the current debate. For example, a 1983 Fortune magazine article that was among the first sources to use the term described an increasing tendency for U.S. automakers to "buy more and more parts abroad" and further stated that "to a large extent the products to be out-sourced are low-technology items such as window cranks, seat fabrics, and plastic knobs." Another use of the term in the current debate refers to foreign investment rather than trade. Here, the term refers to a U.S. firm that shifts its domestic production of an item to a foreign location or to a U.S. firm that establishes a new production facility abroad rather than in the United States. One example of this type of outsourcing that has been prominently featured by the media is the closing of a Chicago plant by Radio Flyer, Inc.—maker of a popular children's wagon—and the moving of production to China. In a usage that directly applies to taxes, Senator John Kerry called for the closing of "loopholes in international tax law that encourage outsourcing." (The question of whether the U.S. tax system does, in fact, encourage this type of outsourcing is one focus of this report, and is addressed below.) In economic terms the three popular usages of outsourcing that are mentioned here can be described respectively as the import of services from abroad, the import of goods from abroad, and the use of domestic capital in foreign locations. Given this economic view of outsourcing, the analysis in the following sections of this report looks at the impact of taxes on two key economic variables: trade and investment. The basic analysis of taxes and trade is the same whether the trade is in services or goods; thus, it is important to look at the first two examples of outsourcing together, combining our assessment of the direct use of foreign labor with that of the importation of goods. The analysis continues by assessing the impact of taxes on foreign investment, the third type of outsourcing. The results of the following analysis are summarized briefly in advance. First, according to economic theory, tax policy does not alter the country's balance of trade, as long as it does not also produce a change in foreign investment flows. In terms of the outsourcing debate, taxes do not affect the net amount of the first type of outsourcing identified above, the use of foreign labor services or inputs made by foreign firms. Taxes can, however, alter both the composition and level of trade and reduce economic efficiency and economic welfare if they distort either how much a country trades or what it trades. Second, tax policy can affect the extent to which firms invest abroad; in terms of outsourcing, it can affect the extent to which firms use overseas production facilities to produce inputs for their domestic operations. Current U.S. tax law poses a mix of incentives and disincentives towards overseas investment; its net result is uncertain. However, in a manner similar to trade, economic theory suggests that taxes best promote world economic efficiency when they are neutral towards investment location. In a divergence from trade theory, investment theory suggests taxes can promote national economic welfare (though not world welfare) if they pose a small impediment to overseas investment. An underlying concern of the outsourcing debate is employment. The debate is sometimes conducted in terms of the export of jobs, yet the economic analysis just summarized does not mention employment effects of outsourcing. In part, this is because the focus of this report is on how taxes affect outsourcing, not how outsourcing, in turn, affects variables such as employment. The last section of the report does, however, briefly turn to employment questions and summarizes how economic theory applies to outsourcing and employment. Economic theory indicates that outsourcing does not play an important role in determining the aggregate level of employment in the economy, although it can affect the division of income in broad terms between labor on the one hand, and owners of investment capital, on the other. In its discussion of outsourcing through trade in services, the 2004 Economic Report of the President used the example of a U.S. firm that might use a call-center in India to answer customer service-related questions. For goods, an example might be a U.S. firm that uses foreign-made components as part of an overall product made in the United States. Importantly, in this usage of the term "outsourcing" we rule out items produced by the U.S. firm's own foreign facilities. In economic terms, we are thus assessing the impact of taxes on trade, while at least initially holding investment flows constant. In this setting, economic theory indicates that taxes have little impact on the country's balance of trade—the excess of imports over exports. As applied to the outsourcing debate, theory thus indicates that taxes have little impact on the extent to which the economy as a whole engages in this type of outsourcing, at least as compared to the country's level of exports. (In the context of the outsourcing debate, we might term a country's trade balance its "net" outsourcing.) This result is an important one, and since it may counter the reader's intuition, it is worth examining more closely. First, economics points out that a country's trade deficit is the excess of what a country uses over what it produces. And just as an individual who spends more than he earns must necessarily borrow to finance the difference, a country that uses more than it produces and that runs a trade deficit must borrow from other countries to finance the deficit. In terms of the international economy, the borrowing consists of imports or inflows of investment capital from abroad. It follows from this fact of economic life that a country's trade balance mirrors its balance on capital account. Countries normally both import and export investment capital. But if a country runs a trade deficit, it must likewise import more capital than it exports, with the difference making the trade deficit possible. The trade deficit (or surplus) thus moves in parallel with the balance on the capital account and net imports can increase only if net capital inflows also increase; identically, net exports can only increase if net capital outflows increase. In effect, if an economy does not increase its own production, it can increase its use of goods and services only if it borrows to do so. The mechanism by which this identity is enforced in the current international economy is exchange rate adjustments. If there is no change in capital flows and some factor, such as taxes, changes so as to increase imports or exports, exchange rates will eventually adjust so as to offset any impact the factor might otherwise have on the trade balance. An example using outsourcing is useful here; we use the case of a hypothetical domestic industry (we'll call it Industry A) whose firms typically employ staffs of technical support personnel who are on call to answer customer questions. Suppose the home country implements a tax policy that inadvertently encourages firms to shift from using domestic service employees to using foreign ones. For example, the home country might implement more stringent depreciation rules for a certain type of equipment the home-country technical services personnel use. Since foreign operations of foreign firms are generally beyond the U.S. tax jurisdiction, imported services would not be directly affected by such a change. For illustration's purposes, we shall say that the new depreciation rules increase the cost of using domestic personnel to such an extent that Industry A finds it advantageous to begin importing the services it previously obtained domestically. Industry A, in other words, increases its outsourcing, which may initially be reflected in an increase in the home country's trade deficit (its net outsourcing). But this is where exchange rate adjustments occur, neutralizing any changes in the balance of trade. In order to pay the foreign service providers, the firms in the home country's Industry A must increase their purchases of foreign currency. The increase in demand for foreign currency, in turn, will normally drive up the price of the foreign currency, which, in turn, makes all the home country's imports more expensive while at the same time making the home country's exports cheaper for foreign buyers. In the aggregate, the home country's exports increase while its imports recede from their initial expansion, and when the adjustment is complete, the initial increase in the trade deficit is completely offset by increases in aggregate exports and reductions in aggregate imports induced by the exchange rate movements. Because the exchange rate adjustments apply to all the home country's traded goods and services, not just to Industry A's imports, and because we assumed that only one home-country industry was subject to increased taxes, only part of Industry A's initial increase in outsourcing would likely be offset by exchange rate movements before the adjustments run their course. A part of Industry A's initial increase in outsourcing is, in other words, likely to remain. But the crucial point is this: if there is an increase in outsourcing in one sector, it will be offset by reduced outsourcing, reduced imports of other products, and increased exports in other sectors. While taxes do not alter the trade balance, they can affect other aspects of trade, including its composition, its level, and what economists call the "terms of trade." First, composition: even from the simple example here, it is clear that a tax that causes uneven changes in price across industries can alter what is traded—the exact mix of goods and services that a country imports and exports. In our example, we assumed that because of a tax change, a particular industry in the home country increased its service imports but other home-country imports fell and exports increased because of exchange rate adjustments. In general terms, the composition of trade depends on the particular pattern of relative costs within the domestic economy; when tax burdens within the economy are uneven, they distort relative costs and change what is traded. Taxes can likewise alter the overall level of trade even where the balance of trade does not change. To illustrate, in our example the increase in imports triggered by the tax change was partly offset by exchange rate adjustments, but because part of the adjustment necessary to maintain the trade balance was absorbed by increased exports, the overall level of imports remained higher than before. Again in general terms, the changed tax policy did encourage a higher reliance on imports by industry A, but to pay for the imports (again assuming no capital flows or added borrowing) the home country also increased its exports; the overall level of trade increased. The "terms of trade" is an economic term denoting the price of home-country exports compared to the price of its own imports; it measures the amount of exports a country must provide foreigners in order to obtain a given amount of foreign products. Taxes can alter the terms of trade by reducing the price foreigners pay for exports or by increasing the price of imports. A prominent example in tax policy was the impact of the U.S. extraterritorial tax exclusion (ETI) tax benefit for exports that was at the heart of a controversy between the United States and the European Union. The ETI benefit was designed to boost U.S. exports by cutting taxes on export income. In order to sell more exports, however, U.S. producers necessarily pass on part of their own tax savings to foreign consumers in the form of reduced prices, thus registering what economists term a "worsening" of the terms of trade. (The terms of trade effect of our earlier outsourcing examples are ambiguous, and would depend on market conditions.) We have thus far looked at a type of outsourcing where the U.S. firm that imports its inputs does not itself produce the imported items in an overseas production facility. Our specific examples have consisted of trade in services, although the same general analysis applies to trade in goods. In terms of economic variables, we have also assumed there is no outflow of capital that accompanies the outsourcing; we have focused exclusively on trade rather than investment. But as described at the report's outset, a part of the outsourcing debate has concerned overseas production by U.S. firms, and so the next section shifts the focus from trade to capital flows. We have seen that economic theory indicates that if taxes do not alter capital flows, they have no impact on the balance of trade, although they may affect the level and composition of trade. Absent changes in foreign investment, in other words, taxes do not affect what might be called net outsourcing. Theory also indicates, however, that taxes can affect investment: they can alter the relative attractiveness of foreign and domestic locations for multinationals, leading them to change their allocation of capital between the domestic and foreign economies. Thus, if we define a second type of outsourcing as the use of overseas rather than domestic production facilities, taxes can have an impact. An example of this second type of outsourcing might consist of a U.S.-owned factory in a foreign country that produces tangible goods shipped back to the United States. Taxes enter the investment equation as follows: according to economic theory, firms allocate their investment resources between foreign and domestic locations by comparing the rate of return investment produces in either location. In general, they invest in each location up to the point where the rate of return on an additional increment of investment is the same at home and abroad. Since firms are concerned with their aftertax profits, they equate the return of foreign and domestic investment after taxes, rather than before them. The basic impact of taxes results: other factors remaining constant, taxes will induce firms to shift more investment than they otherwise would from the domestic economy to foreign locations if the tax burden on foreign investment is lower than that on domestic investment. Taxes will shift investment from foreign locations to the domestic economy if taxes are relatively lower on domestic investment, and taxes will have no impact on (will be "neutral" towards) the location of investment if their burden is the same in each location. We can make this general result more concrete by constructing another example. Here, we shall say that a domestic manufacturing industry (Industry B) uses a particular part—say, a door handle—as a component of its final product. We will also say that the home-country government again introduces more stringent depreciation rules, in this case for the equipment used to manufacture the door handle, thus effectively increasing the cost of the part for Industry B. We return below to some possible trade effects of the tax policy change, but here focus on the investment impact. Since the new depreciation rules do not apply to investment abroad, the policy change will have the effect of increasing the tax burden on domestic investment compared to investment abroad. Rather than importing the door handle in this case, we will say that Industry B establishes its own foreign operations, conducted by foreign subsidiary corporations unaffected by the tax change. Here, then, the outsourcing consists of production overseas by U.S. firms, using investment funds flowing from the domestic economy to foreign locations. Before looking at how specific features of the existing U.S. tax system affect investment, we return briefly to trade. As noted in the first section, taxes do not affect the trade balance unless they alter capital flows, and our analysis there held capital flows constant. In the present section, however, we have seen how taxes can, in fact, alter capital flows. Since the trade balance moves in parallel with the balance on capital account, taxes can therefore temporarily alter the balance of trade indirectly through their impact on capital flows. The direction of the impact is perhaps counter to intuition; an increase in capital outflows reduces the trade deficit, since capital outflows are, in effect, exports. In terms of the outsourcing debate, in other words, an increase of our second type of outsourcing—the type that consists of overseas investment—actually reduces the net amount of the first type of outsourcing—the type consisting of imports. As before, this result occurs because of exchange rate adjustments. When U.S. firms increase their overseas investments, they supply additional dollars as they increase their purchases of foreign assets. The price of the dollar accordingly declines; U.S. exports become less expensive for foreigners and U.S. imports become more expensive. Imports shrink, exports increase, and the trade deficit—net outsourcing through trade—diminishes. While this is an attention-getting result because of its irony (outsourcing through investment reducing outsourcing through trade), it should not be emphasized because it is temporary: the increased flow of capital abroad lasts only until U.S. firms achieve their new desired level of capital stock abroad. A more persistent impact of tax policy on the trade balance may occur if tax policy affects the federal budget deficit and thus alters federal borrowing requirements—a development that would likely change net capital flows. For example, repeal of the ETI export tax subsidy would, in isolation, increase federal tax receipts and thus reduce the budget deficit. The resulting decline in federal borrowing requirements would (again, in isolation) reduce capital inflows, which would reduce the trade deficit. The importance one attaches to this effect depends on whether one assumes that a given change in tax policy is matched by another change that offsets its revenue effect—for example, whether repeal of a provision such as ETI is matched by revenue-losing changes occurring elsewhere. We do not offer a conclusion on this subject here. Further, it can be argued that federal budget deficits must ultimately be offset by a surplus at some point in the future, so this effect, too, may be temporary. In the preceding section we saw how taxes can have an impact on the overall level and composition of trade, though not the trade balance; they can also alter the type of outsourcing that consists of overseas production by U.S. firms. We do not provide a detailed assessment here of the impact of the current tax system on the level and composition of trade (again, the system does not have a direct impact on the balance of trade). We can note, however, that the existing system may well reduce the level of trade by virtue of its use of a "classical" system for taxing corporate income. Under such as system, income from corporate investment is taxed twice, once at the corporate level and once when it is received by stockholders as capital gains or dividends. In contrast, the principal types of non-corporate investment, owner-occupied housing and non-corporate business, are taxed only once, if at all. Given that goods and services in the "tradables" sector consist more frequently of corporate rather than non-corporate products, the double-taxation of corporate investment may shift resources from tradables to non-tradables, thus reducing the level of trade. We look at the impact of the existing U.S. system on investment flows in more detail. Again, the key factor for taxes' impact on investment is how the tax burden on foreign investment compares with that on domestic projects. Other CRS products provide more detailed descriptions of the U.S. international tax system and how it affects the relative tax burden on foreign and domestic investment. Here, however, we note only its essential features. In general, the U.S. system produces no single, overall impact on investment flows that is readily discernable; different parts of the system, viewed in isolation, produce different results. The so-called "deferral" principle, for example, permits an indefinite postponement of U.S. tax for overseas operations conducted through foreign subsidiary corporations rather than branches of U.S. parent firms. Deferral poses a tax incentive for investment in countries with low tax rates, resulting in more U.S. investment in those locations than would otherwise occur. The U.S. tax system also permits its investors to claim a foreign tax credit for foreign taxes they pay, a feature that reduces double-taxation of overseas income; in some cases the foreign tax credit can result in even tax treatment of foreign and domestic investment, producing tax neutrality. The foreign tax credit, however, is limited to U.S. tax on foreign and not domestic income, a feature that poses a disincentive for investment in countries with high tax rates, resulting in less U.S. investment in those locations than would otherwise occur. The principal features of TIPRA—extension of reduced rates for capital gains and minimum tax relief—were not directly related to international taxation. Early versions of the legislation also contained extension of a large number of temporary tax benefits ("extenders") that expired at the end of 2005. Most extenders were not included in the final act, but were addressed in Congress's December 2006 session. However, two extenders that were not excised from TIPRA were international tax provisions. One provision extended through 2008 the exclusion of active financing income (income from banking, insurance, and similar activities) from Subpart F's anti-deferral regime. A second provision excluded from Subpart F through 2008 income of a type that would ordinarily be included in the regime—dividends, interest, and similar income—but that is paid by a related foreign corporation out of active business income. For a variety of reasons, congressional interest in tax provisions related to the types of outsourcing outlined in this report was particularly high in 2004, and resulted in legislation much broader in scope than that included in TIPRA. In 2004, both the House and Senate passed major tax bills with a variety of provisions that were relevant to offshore outsourcing. In part, the bills— H.R. 4520 and S. 1637 —addressed a trade controversy between the United States and the European Union by repealing the extraterritorial income (ETI) tax benefit the United States provides to its exporters. Beyond this, however, the bills each contained a variety of provisions with the potential to affect the relative tax treatment of domestic and overseas investment, and that therefore might affect the volume of outsourcing through foreign investment. In October, both chambers approved a conference committee version of the legislation, containing the above provisions, that became P.L. 108-357 , the American Jobs Creation Act of 2004 (AJCA). As with the overall impact of the current tax system, the likely combined impact of the act's various provisions is uncertain. However, the impact several of the measure's most prominent features are likely to have, in isolation, is more clear. For domestic investment, the act contains a 9% tax deduction from income for domestic (and not foreign) production activities. The deduction applies to corporations and non-corporate businesses alike. To illustrate its effect, for a firm in the top corporate tax bracket of 35%, the deduction has an effect similar to a reduction in the tax rate to 31.85% (i.e., 35% X [100% - 9%]). Because the deduction is restricted to domestic investment, the deduction (in isolation) poses an incentive for firms to invest in the United States rather than abroad. In this respect, the deduction's impact on investment is similar to the extraterritorial income (ETI) tax benefit for exporting that was repealed by the AJCA in order to solve a trade dispute with the European Union. Export tax benefits necessarily favor domestic over foreign investment, since export production—by definition—requires domestic rather than foreign production. The domestic production deduction, in fact, was partly intended to compensate for the economic impact of ETI's repeal. In contrast to the repealed ETI benefit, however, the incentive is not confined to investment in the export sector. The act made a variety of changes in rules relating to the foreign tax credit. The general thrust of the provision was to relax foreign tax credit rules, principally in areas related to the credit's limitation. By far the most important of the changes was a change in the rules for allocating interest expense between foreign and domestic sources—an allocation firms must make in calculating their foreign tax credit limitation. While the act reduced taxes only for firms with foreign tax credits and was thus confined to firms with foreign investment, the reduction nonetheless applied more to multinationals' domestic than to foreign investment. The provision was likely to thus probably reduce the tax burden on domestic investment relative to foreign investment and will reduce net outsourcing through foreign investment. The remaining foreign tax credit provisions, while likely smaller in impact that the interest allocation rules, was likely to reduce the relative tax burden on foreign investment, thus likely increasing the flow of investment abroad. As with the foreign tax credit, the act contains several provisions related to the ability of U.S. firms to defer U.S. tax on foreign income. The general thrust of the provisions was to expand the scope of deferral, in most cases by restricting the applicability of subpart F's denial of deferral. The impact of these provisions, in isolation, was likely to reduce the relative tax burden on foreign investment, thus likely increasing the flow of foreign investment abroad. An additional international provision was a temporary tax cut for earnings that repatriate from foreign subsidiaries. As described above, the deferral of U.S. tax lasts only as long as foreign earnings are reinvested abroad; U.S. taxes ultimately apply when the earnings are repatriated to the United States as dividends. The act provided a temporary reduction in the U.S. tax that applies upon repatriation; the provision had the effect of reducing the tax rate to 5.25% (the normally applicable corporate rate is 35%). The temporary period was one year. A number of researchers have subsequently studied the impact of the reduction in the tax on repatriated earnings that came out of the American Jobs Creation Act. The studies have generally focused on two particular responses: the level of repatriations and the impact on economic growth. In short, the studies generally conclude that the reduction in the tax rate on repatriated earnings led to a sharp increase in the level of repatriated earnings, but that the repatriations did not increase domestic investment or employment. They further conclude that much of the repatriations were returned to shareholders through stock repurchases. Economic theory has developed frameworks for evaluating tax policy towards both international trade and international investment in terms of economic efficiency and economic welfare. These frameworks can be applied to tax policy towards both types of outsourcing assessed in this report. As described above, taxes affect the trade balance (what we have termed "net outsourcing") only if they also alter capital flows. Thus, for example, economic theory holds that tax policies designed to curtail imports (e.g., tariffs) or encourage exports (e.g., export subsidies) do not change the trade balance, although they can alter the level and composition of trade. For example, tariffs may shrink the overall level of trade or outsourcing, but because of exchange rate adjustments, declines in imports are accompanied by reduced exports so that the trade balance is not altered. Similarly, export subsidies cannot increase an economy's trade surplus but do expand the overall level of trade. Thus, economic theory indicates that taxes are powerless to alter the net level of outsourcing that occurs through importing. This is not necessarily a bad result: economic theory points out that imports are not inherently "bad" and exports are not inherently "good," and so policies that restrict imports or promote exports may miss the point. International trade is indeed "trade" in the most literal sense—the exchange of some items for others to enhance mutual well-being. Exports are thus not a key to the economy's wellbeing, but rather the goods that are given to foreigners in exchange for the imported foreign goods the economy uses. Classic economic theory says that such exchange occurs, and makes an economy better off, because it enables economies to specialize in the production of goods they produce most efficiently. For example, an economy might be able to produce wheat more efficiently than watches. If its consumers nonetheless desire a certain amount of watches, it might behoove the country to shift resources out of watch production into wheat, and trade wheat for watches made by a foreign country that produces watches more efficiently than wheat. The important point its that it is not the exports that make the economy better off, but the ability to specialize by trading exports for imports. From the point of view of the economy's efficiency, and thus, general economic welfare, there is an optimal level of international specialization. There is, in other words, a level of trade (imports plus exports) at which an economy is specializing enough in what it does efficiently to improve its welfare, but not specializing so much that it exports goods it produces inefficiently and imports items that it could produce domestically at little resource cost. It is here that economic theory provides an insight about the results of taxes' impact on trade. To the extent that taxes distort trade by either changing the mix of what an economy trades or the level at which it trades, taxes are believed to impair economic efficiency and reduce the overall economic welfare of the economy's participants. The application of this principle to tax policies designed to alter trade—policies designed to shrink imports or expand exports—is straightforward. As previously noted, economists believe that neither tariffs nor export subsidies alter the balance of trade, but rather can change the composition and/or level of trade, with tariffs shrinking trade and export subsidies expanding it. To the extent any of these tax policies shift the economy away from its optimal level of trade, they make the economy's participants as a whole worse off in terms of economic welfare. Such arguments, however, focus on the economy as a whole and are sometimes difficult to see when only a particular sector of the economy is the focus. The idea that a tariff probably makes the economy as a whole worse off would likely be hard to explain to an employee who has just been laid off because his firm has started relying on imported inputs. (The employment effects of outsourcing are discussed in the following section.) Trade theory does not deny that increases in imports (or reductions in exports) can cause economic dislocation in particular sectors of the economy. But because of the efficiency gains an economy realizes from trade, the welfare gain to the economy as a whole are held to outweigh the sum of sector-specific losses. In principle, the "winners" from a country's international trade can compensate those made worse off by providing transition relief or other transfers to those made worse off by trade. Such relief could, in principle, be provided through the tax code, although mechanisms such as unemployment insurance or subsidized job-training might be more effective. The message of economic theory on the basic relation of taxes and trade, however, is clear: tax policies that distort trade make the economy worse off. In terms of the outsourcing debate, economic theory asserts that tax policies designed to curtail the type of outsourcing that occurs through trade probably make an economy as a whole worse off. Economic theory also provides a framework for interpreting taxes' impact on foreign investment from the perspective of economic efficiency and economic welfare. Here, the results are slightly more ambiguous than those for trade because the framework distinguishes between policies that promote world economic welfare and those that promote national economic welfare but that are not optimal for world welfare. We first ignore taxes and note that a central tenet of economics holds that as capital investment in an economy increases, the product added by each additional increment of capital declines—in terms of economic theory, there is a declining marginal product of capital. Given this physical property of capital, firms will generally allocate investment between foreign and domestic locations until the return on an additional unit of overseas investment (the marginal product of capital employed abroad) is equal to that of an additional domestic investment—an outcome seen above in the discussion of how taxes affect investment decisions. Here, we also note that where capital is allocated so that the marginal product of foreign and domestic capital is equal, every unit of capital is necessarily being used in its most productive location. Given the declining marginal product of capital in both locations, if an increment of capital were shifted away from this point, the shifted capital would necessarily earn a lower return in its new location than its old one. At this point, therefore, the firm's entire capital stock is employed in its most productive location. More generally, again ignoring taxes, when firms equate the marginal product of domestic and foreign capital, the world economy's capital resources are employed in their most productive location and world economic welfare is maximized. But taxes can change things. Profit maximizing firms focus on the after tax return to capital and invest so that the aftertax return to additional investment is the same in each location. If taxes on investment are the same in every location, this point will be no different from the allocation of investment without taxes. But if taxes are different at home and abroad, the allocation of investment will be distorted. Capital will therefore not be employed in its most productive location and world economic welfare is not maximized. In short, theory indicates that tax policy best promotes world economic welfare when it applies at the same rate at home and abroad, and is therefore neutral towards firms' investment decisions. In economic parlance, such a tax policy possesses "capital export neutrality"—it is neutral towards the export of capital. A tax policy that maximizes world economic welfare is not necessarily that which maximizes a nation's own welfare. When an increment of capital is employed in the domestic economy, it is the home country that collects and uses the tax revenue produced by the investment. Thus, the home country's residents benefit from the investment's entire pre-tax return, not just the aftertax return. In contrast, when capital is employed abroad, foreign governments normally are entitled to taxes on the investment they host and the home country benefits only from the aftertax return to the investment. Accordingly, the home country's economic welfare is maximized when firms equate the pretax return of marginal domestic investment with the aftertax return of foreign investment. This outcome suggests that the home country (but not the world economy) is better off when it allows only a deduction for foreign taxes rather than a credit. Allowing only a deduction for foreign taxes would result in higher taxes on foreign investment than domestic investment. Importantly, however, the benefit from such a policy may be offset if foreign countries retaliate. A third type of tax policy termed "capital import neutrality" is sometimes promoted by business leaders and others. It recommends a policy that enables U.S. firms to compete in foreign markets on an even footing with firms from foreign countries. This policy would consist of an exemption for foreign investment from home-country taxes, but is not neutral in its effect on investment and does not promote economic efficiency. As described above, the U.S. tax system in some cases poses incentives towards overseas investment, and in other cases is either neutral or poses a disincentive. The average impact of the system is, however, uncertain, and so whether the system as a whole comes closest to capital export neutrality, national neutrality, or competitive neutrality is likewise uncertain. Likewise, whether the legislation Congress enacted in 2004 nudged the system in the direction of a particular standard is uncertain. The impact of certain features of the system, considered in isolation, is, however, more clear. For example, the foreign tax credit generally promotes capital export neutrality because it alleviates double taxation. While the credit's limitation is likely necessary to protect the U.S. tax base, it permits the overall tax rate on investment in high-tax countries to exceed the U.S. tax rate, thus permitting a tax disincentive towards foreign investment to exist. In a sense, then, the limitation is consistent with national neutrality, although as a general matter, permitting firms only to deduct rather than credit foreign taxes would closely approach national neutrality. The deferral principle is consistent with capital import neutrality, since it can reduce the tax burden on foreign investment to a level lower than the domestic tax rate. In contrast, the current taxation that applies to branch operations or under subpart F is consistent with capital export neutrality as long as foreign tax credits are also permitted. The preceding economic analysis concluded that taxes best promote economic efficiency and economic welfare when they neither encourage nor discourage outsourcing, whether that outsourcing consists of imports of goods or services or exports of capital investment. But much of the debate over outsourcing has concerned its perceived impact of jobs, with some participants expressing fears that outsourced jobs destroy domestic jobs and reduce domestic employment. The absence of employment from a prominent role in the preceding discussion indirectly suggests what economic theory indicates about outsourcing and employment: outsourcing has no profound effect on long-term aggregate employment in the domestic economy, although it can trigger short-term sector-specific job losses. Nonetheless, given the prominence of employment considerations in the outsourcing debate, we provide a brief summary of economic theory in this area. First, mainstream contemporary economic theory holds that economies generally tend toward "full employment" or are moving in that direction. The labor market is thought to ordinarily be at equilibrium, where the supply of labor is equal to demand. Monetary policy set by the Federal Reserve is generally set so as to keep the economy at full employment and to avoid shocks to the system that might temporarily jar the economy from equilibrium. This is not to say there is never unemployment—in fact, unemployment is always present due in part to transitions within the economy (some of which may result from outsourcing). This persistent, minimum level of unemployment is termed the "natural" rate of unemployment by economists and is viewed as an unavoidable consequence of maintaining an efficient, flexible, and adaptable economy. Nonetheless, given appropriate monetary policy, an economy is thought to generally absorb displaced workers and tend towards full employment. Against this backdrop, we return to the foregoing analysis of trade, which indicated that, absent changes in capital flows, the balance of trade cannot change; economists believe that an exogenous increase in imports (i.e., outsourcing) will ultimately be matched by an increase in exports and a mitigation of the initial increase in imports. Here, the mix of what the economy produces has indeed been changed, and an increase in unemployment in the import-competing sector may occur. Nonetheless, if the economy is tending towards full employment, new jobs will be created in other sectors of the economy that will, in time, offset those lost in the sector where outsourcing occurred. If the economy is not tending towards full employment, the transition period may be lengthened. In short, when we view outsourcing as a trade phenomenon, its employment effects will be confined to the near-term. The employment analysis of outsourcing that occurs through investment—that is, where capital outflows occur—is somewhat different. As with trade, there may be near-term and sector specific unemployment as a result, for example, a factory that shuts down in a particular U.S. city and that moves to a foreign location can certainly cause increased unemployment in the original U.S. location. Again, however, the economy as a whole is seen as tending towards full employment and the absorption of dislocated labor. There may also, however, be a shift in the shares of national income accruing to labor and capital respectively. This outcome is based on the basic economic precept that labor's earnings depend on its productivity, which in turn depends on the amount of capital it has to work with. The larger the economy's stock of capital for a given supply of labor, the higher will be labor productivity and the higher will be labor earnings. It follows, then, that when capital shifts abroad, domestic labor earnings fall from the level they otherwise would attain. As noted in the discussion above on efficiency, in principle those that gain from outsourcing can compensate those that lose and, because of the efficiency gains embedded in outsourcing, still be better off than before. In principle, the economic harm to workers from outsourcing can be mitigated by appropriate redistributive and retraining policies. Theory maintains, however, that these policies are most efficiently effected as general transitional relief than as policies designed to limit outsourcing. A recent focus of tax policy debate has been the impact of taxes on the extent to which firms use imported inputs rather than domestic goods and services and whether taxes encourage U.S. firms to establish operations abroad rather than in the United States. In the current debate, the phenomena are frequently referred to as offshore or foreign "outsourcing." In economic terms, the debate concerns the impact of taxes on two aspects of the international economy: trade and foreign investment. Economic theory maintains that taxes can alter the composition and level of trade, but do not alter the balance of trade (the excess of imports over exports). In contrast, taxes can alter the extent to which firms invest abroad rather than in the United States. The current U.S. tax system produces a patchwork of effects on investment so that its net impact, whether it encourages or discourages overseas investment, is uncertain. Economic theory also provides frameworks for evaluating the impact of tax policy on trade and investment from the perspective of economic efficiency and economic welfare. Theory suggests, in general, that tax policy best promotes efficiency and national economic welfare when it neither encourages nor discourages imports or exports. In terms of the outsourcing debate, theory holds that taxes best promote economic welfare when they do not distort the level or composition of outsourcing. With outsourcing that occurs through investment, theory similarly indicates taxes best promote world economic efficiency and economic welfare when they do not distort investment flows. A policy that poses a small impediment to overseas investment may, in contrast, best promote national welfare, although such a policy may make foreign economic actors worse off and may be offset by retaliation. | The impact of taxes on international trade and investment has been debated for decades. Most recently, a variety of bills addressing international taxation were introduced in the 110th Congress—some would have cut taxes for U.S. firms overseas, while others would have increased taxes on foreign investment. The debate over taxes and foreign outsourcing has tended to grow more heated during times of domestic economic weakness and high unemployment; questions arise over whether taxes contribute to such weakness by discouraging exports (or encouraging imports) or by encouraging U.S. firms to move abroad. The debate over international taxation has again become prominent as a part of the wider debate over "outsourcing." With taxes, the debate asks how the current system affects outsourcing, and whether policies designed to limit the phenomenon might be desirable. The precise meaning of the term "outsourcing" varies, depending on the context. In one usage, outsourcing simply refers to the use by domestic firms of inputs produced by other firms. Other usages, however, refer exclusively to the international sector. The analysis in this report focuses on two types of such "offshore" outsourcing: the use by domestic firms of imported foreign inputs, including both the use of foreign technical services and the use of foreign-made goods; and the shifting by U.S. firms of domestic operations abroad. The analysis of the first of these types of outsourcing focuses primarily on how taxes affect trade while investment is held constant. The assessment of the second type looks at how taxes affect investment. Taxes probably have little impact on the balance of trade (what might be termed "net" outsourcing), apart from indirect effects that may result from their impact on investment flows. In the language of the outsourcing debate, taxes likely do not change the extent to which the economy as a whole engages in the use of foreign, rather than domestic, inputs (compared to the extent the economy exports). In contrast, taxes can affect the flow of direct investment abroad—that is, the establishment of overseas production facilities by U.S. firms. Thus, if outsourcing is taken to mean the use by U.S. firms of foreign rather than domestic labor, taxes can have an impact. The current U.S. system, however, produces a variety of incentives, disincentives, and neutrality towards overseas investment, and the net impact of the system on the flow of investment is not clear. Similarly, the likely impact of recently enacted legislation is not clear. Economic theory provides frameworks for evaluating the efficiency effect of taxes on international trade and investment, and their subsequent impact on economic welfare. According to theory, taxes best promote economic efficiency—and thus best promote economic welfare—when they do not distort the level or composition of trade or alter the allocation of investment between foreign and domestic uses. In short, taxes best promote economic efficiency and aggregate economic welfare when they do not distort the level of outsourcing, in the sense it is used in this report. With respect to employment, outsourcing may cause sector-specific and near-term job losses but likely does not have a substantial long-run impact on overall employment. This report will be updated only when major legislative developments occur. |
Steadily increasing presidential involvement in agency rulemaking efforts has often been cited as one of the most significant developments in administrative law and domestic policymaking since the introduction of the first formal review programs in the 1970s. The evolution of presidential review of agency rulemaking efforts since the Reagan era in particular constitutes a significant assertion and accumulation of presidential power in the regulatory context. While initial presidential forays into centralized regulatory review were limited in scope, presidential review of rules has emerged as one of the most widely-used and controversial mechanisms by which a President can ensure the realization of his regulatory agenda. The first formal regulatory review program was instituted by President Nixon in 1971 through the establishment of a "Quality of Life Review" program designed to improve "the interagency coordination of proposed agency regulations, standards, guidelines and similar materials pertaining to environmental quality, consumer protection, and occupational and public health and safety." Under this program agencies were required to submit "significant" proposed and final regulations to the Office of Management and Budget (OMB), which then disseminated them to affected agencies for comment. President Ford extended regulatory review through Executive Order 11,821, requiring agencies to prepare "inflation impact statements" for any "major" regulatory action. President Carter expanded presidential review through the issuance of Executive Order 12,044, which required agencies to prepare a "regulatory analysis" of all proposed "major rules," examining the potential economic impact of the proposal and an evaluation of alternative regulatory options. President Carter took the additional step of forming the Regulatory Council, which was tasked with coordinating agency rulemaking activities in an effort to avoid duplicative or conflicting regulatory regimes. While the programs established in the Nixon, Ford, and Carter Administrations illustrate a successive increase in the centralization of regulatory review with the Executive Office of the President, these programs are generally characterized as having been "designed primarily to facilitate interagency dialogue." However, these programs laid the foundation for the implementation of a much more extensive and vigorous review process under the Reagan Administration. Shortly after taking office, President Reagan issued Executive Order 12,291, "to reduce the burdens of existing and future regulations, increase agency accountability for regulatory actions, provide for Presidential oversight of the regulatory process, minimize duplication and conflict of regulations, and insure well-reasoned regulations." E.O. 12,291 required agencies to submit any proposed major rule to OIRA for review, along with a "regulatory impact analysis" of the rule, including a cost-benefit analysis. The Reagan order was significant in comparison to earlier efforts in this context, in that it centralized review within OMB and had the practical effect of giving OMB a substantial degree of control over agency rulemaking. President Reagan expanded this review scheme with the issuance of Executive Order 12,498, which required agencies to submit an annual plan listing proposed regulatory actions for the year to OMB for review. This procedure enabled OMB to exert influence over agency regulatory efforts at the earliest stages of the process and to ensure that agency actions were in accord with the aims of the Administration. Additionally the order created a "Task Force for Regulatory Relief"which was tasked with reviewing and seeking the elimination of unneeded or ineffective regulations. In practical effect, the impact of the Reagan orders on agency regulatory activities was immediate and substantial. Under the order, OIRA reviewed over 2,000 regulations per year and returned multiple rules for agency reconsideration. The practical effect of this rigorous review process was to sensitize agencies to the regulatory agenda of the Reagan Administration, largely resulting in the enactment of regulations that reflected the goals of the Administration. Not surprisingly, this review process generated criticism and controversy. In particular, the review scheme was seen by some as having a distinct anti-regulatory bias, leading to charges that the orders constituted an unlawful transfer of authority from the agencies to OMB; that the review process was too secretive and subject to influence by private interests; that OMB lacked the resources or expertise to properly assess submitted regulations; and that the required cost-benefit analysis did not take into account the unquantifiable social benefits of certain types of regulations. Additionally, E.O. 12,291 was criticized on the grounds that it allowed OIRA to delay indefinitely rules under review, unless a countervailing statutory deadline or court order mandated promulgation. The order attempted to mitigate legal concerns regarding usurpation of agency decisionmaking authority by mandating that none of its provisions were to "be construed as displacing the agencies' responsibilities delegated by law." Additionally, the Department of Justice's Office of Legal Counsel (OLC) drafted an opinion shortly before the publication of E.O. 12,291, supporting its constitutionality. The OLC asserted that the provisions of the order were valid as an exercise of the President's power to "take care that the laws be faithfully executed," additionally relying upon its determination that "an inquiry into congressional intent in enacting statutes delegating rulemaking authority will usually support the legality of presidential supervision of rulemaking by executive agencies. The opinion acknowledged, however, that "the President's exercise of supervisory powers must conform to legislation enacted by Congress," and went on to state that presidential "supervision is more readily justified when it does not purport to wholly displace, but only to guide and limit, discretion which Congress has allocated to a particular subordinate official." Despite these pronouncements in the OLC opinion and the order itself, allegations were made that OMB utilized E.O. 12,2291 to determinatively control agency rulemaking activities during the Reagan Administration. However, courts considering OMB involvement in agency rulemaking under the auspices of 12,291 did not address the constitutionality of such review. In Public Citizen Health Research Group v. Tyson , for instance, the court addressed the validity of a rule promulgated by OSHA governing ethylene oixide, including a challenge based on the argument that a critical portion of the proposed rule had been deleted based on a command from OMB. While stating that "OMB's participation in the rulemaking presents difficult constitutional questions concerning the executive's proper rule in administrative proceedings and the appropriate scope of delegated power from Congress to certain executive agencies," the court nonetheless found that it had "no occasion to reach the difficult constitutional questions presented by OMB's participation" given its finding that the challenged deletion was not supported by the rulemaking record. The Reagan orders were retained during the first Bush Administration to similar effect and controversy, with Congress going so far as to refuse to confirm President George H.W. Bush's nominee for the position of Administrator at OIRA. In 1989 the Administration created the Council on Competitiveness, which was empowered to resolve disputes between OIRA and regulatory agencies covered under E.O. 12,291. The Council itself was likewise controversial, in one instance asserting its authority to uphold OMB's rejection of certain elements of a proposed Environmental Protection Agency rule. EPA acquiesced in the Council's decision, and excised the provisions from the final rule. When this deletion was challenged in court, the Court of Appeals for the District of Columbia did not address the propriety of the influence wielded by the Council, determining that the deletion was supported by the rulemaking record. Touching upon the Council's involvement, the court declared that EPA's deletion of the provisions at issue "in light of the Council's advice ... does not mean that EPA failed to exercise its own expertise in promulgating the final rules." It is important to note that the court's treatment of the Council's involvement in the EPA rulemaking does not in any way indicate that the Council or OMB had authority to compel changes thereto. Instead, the court based its decision on a determination that there was a sufficient basis in the record to conclude that the EPA had exercised its independent expertise in promulgating a rule that was in accord with the Council's position. As such, the court's holding is illustrative of the proposition that it is "very difficult, if not impossible, for the judiciary to police displacement if the agency accepts it." Many of the concerns voiced over the effects of E.O. 12,291 were assuaged, at least temporarily, by the review regime established by the Clinton Administration. Upon assuming office, President Clinton supplanted the Reagan Administration's review scheme through the issuance of Executive Order 12,866, entitled "Regulatory Planning and Review." The preamble to E.O. 12,866 characterizes its provisions as presenting a more nuanced approach to the management of agency rulemaking, and declares that the objective of the order is to: enhance planning and coordination with respect to both new and existing regulations; to reaffirm the primacy of Federal agencies in the regulatory decision-making process; to restore the integrity and legitimacy of regulatory review and oversight; and to make the process more accessible and open to the public. In pursuing these objectives, the regulatory process shall be conducted so as to meet applicable statutory requirements and with due regard to the discretion that has been entrusted to the Federal agencies. While this language could be interpreted as a retreat from the broad executive authority asserted in the Reagan order, it is important to note that substantive changes to the regulatory review process made by E.O. 12,866 do not appear to have been developed as the result of a divergent interpretation of presidential power in this context. Rather, as is addressed in more detail below, the provisions of E.O. 12,866 indicate a similarly expansive view of presidential authority to control agency rulemaking. E.O. 12,866 was self-avowedly designed to ensure that federal agencies "promulgate only such regulations as are required by law, are necessary to interpret the law, or are made necessary by a compelling public need." To accomplish this goal, the order requires agencies to supply OIRA with a "Regulatory Plan" of the "most important significant regulatory actions that the agency reasonably expects to issue in proposed or final form" in each fiscal year. Furthermore, the order provides for centralized review of all regulations, requiring each agency to periodically submit to OIRA a list of all planned regulatory actions, "indicating those which the agency believes are significant regulatory actions." The order defines a "significant regulatory action" as: Any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in this Executive Order. Upon receipt of such a list, OIRA has ten days to determine whether a planned regulatory action not identified as significant by the agency is in fact covered under the aforementioned definition. Planned actions that are not deemed significant are not subject to OIRA review, while those that are must be subjected to a cost-benefit analysis by the agency. A regulatory action that is deemed significant is further subject to the review and clearance provisions of the order. Under this process, OIRA is required to waive or complete review of preliminary regulatory actions (such as notices of inquiry or advance notices of proposed rulemaking) within ten working days after the submission of the draft action. For all other regulatory actions (such as notices of proposed rulemaking or final rules), OIRA must waive or complete review within 90 calendar days after the date of submission. The review process may be extended once by no more than 30 days upon request of the agency head and the written approval of the OIRA Administrator. These requirements mark a significant departure from the provisions of E.O. 12,291, which, as was noted above, was criticized for allowing OIRA to delay most rules indefinitely. The Administrator of OIRA may also remand a regulatory action to the agency "for further consideration of some or all of its provisions." In the event that a disagreement or conflict between an agency head and OIRA cannot be resolved by the Administrator, the President (or the Vice-President acting at the President's request) may resolve the issue. Such consideration by the President or the Vice-President may only be initiated by the Director of OMB or the relevant agency head. The Clinton Administration drafted this language to make the OIRA review process less onerous on agencies than had been the case in the preceding Reagan and Bush Administrations, and this goal manifested itself at OIRA in a selective review process that resulted in the consideration of significantly fewer rules. For instance, while OIRA reviewed an average of 2080 regulations in FY1982-FY1993, the number of regulations reviewed fell substantially during the Clinton Administration, from 1100 in 1994, to 663 in 1995, and down to 498 in FY1996. Furthermore, an average of 600 significant rulemaking actions were approved per year during the Clinton Administration, while only 25 rules, and none after 1997, were returned to agencies for further consideration. Additionally, the Clinton order provides for a more transparent review process than was the case with E.O. 12,291. In particular, E.O. 12,866 imposes substantial disclosure requirements on OIRA "in order to ensure greater openness, accessibility, and accountability in the regulatory review process." Specifically, the order regulates oral communications initiated by individuals not employed by the executive branch, mandating that only the Administrator of OIRA or a particular designee may receive any such communications " regarding the substance of a regulatory action under OIRA review. " The order further controls all substantive communications between OIRA personnel and individuals outside the executive branch by requiring that a representative from the issuing agency be invited to any OIRA meetings held with outsiders, and that OIRA forward any such communications, " including the dates and names of individuals involved in all substantive oral communications, " to the issuing agency within ten days of receipt. Additionally, the order requires OIRA to maintain a publicly available log containing information regarding contacts of the type mentioned above. Finally, the order requires OIRA to make available to the public all documents exchanged between the agency and itself during the review proceeding, " after the regulatory action has been published in the federal register or otherwise issued to the public, or after the agency has announced its decision not to publish or issue the regulatory action. " From these requirements, it is evident that E.O. 12,866 imposes significant information sharing and disclosure requirements between OIRA and an issuing agency, particularly with regard to substantive communications between OIRA and individuals outside of the executive branch. It should be noted, however, that the disclosure requirements of the order are less stringent in the context of inter-agency communications with OIRA during the review process. Specifically, whereas §6(b)(4) requires OIRA to disclose to the issuing agency any substantive communications with persons not employed by the executive branch, there is no similar requirement regarding communications with other agencies. Given this distinction, OIRA would not seem to be required to disclose communications with other agencies regarding a draft regulatory action to an issuing agency by the terms of the order. Accordingly, OIRA would likewise not appear to be required by the order to make such communications available to the public upon completion of the review process, as is generally required, unless it affirmatively discloses the communications to the issuing agency during review proceedings. As touched upon above, the effects of OIRA review during the Reagan and Bush Administrations generated a great deal of debate regarding constitutional issues adhering to the displacement of agency decisionmaking authority. Not surprisingly, then, the transparency and selectiveness of E.O. 12,866, coupled with the more pro-regulatory stance of the Clinton era OMB, led to a rather rapid drop in debate concerning the proper scope of presidential review of agency rulemaking. However, it does not appear that the drop in rates of OIRA review during this period should be taken to indicate a concession that there were limits on presidential control over the agency rulemaking process, particularly in light of the vigor with which the Clinton Administration pressed agencies to effectuate its regulatory goals. For instance, President Clinton greatly expanded the use of formal presidential directives to executive agencies compelling specific action on their part. President Reagan and President Bush issued nine and four presidential directives respectively, three of which instructed agencies to either delay or terminate the issuance of regulations. President Clinton, however, issued 107 presidential directives, several of which were designed to compel agencies to initiate regulatory action to address a particular issue of importance to the administration. Also, aspects of the Clinton order indicate just as expansive a view of presidential authority as the Reagan and Bush orders, despite the selectiveness and transparency that characterized OIRA review during the Clinton Administration. For example, E.O. 12,866, unlike Reagan ' s order, includes independent agencies within its ambit to a certain extent. The order does not require independent agencies to submit individual rules for review, but does require them to comply with the regulatory planning process established in the order. Another example of the broad assertion of Presidential authority included in the Clinton order is the fact that the order provides that conflicts between agencies or between OMB and an agency are to be resolved, " To the extent permitted by law, " by " the President, or by the Vice President acting at the request of the President, with the relevant agency head. " This language could be taken to indicate that agency heads are to retain some role in the resolution of a disagreement, but the order appears to vest ultimate decisionmaking authority in the President or Vice President, stating that " the President, or the Vice President acting at the request of the President, shall notify the affected agency and the Administrator of OIRA of the President ' s decision with respect to the matter. " Similar to the Reagan order, E.O. 12,866 mitigates the potential controversy that this type of presidential displacement of agency authority could generate by providing that this authority is to be exercised " only to the extent permitted by law, " thereby giving an agency head the opportunity to argue in a given case that the President could only issue an advisory opinion, but it seems that the potential implication of this provision is that the President is perceived as having determinative authority in this context. This provision has turned out to have little effect, given that Clinton ' s assertion and exercise of authority over the regulatory process manifested itself outside of the traditional OMB process. As noted above, President Clinton used devices such as presidential directives to direct agency heads to take a specific course of action in furtherance of his Administration ' s regulatory agenda, in contrast to the Reagan and George H.W. Bush Administration ' s approach of using the processes mandated in E.O. 12,291 to curtail agency rulemaking efforts. However, from the perspective of analyzing presidential control over the administrative process, it is interesting to note that unlike the Reagan order, E.O. 12,866 could be interpreted as asserting direct presidential authority over discretionary actions that have been assigned to agency heads by Congress. Accordingly, while the operative aspects of E.O. 12,866 were welcomed by many as improving upon the transparency and selectiveness of OIRA review, other aspects of the order could be taken to indicate that the Clinton Administration ' s view of presidential authority over agency rulemaking was largely consonant with that of the Reagan and George H.W. Bush Administrations, with the manifestation of this perspective differing primarily due to the obvious differences in the political aims of these administrations. The George W. Bush Administration, while retaining E.O. 12,866, has developed a regulatory review policy that is subjecting rules to more stringent review than was the case during the Clinton Administration. In particular, it has been asserted that the current Administration has returned to the regulatory review dynamic that prevailed under E.O. 12,291, with OIRA going so far as to describe itself as the "gatekeeper for new rulemakings." At the same time, however, the George W. Bush Administration appears to be taking a more nuanced approach to OIRA review than was the case under E.O. 12,291, enabling it to have a substantial impact on agency rulemaking while avoiding the degree of criticism and controversy occasioned by regulatory review under the Reagan and George H.W. Bush Administrations. OIRA has markedly increased the use of "return" letters to require agencies to reconsider rules under E.O. 12,866. According to a memorandum from OIRA Administrator John D. Graham for the President's Management Council, return letters may be issued "if the quality of the agency's analyses is inadequate, if the regulatory standards adopted are not justified by the analyses, if the rule is not consistent with the regulatory principles stated in the Order, or with the President's policies or priorities, or if the rule is not compatible with other Executive orders or statutes." Under Administrator Graham's tenure, OIRA has returned over 20 rules for agency reconsideration. OMB has discussed two notable effects of the reinvigoration of this practice. First, the willingness to issue such letters emphasizes to agencies that OIRA "is serious about the quality of new rulemakings." Second, agencies have begun to seek OIRA input "into earlier phases of regulatory development in order to prevent returns late in the rulemaking process." In practical terms, this type of collaboration is arguably beneficial to the extent that it enables OIRA to ensure that rulemaking efforts comply with the aims of E.O. 12,866, while giving agencies confidence that their regulatory proposals will not be returned after the investment of significant resources in their formulation. Conversely, this dynamic buttresses executive control over agency rulemaking efforts by allowing the exertion of influence at the earliest stages of the formulation process, and, as is discussed in more detail below, raises concerns regarding the extent to which this type of influence is disclosed. In a significant departure from the nature of OIRA review under the Reagan and George H.W. Bush Administrations, under the current Administration, OIRA has taken a proactive stance in identifying issues that the office feels are ripe for regulation, and has instituted the practice of issuing "prompt letters" to the appropriate agency to encourage rulemaking on those issues. OIRA has described the prompt letter as a "modest device to bring a regulatory matter to the attention of agencies." As acknowledged by OIRA, prompt letters "do not have the mandatory implication of a Presidential directive." Rather, the device "simply constitutes an OIRA request that an agency elevate a matter in priority." OIRA has also taken steps to ensure that prompt letters are available to the public, in order to stimulate "agency, public and congressional interest in a potential regulatory priority." Noting that prompt letters could be treated as confidential, OIRA has further stated that it feels publication is warranted "in order to focus congressional and public scrutiny on the important underlying issues." By specifically identifying regulatory issues of importance to the Administration through prompt letters, OIRA has presumably been able to exert a substantial degree of influence over the pursuit and scope of regulatory efforts in those areas. In addition to the use of prompt letters, OIRA has staved off criticism of the degree leveled at the Reagan and George H.W. Bush Administrations by increasing the transparency of the review process. As discussed above, the Reagan Administration in particular was criticized for its reluctance to open the OIRA review process to outside inspection. E.O. 12,866, as issued by President Clinton, established fairly expansive disclosure standards, requiring OMB and OIRA to disclose any closed door meeting between federal officials outside groups regarding a regulation. Under Administrator Graham, OIRA has retained these requirements and has significantly expanded access to this information by placing information regarding meetings and OIRA decisions on the OIRA website. With this step, information that was previously accessible only at OIRA's record room is now available via the internet, increasing access to OIRA information regarding meeting logs, communications between OIRA and agency officials, and general OIRA guidance on rulemaking. This approach has effectively undercut what was once a major avenue of attack on OIRA review, although concerns remain regarding OIRA's influence on the rulemaking process and the extent to which its involvement is disclosed. In particular, a 2003 study by the General Accounting Office (GAO) raised concerns regarding the level of transparency governing certain "preinformal review" OMB contacts with outside parties, as well as with contacts between OIRA and agency officials during "informal review." Specifically, one of the significant OIRA disclosure policies instituted by Administrator Graham establishes that OIRA will disclose substantive meetings and contacts with outside parties regarding rules under review even in instances where OIRA was engaged only in an informal review, including substantive telephone calls initiated by the Administrator. However, the GAO report found that OIRA does not consider a rule to be under review for purposes of these disclosure requirements if OIRA is in general consultation with an agency regarding a matter that has not become substantive or for which the agency has not submitted a draft rule for informal review. Accordingly, during this so-called "preinformal review" period, OIRA may communicate with outside parties without triggering the aforementioned disclosure requirements. Additionally, the GAO report found that, with regard to contacts with agencies, OIRA interprets disclosure requirements as applicable only to the period where a rule is under formal review pursuant to E.O. 12,866. In practical effect, this review dynamic allows varying degrees of unreported contacts both between OIRA and outside parties, and OIRA and the executive agencies. Furthermore, as noted by GAO, these preformal review proceedings would allow an agency to submit a proposal to OIRA for informal review and to alter that proposal in accordance with OIRA's input, without revealing any such changes to the public. Additionally, OIRA appears to have reinvigorated review of existing rules, and has taken steps to involve the public in the review process. In May 2001, OIRA solicited the public to nominate rules that should be considered for recision or modification. OIRA received 71 nominations from 33 commentators, and concluded that 23 of the rules nominated merited "high priority review." In February 2004, OIRA solicited public nomination of reforms of regulations in the manufacturing sector, specifically requesting suggestions for reforms to regulations, guidance documents, or paperwork requirements that would "improve manufacturing regulation by reducing unnecessary costs, increasing effectiveness, enhancing competitiveness, reducing uncertainty and increasing flexibility." OIRA received 189 reform nominations from 41 commentators, determining that 76 of the 189 nominations "have potential merit and justify further action." This review process serves to further illustrate the degree of involvement of the current Administration in all facets of regulatory review. As touched upon above, OIRA's use of mechanisms such as return and prompt letters have served to encourage agency collaboration with OIRA at the earliest stages of the rule formulation process. Indeed, OIRA has stated that "it is at these early stages where OIRA's analytic approach can most improve the quality of regulatory analyses and the substance of rules." The obvious potential for OIRA to exert a degree of influence over rulemaking at this stage of development that rivals or perhaps even exceeds that wielded during formal review proceedings could be seen as tempering the salutory effects of the increased transparency requirements imposed during the formal review process. Nonetheless, OIRA has maintained that "its interactions with agencies prior to formal regulatory review are pre-decisional communications that should generally be insulated from public disclosure in order to facilitate valuable deliberative exchanges." In light of these developments, it seems apparent that while the aforementioned changes to disclosure requirements pertaining to the formal OIRA review process have shielded the current Administration from the degree of criticism occasioned by E.O. 12,291, the potential that OIRA may play an important and potentially unacknowledged role in the formulation of agency rules during preformal review proceedings may be viewed as raising the same concerns that have traditionally adhered in this context. As has been illustrated by the consideration of the review regimes discussed above, there has been a steady evolution of presidential review of agency rulemaking from the Nixon Administration to the current Administration of George W. Bush. While the initial programs established in the 1970s were generally viewed as benign, President Reagan's issuance of E.O. 12,291 ushered in a new era of presidential assertions of authority over agency rulemaking efforts, raising attendant concerns with regard to the proper allocation of authority between the President and Congress in this context. Despite these separation of powers based concerns over the propriety of such review regimes, no reviewing court has squarely addressed the issue. Furthermore, while the actions of both the Clinton and George W. Bush Administrations in implementing the provisions of E.O. 12,866 appear to indicate a conception of presidential authority consonant with that conveyed by the Reagan order, their more nuanced approach to exercising this authority has largely diminished charges against its constitutionality. In turn, presidential review of agency rulemaking has become a widely used and increasingly accepted mechanism by which a President can exert significant, and sometimes determinative, authority over the agency rulemaking process. | Presidential review of agency rulemaking is widely regarded as one of the most significant developments in administrative law since the introduction of the first formal review programs in the 1970s. The evolution of presidential review of agency rulemaking efforts from the Reagan era through the current Administration marks a significant assertion and accumulation of presidential power in the regulatory context. While initial presidential forays into centralized regulatory review were limited in scope, presidential review of rules has emerged as one of the most effective and controversial mechanisms by which a President can ensure the realization of his regulatory agenda. Limited regulatory review began with President Nixon's establishment of a program requiring proposed environmental, consumer protection, and occupational and public health and safety regulations be circulated within the executive branch for comment. President Reagan issued an executive order requiring agencies to prepare inflationary impact statements for any major regulatory actions, and President Carter expanded presidential review through the issuance of an executive order requiring a regulatory analysis of all proposed major rules. In 1981, President Reagan issued Executive Order 12,291, ushering in a new era of presidential assertions of authority over agency rulemaking efforts. E.O. 12,291 required cost-benefit analyses and established a centralized review procedure for all agency regulations. E.O. 12,291 delegated responsibility for this clearance requirement to the Office of Information and Regulatory Affairs, which had recently been created within the Office of Management and Budget as part of the Paperwork Reduction Act of 1980. The impact of E.O. 12,291 on agency regulatory activities was immediate and substantial, generating controversy and criticism. Opponents of the order asserted that review thereunder was distinctly anti-regulatory and constituted an unconstitutional transfer of authority from the executive agencies. The review scheme established in the Reagan Administration was retained by President George H.W. Bush to similar effect and controversy. Many of the concerns voiced regarding E.O. 12,291 were assuaged by President Clinton's issuance in 1993 of Executive Order 12,866, which implemented a more selective and transparent review process. E.O. 12,866 has been retained by the current Administration, which has utilized it to implement a review regime subjecting rules to greater scrutiny than in the Clinton Administration. The actions of both the Clinton and George W. Bush Administrations in implementing the provisions of E.O. 12,866 could be taken to indicate a conception of presidential authority consonant with that conveyed by the Reagan order. However the comparatively nuanced exercise of this asserted authority by these Administrations has largely diminished arguments against the constitutionality of presidential review. Accordingly, presidential review of agency rulemaking has become a widely used and increasingly accepted mechanism by which a President can exert significant and sometimes determinative authority over the agency rulemaking process. |
Administering justice to juvenile offenders has largely been the domain of the states, and as a result of this the laws that pertain to juvenile offenders can vary widely from state to state. There is no federal juvenile justice system. Although the federal government does not play a direct role in administering juvenile justice, in the 1960s, the federal government began establishing federal juvenile justice agencies and grant programs in order to influence the states' juvenile justice systems. The Juvenile Justice and Delinquency Prevention Act (JJDPA) of 1974 created many of the federal entities and grant programs that continue to operate today, including the Office of Juvenile Justice and Delinquency Prevention (OJJDP) and the State Formula Grants Program. Over the ensuing decades, the JJDPA has been modified a number of times, broadening the mandate of the agencies it created and adding to the grant programs it established. This report analyzes the current federal legislation that influences the state juvenile justice systems. Although the report provides some background information on the evolution of juvenile justice in the United States, the main focus of the report is the major federal legislation that impacts state juvenile justice systems, including the JJDPA. As the major provisions of the JJDPA expired in FY2007 and FY2008, several issues pertaining to its reauthorization may be of concern to Congress, including, but not limited to, the following: Should the core mandates associated with the state formula grants be expanded or modified? Are the current grant programs effective? Is there adequate oversight over states' use of federal grant funding? Is there sufficient coordination occurring at the federal level? Should the federal approach to juvenile justice focus on rehabilitation, accountability, or both philosophies? The original JJDPA and its major revisions through the end of the 109 th Congress, when it was most recently reauthorized, are addressed in Appendix A and Appendix B . Juvenile justice in the United States has been predominantly the province of the states and their localities. The first juvenile court in America was founded in 1899 in Cook County, Illinois. Twenty-five years later, all but two states had enacted legislation establishing a separate juvenile court system for young offenders. The mission of these juvenile courts was to attempt to turn young delinquents into productive adults rather than merely punishing them for their crimes. This led to marked procedural and substantive differences between the adult and juvenile court systems in the states, including a focus on the offenders and not the offenses, and on rehabilitation instead of punishment. The federal government began to play a role in the states' juvenile justice systems in the 1960s and 1970s. In the Juvenile Delinquency and Youth Offenses Control Act ( P.L. 87-274) , Congress provided funds for state and local governments, through the Department of Health, Education, and Welfare (HEW), to conduct demonstration projects to research improved methods for preventing and controlling crime committed by juveniles. In 1968, Congress passed additional legislation to provide direct assistance to state and local governments and to train juvenile justice personnel. To receive funding, states were required to designate a single agency to take the lead in improving delinquency prevention and control programs. Also in 1968, Congress for the first time placed juvenile justice grant authority within the purview of the Department of Justice (DOJ). Despite these congressional efforts to provide assistance to the states as they attempted to rein in juvenile crime, juvenile arrests for violent crimes increased by 216% between 1960 and 1974. This increase in juvenile violent crime outstripped the growth in the juvenile population; the under-18 population grew from 47 million in 1950 to 70 million in 1970—an increase of only 49%. It seemed apparent that the technical assistance and financial aid that Congress had provided the states was not enough to address the growing problem of juvenile crime, and many commentators maintained that there was a need for a distinct federal entity to manage the federal government's response to juvenile delinquency. In 1974, Congress addressed the issue by passing the first comprehensive piece of juvenile justice legislation, the JJDPA. The JJDPA created a number of grant programs and established a new federal agency within DOJ—OJJDP—to oversee these grant programs and to coordinate the federal government-wide response to juvenile delinquency. In the 1980s, many states responded to the public perception that juvenile crime was increasing by passing more punitive laws for juvenile offenders. Some of these laws removed certain types of juvenile crimes from the juvenile court system altogether, mandating that they be handled by the adult criminal system instead. Other laws instituted mandatory sentences for juvenile offenders convicted of certain crimes. This movement toward punishing juveniles and away from working to rehabilitate them accelerated in the 1990s, with all but three states passing laws that modified or removed traditional juvenile court confidentiality agreements, all but five states passing laws easing the transfer of juveniles into the adult criminal justice system, and a majority of states passing laws expanding sentencing options for juveniles. During this period, more punitive measures were incorporated into the accepted federal funding streams for juvenile justice programs through a series of revisions to the JJDPA. These revisions are described in Appendix A and Appendix B . The early criminal justice system in America did not include a separate juvenile justice system. The colonists brought the British criminal justice system with them to the new world. This system included forced apprenticeship for poor and neglected children. If a juvenile committed a crime, they were first warned, shamed, or given corporeal punishment and then returned to the community. If a child committed a major criminal act, however, they were treated and tried as adults. Trials and punishment were largely based on the offender's age; anybody over the age of seven was subject to a trial in criminal court. These early American laws had three fundamental features: establishing local control of the justice system, giving families the responsibility (and legal liability) for their children's actions, and distinguishing between deserving and undeserving poor people. The first juvenile court in the United States was established in Chicago in 1899. By 1925, all but two states had established separate juvenile justice systems. The Juvenile Court of Chicago was based on the British doctrine of parens patriae , or the notion of the state acting in the nature of a parent. This doctrine was used to explain the state's interest in distinguishing between adults and children in its dispensation of justice. Because children are not fully imbued with developmental or legal capacity, the parens patriae doctrine held that the government could provide protection and treatment for children whose parents were not providing adequate care or supervision. The Juvenile Court of Chicago became the model for the various state juvenile justice systems that followed it. Its key features were the definition of a juvenile as a child under the age of 16; the separation of children and adults in correctional institutions; the establishment of special, informal procedural rules, including the elimination of indictments, pleadings, and jury trials; the provision of probation officers to monitor juveniles released into the community; and the prohibition of the detention of children below the age of 12 in a jail or police station. Although delinquency among children was punished, key elements of the juvenile justice system as it was originally conceived were the welfare of the child and the concept that delinquent children could be transformed into productive citizens through treatment. This benevolent mission was clearly stated in most laws that established juvenile justice systems, and led to substantial procedural and substantive differences between juvenile and adult criminal justice systems in the states. For example, juvenile court intake considered extra-legal factors—such as the child's home situation—as well as legal factors when deciding whether to bring a case to trial, and had the discretion to handle cases informally. Additionally, these early juvenile courts did not incorporate the procedural due process protections afforded adult criminal defendants, which were deemed unnecessary as a result of the court's benevolent mission. Attorneys for the state and the youth being tried were not considered essential to the system's operation, especially in less serious cases, and judges had a broad range of dispositions at their disposal that were tailored to the best interests of the child. Judges' dispositions became part of a treatment plan for the juvenile, and this treatment continued until the juvenile was considered cured or became an adult at age 21. In 1914, the practice of diversion , or the official halting of formal criminal proceedings against a juvenile offender, was established with the creation of the Chicago Boy's Court. The goal of diversion was to provide treatment for juveniles outside of the formal juvenile justice system. To this end, the juvenile court in Chicago released juveniles to the supervision and authority of various community service agencies, who evaluated the youth's behavior and reported back to the Court. If the evaluation was satisfactory to the judge, the court officially discharged the juvenile without any formal record of the proceedings. By 1930, only the federal government continued to treat children who were charged with a crime as adults. This situation led the U.S. Attorney General to recommend that juveniles charged with violating federal laws be returned to their home state's juvenile justice system, a proposition that Congress agreed with. The earliest federal government involvement in juvenile delinquency occurred in 1909, when the White House held a Conference on the Care of Dependent Children. The goal of this conference was to share information about needy children across the United States and to emphasize the immediate need for action. This conference led directly to the creation of the U.S. Children's Bureau in 1912. The Children's Bureau was authorized to investigate and report on all aspects of child welfare, including the juvenile justice system. In 1936, the Children's Bureau began providing the first federal subsidy program that provided child welfare grants to states. These grants were used to care for a wide array of at-risk youth, including juvenile delinquents. The first major federal legislation addressing juvenile delinquents was enacted in 1938. The Federal Juvenile Delinquency Act of 1938 (FJDA) left the state juvenile justice systems as the preferred alternative for juveniles arrested for violating federal laws, but gave the Attorney General the discretion to charge a juvenile as an adult and allowed for federal juvenile proceedings if both parties agreed to it. In 1951, Congress amended the FJDA with the Federal Youth Corrections Act. This act afforded juvenile offenders tried as adults in the federal system special rehabilitation outcomes. Apart from this revision, however, the FJDA remained essentially unchanged for 35 years until Congress passed major Juvenile Justice reform measures in the 1970s. In 1951, Congress also established the Juvenile Delinquency Bureau within HEW. The bureau's placement within HEW can be seen as a reflection of the early governmental focus on the treatment of juvenile delinquents and the prevention of delinquency, rather than on punishment. In the 1950s and 1960s, however, many observers began to question the juvenile courts' ability to successfully rehabilitate delinquents. While the system's basic goal of rehabilitating juveniles through individually tailored plans was not in question, professionals in the field grew concerned about the growing numbers of juveniles being institutionalized for treatment purposes. This concern was reflected in a series of Supreme Court rulings during the 1960s that required that juvenile court procedures become more formal in order to afford juveniles legal protections comparable to those afforded adults in criminal courts. The landmark Supreme Court ruling of this period, In re Gault , concluded that hearings that could result in the institutionalization of children must afford the juveniles being tried the right to notice and counsel, the right to question witnesses, and the right to protection from self-incrimination. Although the Court did not include the right to appellate review in its decision, it encouraged the states to afford juveniles that protection as well. Congress responded to the increasing public awareness of juvenile crime by passing the Juvenile Delinquency and Youth Offenses Control Act of 1961. This act authorized HEW to provide grants totaling $10 million annually, for three years, to states, local government entities, and private nonprofit agencies to fund demonstration projects that focused on improving the methods used to prevent and control juvenile crime. The projects funded through this initiative were focused on urban inner-cities that had the highest juvenile delinquency rates at the time. In 1968, Congress took two further actions that affected federal funding for juvenile justice. The first was the Juvenile Delinquency Prevention and Control Act, which provided grant funding to the states and local government entities for the training of juvenile court personnel. These grants were to be administered by HEW. The second was the Omnibus Crime Control and Safe Streets Act, which, among other things, involved DOJ in juvenile justice for the first time through the Law Enforcement Assistance Administration (LEAA), which was created in Title I of the act. LEAA was to serve as a clearinghouse for channeling federal funding to state and local law enforcement agencies, giving states incentives to establish planning agencies, and funding a wide variety of programs ranging from education and research to local crime control initiatives. By the early 1970s, consensus began to form around the idea that the federal government's efforts to address juvenile justice were unfocused and underfunded. The House Committee on Education and Labor in particular questioned the effectiveness of the Juvenile Delinquency Prevention and Control Act of 1968 and levied a number of criticisms at the way HEW implemented the act: The HEW administered program, during its first three years, was disappointing because of delay and inefficiency. A director of the Youth Development and Delinquency Prevention Administration was not appointed for over 18 months. Less than a third of the $150 million authorized for fiscal years 1968 through 1971 was appropriated. Furthermore, only half of the funds that were appropriated were actually expended. The funds were generally spent on underfunded, unrelated, and scattered projects. Weakness in program administration, the dominance of the Law Enforcement Assistance Administration, and inadequate funding contributed to reasons for a lack of total success. Disappointed with the way the 1968 act was implemented, consensus began to form within Congress around the idea of creating a new federal entity to oversee the federal government's juvenile justice efforts. As the Juvenile Delinquency Prevention and Control Act's authorization was expiring in 1974, Congress moved to replace it with a more comprehensive piece of legislation. The JJDPA was first passed by Congress in 1974 and was most recently reauthorized in 2002 by the 21 st Century Department of Justice Appropriations Authorization Act. Authorization for its main provisions expired in FY2007 and FY2008. This section analyzes the JJDPA as it stands today. By 1974, strong momentum had developed in the public, academic, and governmental arenas toward the idea that the juvenile justice system needed to focus on preventing juvenile delinquency, deinstitutionalizing youth already in the system, and keeping juvenile offenders separate from adult offenders. Congress responded to this growing consensus by passing the Juvenile Justice and Delinquency Prevention Act of 1974. The JJDPA had three main components: it created a set of institutions within the federal government that were dedicated to coordinating and administering federal juvenile justice efforts; it established grant programs to assist the states with setting up and running their juvenile justice systems; and it promulgated core mandates that states had to adhere to in order to be eligible to receive certain grant funding. Although the JJDPA has been amended several times over the past 40 years, it continues to feature the same three components. As it was passed in 1974, the JJDPA focused the federal government's efforts largely on preventing juvenile delinquency and on rehabilitating juvenile offenders. Subsequent revisions to the act placed emphasis on influencing states to expand the use of sanctions and accountability measures through some existing grant programs, as well as adding new grant programs to the act's purview. The latest reauthorization of the JJDPA, enacted by P.L. 107-273 , made several changes to the act, including consolidating various separate grant programs and modifying the language of some of the core mandates. Appendix A details the original JJDPA; Appendix B details the JJDPA's major subsequent revisions and includes a summary of the specific changes enacted by its last reauthorization. The original JJDPA established OJJDP within DOJ's Law Enforcement Assistance Administration (LEAA) as the new clearinghouse for the federal government's efforts to influence states' juvenile justice systems. Subsequent revisions to the JJPDA designated OJJDP as a stand-alone office within DOJ and directed the Administrator to report directly to the Attorney General. Today, the JJDPA grants the Administrator of OJJDP a broad authority to coordinate the federal government's activities relating to the treatment of juvenile offenders, including programs that focus on prevention, diversion, training, treatment, rehabilitation, evaluation, research, and improvement of the states' juvenile justice systems. The Administrator is charged with developing objectives, priorities, strategies, and long-term plans concerning the treatment and handling of juvenile offenders by federal agencies and by the states, and overseeing the implementation of these plans. Thus, the Administrator of OJJDP is, by statute, the lead individual in the U.S. federal government charged with developing and implementing policies that govern the treatment of juvenile offenders by federal agencies and the federal government's efforts to influence the states' juvenile justice systems. The original JJDPA established an independent organization known as the Coordinating Council on Juvenile Justice and Delinquency Prevention (Coordinating Council) to coordinate the federal government's juvenile delinquency programs. The Coordinating Council was to be composed of representatives from a broad range of federal agencies who "exercise significant decision making authority in the Federal agency involved." Subsequent revisions to the JJDPA expanded the number of agencies represented on the Coordinating Council. Today, the Coordinating Council is an independent organization within the federal government charged with coordinating all federal juvenile delinquency programs, all federal programs that deal with unaccompanied minors, and all federal programs relating to missing and exploited children. The Coordinating Council is composed of the heads of all the federal agencies that touch on these broad areas, including the Attorney General, the Secretary of Health and Human Services, the Secretary of Labor, the Secretary of Education, the Secretary of Housing and Urban Development, the Administrator of OJJDP, the Director of the Office of National Drug Control Policy, the Chief Executive Officer of the Corporation for National and Community Service, and the Commissioner of Immigration and Naturalization (now the Commissioner of U.S. Immigration and Customs Enforcement). In addition to these standing members, the Coordinating Council is composed of nine other members, of which three are appointed by the President, three are appointed by the Speaker of the House, and three are appointed by the majority leader of the Senate. These nine members are to be juvenile justice practitioners who are not officers or employees of the U.S. government, and they are to serve one- to three-year terms. The Attorney General acts as the Chairman of the Council, and the Administrator of OJJDP serves as the Vice Chairman of the Council. In essence, the role of the Coordinating Council is to coordinate the overall federal government policy and development of objectives and priorities for federal programs dealing with juvenile delinquency and unaccompanied minors. As a function of this, the Coordinating Council is charged with examining how the various programs in the federal government are operating and to report to Congress on the degree to which federal agency funds are being used for purposes consistent with the core mandates required in the state plans. The Council is also charged with reviewing why federal agencies take juveniles into custody and to make recommendations for how to improve the federal government's practices and facilities for detaining juveniles. Starting in 1988, Congress required OJJDP to produce an annual report to Congress on the agency's operations. This report, by statute, must summarize and analyze the most recent data available to the federal government concerning the detention of juveniles, describe the activities funded by OJJDP and the activities of the Coordinating Council, identify the extent to which each state complies with the core mandates and their state plan requirements, and evaluate the effectiveness of federal juvenile delinquency programs in reducing the incidences of delinquency and violent crime among juveniles. The original JJDPA authorized OJJDP to make formula grants to states, which can be used to fund the planning, establishment, operation, coordination, and evaluation of projects for the development of more effective juvenile delinquency programs and improved juvenile justice systems. Although this grant program has been modified through the intervening years, it remains in place today as one of the core components of the federal approach to influencing states' juvenile justice systems. Authorization for this program expired in FY2007, but it has continued to receive appropriations. Funds are allocated annually among the states on the basis of relative proportion of the population under the age of 18. However, the JJDPA sets minimum amounts that can be provided to the states depending on the total appropriation for the State Formula Grants Program, which are outlined in Table 1 . No more than 10% of the state's allocation can be used for administrative expenses, including creating the state juvenile justice plans and disbursing the grant funds. Additionally, funds used for administrative expenses must be matched by state or local funds. The JJDPA authorizes "such sums as may be necessary" through FY2007 to carry out the State Formula Grants Program. To receive formula grant funding through the JJDPA, states are required to formulate plans for the administration of juvenile justice within their jurisdiction and to submit yearly reports to OJJDP concerning their progress in implementing the programs being funded. The JJDPA stipulates a list of components that must be included in state plans, funding constraints for how the state formula grants can be apportioned, and four core mandates that must be adhered to in order to receive funding. To receive state formula grant funding, states must submit a juvenile justice plan to OJJDP. Should the state fail to do so, or if the Administrator determines that the state's plan does not meet the requirements elucidated in 42 U.S.C. §5633 (a), OJJDP can make the formula grant funding available to local public and private nonprofit agencies within the state for use in activities that help the state meet the four core mandates. The following plan components are required of all states receiving funding: States must designate an agency to supervise the administration of the juvenile justice plan and show that this agency has the legal authority to implement the plan. States must also consult with local government entities as they formulate the plan. States must provide for an advisory group of 15 to 33 members that participate in the development and review of the state's juvenile justice plan. States must provide for the analysis of juvenile delinquency issues within their jurisdiction, including a description of the services provided to address the issues and performance goals and priorities for the implementation of these services. States are also directed to formulate a plan for providing gender-specific services, a plan for providing juvenile justice services in rural areas, and a plan for providing needed mental health services to juveniles. The JJDPA places several restrictions on how the funding received through the state formula grant program can be allocated within the states and territories. At least two-thirds of the funds received through the formula grant program must be passed through to units of local government, including Indian tribes and local private agencies. Private agencies must have first applied to a local unit of government for funding and been turned down before being eligible for formula grant funding, and all expenditures must be consistent with the state's plan. Funding must be distributed equitably throughout the state, including rural areas. Additionally, at least 75% of the funds provided to the state must be used for a wide array of juvenile justice related programs, including, but not limited to community based alternatives to incarceration; counseling, mentoring, and training programs within the juvenile justice system as well as similar community based programs and services, including aftercare and after-school programs; comprehensive juvenile justice and delinquency prevention programs that assist the coordination of service provision among the various players involved; providing services to address child abuse and neglect; expanding the use of probation offices; programs that address the relationship between juvenile delinquency and learning disabilities, and programs that help juveniles and their families overcome language barriers; projects designed to deter juvenile gang members from participating in illegal activities, including those that promote their involvement in lawful activities; substance and drug abuse prevention and treatment programs, including mental health programs; programs that focus on positive youth development for at-risk youth and juvenile offenders; programs that focus on strengthening families and providing them assistance to ensure juveniles have a nurturing home environment; programs that provide mental health services to juveniles at every stage of the juvenile justice process; and programs that encourage juvenile courts to develop a continuum of post-adjudication restraints that bridge the gap between probation and detention in a juvenile correctional facility. The original JJDPA included two core requirements, or mandates, that states had to adhere to in order to receive formula grant funding. Subsequent revisions to the JJDPA expanded the list of core mandates to the four that exist today: Deinstitutionalization of status offences (DSO). Juveniles who are charged with or who have committed an offense that would not be a crime if committed by an adult, and juveniles who are not charged with any offenses, are not to be placed in secure detention or secure correctional facilities. Juveniles are not to be detained or confined in any institution in which they would have contact with adult inmates. Additionally, correctional staff that work with both adult and juvenile offenders must have been trained and certified to work with juveniles. Juveniles are not to be detained or confined in any jail or lockup for adults, except for juveniles who are accused of non-status offenses. These juveniles may be detained for no longer than six hours as they are processed, waiting to be released, awaiting transfer to a juvenile facility, or awaiting their court appearance. Additionally, juveniles in rural locations may be held for up to 48 hours in jails or lockups for adults as they await their initial court appearance. Juveniles held in adult jails or lockups in both rural and urban areas are not to have contact with adult inmates, and any staff working with both adults and juveniles must have been trained and certified to work with juveniles. Disproportionate minority contact (DMC). States are required to show that they are implementing juvenile delinquency prevention programs designed to reduce—without establishing or requiring numerical standards or quotas—the disproportionate number of minorities confined within their juvenile justice systems. Failure to adhere to these requirements will result in a 20% reduction of funding for each of the four mandates with which the state is not in compliance. Additionally, the state will be ineligible for future funding unless the state agrees to spend 50% of the allocated funding to achieving compliance with whichever mandate it is noncompliant with; the Administrator of OJJDP determines that the state has achieved "substantial compliance"; or the state has demonstrated an "unequivocal commitment to achieving full compliance with such applicable requirements within a reasonable time." In addition to the formula grants, the JJDPA also authorizes OJJDP to make grants available to carry out projects designed to prevent juvenile delinquency. The 21 st Century Department of Justice Appropriations Authorization Act folded several pre-existing grant programs into the Juvenile Delinquency Prevention Block Grant program and authorized "such sums as may be necessary" for this purpose through FY2007. As a result of this consolidation, purpose areas that may be funded through the block grant program comprise a wide array of services, treatments, and interventions, including, but not limited to the following: Projects that provide treatment to juvenile offenders and at risk juveniles who are victims of child abuse or neglect, or who have experienced violence at home, at school, or in their communities. Additionally, the program can fund projects providing treatment and services to the families of these juveniles. Educational projects or support services for juveniles that focus on encouraging juveniles to stay in school; aiding in the transition from school to work; helping identify juveniles who have learning difficulties and disabilities both in school and in the juvenile justice system; encouraging new approaches to preventing school violence and vandalism; developing locally coordinated policies among education, juvenile justice, and social service agencies; and providing mental health services. Projects that expand the use of probation officers, especially for programs that permit nonviolent juvenile offenders to remain at home instead of being placed in an institution, and to ensure that juveniles complete the terms of their probation. Counseling, training, and mentoring programs, particularly for juveniles residing in low-income and high-crime areas. Community based projects and services aimed at reducing juvenile delinquency, including literacy and social service programs. Drug and alcohol abuse treatment programs. Postsecondary education and training scholarship programs for low income juveniles residing in neighborhoods with high rates of poverty, violence, and drug related crimes. Projects that establish an initial intake screening and evaluation of juveniles taken into custody, both to determine the likelihood that the juvenile will commit crimes in the future and to provide the appropriate interventions to prevent future crimes. Projects designed to prevent juveniles from participating in organized criminal gangs. Grant funding is allocated to the eligible states based on the proportion of their population that is under the age of 18. To become eligible for these grants, states must submit an application assuring that no more than 5% of the grant will be used for administrative, evaluation, and technical assistance costs and that federal grant funding will supplement, and not supplant, state and local juvenile delinquency prevention efforts. Additionally, the state must have submitted a plan. This grant program has not received appropriations to date; rather the annual appropriation for OJJDP continues to follow the previous structure, and funds have been appropriated in each subsequent fiscal year for some of the grant programs that were repealed in 2002. The authorization for this program expired in FY2007. The Challenge Grants program was originally added in 1992 and was modified by the 21 st Century Department of Justice Appropriations Authorization Act, which authorized "such sums as may be necessary" to carry out the program through FY2007. It replaced the Demonstration Programs grant that had been created by the original JJDPA (see Appendix A and Appendix B for more information on the prior grant programs). The Challenge Grants program authorizes OJJDP to make discretionary grants to state, local, and tribal governments and private entities to carry out programs that will develop, test, or demonstrate promising new initiatives that may prevent, control, or reduce juvenile delinquency. The Administrator is charged with ensuring that these grants are apportioned in such a way as to ensure an equitable geographical distribution of these projects throughout the United States. The program is currently unauthorized, and it last received appropriations in FY2010. The Incentive Grants for Local Delinquency Prevention (Title V) program authorizes OJJDP to make discretionary grants to the states that are then transmitted to units of local government in order to carry out delinquency prevention programs for juveniles who have come into contact with, or are likely to come into contact with, the juvenile justice system. Unlike the other grant programs within the JJDPA, which are authorized through FY2007, the 21 st Century Department of Justice Reauthorization Act authorized "such sums as may be necessary" for the Title V grant program through FY2008. The program is currently unauthorized, but has continued to receive appropriations. Activities that can be funded through the Title V Incentive Grants for Local Delinquency Prevention program include the following: alcohol and substance abuse prevention services; educational programs; child and adolescent health (as well as mental health) services; recreational programs; leadership programs; programs that teach juveniles that they are accountable for their actions; job or skills training programs; and other "data-driven evidence based prevention programs." As it reviews the grant applications that it receives, OJJDP is to give priority to programs that include plans for service and agency coordination (including co-location of services); coordinate and collaborate with the Delinquency Prevention Block Grant recipients in the state; include innovative ways to involve the private sector in delinquency prevention activities; help states develop or enhance state-wide subsidy programs for early intervention and prevention of juvenile delinquency; and develop data-driven prevention plans and utilize evidence-based prevention strategies (including conducting program evaluations to determine the impact and effectiveness of the programs being funded). Local government entities are eligible for funding if they are in compliance with the state plan requirements, and if they have submitted to the state's advisory group a three-year comprehensive plan outlining their plans for investing in delinquency prevention activities and for coordinating services delivered to at-risk juveniles and their families. Funding to local government entities is disbursed by the state, and these grants are conditioned on a 50% match by either the local entity or the state. Thus, the JJDPA includes four major grant programs within its purview: the State Formula Grant program, the Delinquency Prevention Block Grant program, the Challenge Grant program, and the Title V Incentive Grants for Local Delinquency Prevention program. The first three grant programs, located within Title II of the act, were authorized through FY2007. The Title V grant program was authorized through FY2008. While these grant programs differ slightly, they each provide funding for a wide array of juvenile delinquency prevention purposes. The State Formula Grant program and the Delinquency Prevention Block Grant program feature long lists of detailed purpose areas that overlap. Conversely, the Challenge Grant and the Title V grant programs feature broadly written purpose areas that provide more discretion to OJJDP in their administration. Although this report does not include appropriations data, it is important to note that the appropriators have not funded the Delinquency Prevention Block Grant since its inception. Instead, the appropriators have continued to fund some of the grant programs repealed in 2002 either as stand-alone appropriations or as carve-outs within the Title V grant program. This issue will be discussed in greater detail in the " Issues for Congress " section of this report. The Juvenile Accountability Block Grant (JABG) program was originally created by the FY1998 DOJ Appropriations Act ( P.L. 105-119 ) and was appropriated each subsequent fiscal year. However, the JABG program was codified by the 21 st Century Department of Justice Reauthorization Act ( P.L. 107-273 ) in Subtitle A of Title II of the act. As such it falls outside the scope of the JJDPA, but nevertheless comprises a significant component of the federal government's approach to juvenile justice. The JABG program authorizes the Attorney General to make grants to states and units of local government to strengthen their juvenile justice systems and foster accountability within their juvenile populations. The program focuses resources on holding juveniles accountable for their actions and building up the juvenile justice system in the states. It also essentially signifies the high-water mark of the federal government's movement away from an emphasis on rehabilitating juveniles and toward the idea that juveniles need to be punished for their crimes; indeed, the only core mandate of the JABG program is that states must begin to implement a system of graduated sanctions in order to be eligible for funding. As originally codified, the JABG program authorized funding for 16 accountability-based purpose areas, including, but not limited to, implementing graduated sanctions; building or operating juvenile correction or detention facilities; hiring juvenile court officers, including judges, probation officers, and special advocates; and hiring additional juvenile prosecutors. The act also authorized a separate Tribal Grant program within the JABG appropriation to fund accountability-based measures aimed at strengthening the tribal juvenile justice systems. The JABG program was last authorized in 2006 by P.L. 109-162 , which added a purpose area to the original 16 areas and authorized JABG at $350 million a year through FY2009. The program is currently unauthorized, and last received appropriations in FY2013. The Administration has nonetheless continued to request funding for this program annually. As currently comprised, the program authorizes funding for 17 accountability based purpose areas, including, but not limited to implementing graduated sanctions; building or operating juvenile correction or detention facilities; hiring and training juvenile court officers, including judges, probation officers, special advocates, juvenile prosecutors, and detention or corrections personnel; supporting prosecutorial initiatives aimed at curbing drug use, violence, and gangs; establishing juvenile drug courts and gun courts; establishing juvenile records and information sharing systems between the courts, schools, and social service agencies to keep better track of repeat offenders; using risk and needs assessments to facilitate effective early interventions for mental health and substance abuse issues; accountability-based school safety initiatives; establishing and improving pre-release and post-release programs to help juveniles reintegrate into the community; and restorative justice programs that emphasize the moral accountability of an offender toward their victims and the affected community. The JABG program awards grants to the states; most of this funding is then sub-granted to units of local government. States and local entities must provide information about the activities that will be carried out with the grant funding and the criteria that will be used to assess whether the programs were effective (including the extent to which evidence-based practices were utilized). Additionally, states and local governments must provide assurances that the they are working toward implementing laws effecting the use of graduated sanctions for juvenile offenders. As mentioned, the implementation of graduated sanctions is the only core mandate associated with the JABG program. These graduated sanctions should, at a minimum, ensure that sanctions are imposed on juvenile offenders for each delinquent offense they commit; sanctions escalate in intensity with each subsequent more serious offense; there is enough flexibility to tailor sanctions and services to each individual juvenile offender; and appropriate consideration is given when handing out sanctions to the victims of the crime and public safety in general. States are allowed to participate in the program if their graduated sanctions are discretionary rather than mandatory, but must require each juvenile court in its jurisdiction to submit an annual report concerning the extent to which graduated sanctions were implemented and the reasons for which graduated sanctions were not applied. This information should be collected by units of local government and reported to the states, which in turn report it to the Attorney General. Eligible states and units of local government are also required to establish and convene an advisory board that is charged with recommending a coordinated enforcement plan for the use of the JABG funds awarded. The board is to include, where appropriate, members of the state or local police, the prosecutors office, the juvenile court, the probation office, the education system, the social service system, a nonprofit victim advocacy organization, and a nonprofit religious or community group. Of the total amount appropriated for the JABG program, each state is automatically allocated 0.5%. The remaining 75% of the JABG funding is then allocated to the states in accordance to the ratio of their population of juveniles under the age of 18 to the overall population of juveniles under the age of 18 in the United States that fiscal year. The states must pass along not less than 75% of the funds they receive to units of local government, unless the state can demonstrably certify that their overall juvenile justice costs are more than 25% of the aggregate amount of juvenile justice expenditures in the state (i.e., the states expenditures plus all the units of local government expenditures) that fiscal year and that they have consulted with as many units of local government as practicable regarding their expenditures. States are required to pass along the funding to units of local government according to a formula that is based on the ratio of the local government's juvenile justice costs and the juvenile violent crimes committed in their jurisdiction to the overall juvenile justice costs and juvenile violent crimes in the state. The Attorney General is authorized to make grants directly to specially qualified units of local government if the states do not qualify or apply for JABG funding. In these cases, the Attorney General is authorized to reserve up to 75% of that states allocation to make grants directly to units of local government that meet the funding requirements outlined above. Lastly, the Attorney General is authorized to use the average amount allocated by the states to their units of local governments as the basis for the amounts awarded to these specially qualified units of local government. Of the total amount awarded to a state or a unit of local government, only 5% can be used to pay for administrative costs. Funds awarded under JABG cannot be used to supplant existing funding but must instead be used to increase the amount of funding that would otherwise be available to the state juvenile justice systems. The federal share of the activities funded through a JABG grant cannot exceed 90%, except for JABG funds used to construct juvenile court or detention facilities in which case the federal share is not to exceed 50%. Congress may choose to consider the JJDPA's reauthorization because its major provisions expired at the end of FY2007 and FY2008. Similarly, the JABG expired at the end of FY2009, and Congress may also consider its reauthorization. As Congress debates reauthorizing funding for juvenile justice programs, it faces the same issues that have revolved around the juvenile justice system for more than 30 years: What is the appropriate federal role in an arena that has predominantly been the province of the states? What is the appropriate federal response to juvenile violence and juvenile crime? Should federal efforts to influence the states' juvenile justice systems focus on the rehabilitation of juvenile offenders, on holding juvenile offenders accountable for their actions, or some combination of both? Are the grant programs as currently comprised the best way to support juvenile justice efforts in the states? The following section provides a more detailed examination of these potential issues. As previously noted, the fundamental tension within the juvenile justice system over the past 40 years has been the relationship between rehabilitating juveniles and holding them accountable for their actions. To some extent, this is an arbitrary distinction in that the system has included both rehabilitative and accountability based programs. Nevertheless, over the years the juvenile justice system trended away from rehabilitation. Instead, it increasingly incorporated measures that emphasize holding juveniles accountable for their actions. For example, during the 1990s, 47 states and the District of Columbia enacted laws that made their juvenile justice systems more punitive. As a result, juvenile justice can be conceptualized as a continuum that stretches philosophically from the rehabilitative idea that juveniles are wayward youth who can be taught to mend their ways and become contributing members of society to the accountability end of the spectrum which holds that juveniles must be taught to take responsibility for their actions through punishment (often in the form of graduated sanctions). The federal juvenile justice system can thus be viewed as a pendulum that swings between these two poles; for some time, it was swinging away from rehabilitation and toward accountability through the addition of graduated sanctions to the JJDPA's findings and the requirement that states implement graduated sanctions in order to be eligible for JABG funding. Congress may consider whether the federal government, through its grant programs, should be focusing on rehabilitating juveniles, holding them accountable for their actions, or some combination of both of these philosophies. As mentioned, authorization for the JABG expired at the end of FY2009, and it has not received funding since FY2013. As the JABG program was seen as favoring the accountability end of the spectrum, some may question whether the juvenile justice pendulum is now swinging back toward the rehabilitation end. The federal government has attempted to influence the states' juvenile justice systems through the core mandates that states must comply with in order to be eligible for JJDPA state formula grant funding. In essence, the federal government has used grant funding as a carrot to effectuate changes in the way that states house and treat their juvenile offenders. The last modification of a core mandate occurred with the JJDPA's last reauthorization in 2002, when the disproportionate minority contact language was modified to preclude OJJDP from using numerical benchmarks in its implementation. A possible issue for Congress to consider is whether to modify or expand the existing core mandates. Proponents of expanding the core mandates could point to the fact that the mandates have been effective in inducing states to promulgate detention standards that focus on minimizing the contact between juvenile offenders and adults and in deinstitutionalizing status offenses. Opponents of expanding the mandates, however, could point to the relative ineffectiveness of the disproportionate minority contact mandate; most states continue to detain minorities at a higher rate than their percentage of the state's juvenile population and the language has been weakened over the years to ensure that OJJDP does not require states to meet quotas in order to adhere to the mandate. Should Congress choose to expand the core mandates, policy options could include requiring states to ensure that their delinquency prevention programs are based on solid scientific evidence such as randomized control trials, requiring states to show the effectiveness of their programs aimed at reducing the disproportionate minority contact of offenders in the juvenile justice system or requiring that states take measurable steps to reduce this disparity, expanding the number and quality of programs available for female juveniles, or requiring states to implement mental health and substance abuse screening and treatment for juveniles. Since the JJDPA was reauthorized in 2002, there appears to have been some disparity between the authorizing legislation and the structure of the appropriations for some juvenile justice grant programs. As previously noted, this last reauthorization eliminated a number of small grant programs and consolidated most of their purpose areas into the Juvenile Delinquency Prevention Block Grant. However, the annual appropriation for OJJDP continues to follow the previous structure, and funds have been appropriated in each subsequent fiscal year for some of the grant programs that were repealed in 2002. The current disconnect between the authorization and the appropriation could present a challenge for OJJDP. Given this inconsistency, OJJDP employees must spend some percentage of their time reconciling the differences between the authorization and the appropriation; this may not represent the best investment of OJJDP staff time. Additionally, because the eligibility requirements and funding mechanisms of the old grant programs and the new block grant program are different, this disparity between the authorization and the appropriation likely represents a challenge to the states and units of local government as they apply for funding. A potential issue for Congress as it reauthorizes the JJDPA includes whether the Juvenile Delinquency Prevention Block Grant should be implemented as it was authorized, whether it should be modified, or whether it should be broken up again into its component grant programs to better reflect what has been occurring with the appropriation. The current grant programs within the JJDPA overlap in a variety of ways. The State Formula Grant and the Delinquency Prevention Block Grant programs, for example, both feature a wide array of purpose areas elucidated in legislative language that are largely similar. For example, both grant programs include purpose areas for counseling, mentoring, and training programs; community based programs and services; after school programs; education programs; programs that expand the use of probation officers; substance and drug abuse prevention programs; mental health services; gang-involvement prevention programs; and coordinating local service delivery among the different agencies involved. Additionally, the Delinquency Prevention Block Grant, the Challenge Grants, and the Title V Incentive Grants for Local Delinquency Prevention Programs all include language allowing OJJDP to provide funding for additional programs not included in the specific purpose areas identified. A potential issue for Congress could include whether the current overlap within the juvenile justice grant programs is appropriate. Possible policy options could include altering the current grant programs to target funding for specific activities in each grant program or consolidating the different grant programs into one large program. The creation of new grant programs could be an alternative to modifying or consolidating the existing grant programs. Creating grant programs that are tailored to specific activities (e.g., gang-prevention, restorative justice, mentoring, mental health treatment, etc.) could provide dedicated funding streams to activities that may not otherwise receive funding if they must compete for funding in a broader grant program. However, there are limited federal resources in the juvenile justice arena, and these resources have decreased over the past several years. Adding grant programs without also increasing funding may take resources away from the current programs. A possible issue for Congress involves whether the existing grant programs are adequate, whether the existing grant programs should be modified, or whether new grant programs should be enacted. The juvenile population comes into contact with a wide variety of federal programs overseen by a number of different agencies. Under current law, the Administrator of OJJDP has a broad mandate to coordinate the federal government's overall response to juvenile offenders and juvenile delinquency prevention, including federal programs that focus on prevention, diversion, training, treatment, rehabilitation, evaluation, research, and improvement of the states' juvenile justice systems. Additionally, the Coordinating Council was established to help the various agencies involved in dealing with and providing treatment for juveniles better coordinate their efforts. Some overlap exists within the federal government concerning programs that offer services for juveniles. For example, a growing body of evidence points to the relationship between child abuse or other forms of mistreatment and juvenile delinquency or other delinquent behavior such as youth violence. This has led to a duplication of efforts within many federal agencies and what may sometimes be a considerable overlap in the funding opportunities available to states and local entities. An example of this overlap is the body of federal funding available for youth violence prevention. There are a multitude of federal programs throughout the government that deal with youth violence's causes, its effects, and its ramifications. The amount of coordination that is occurring between the departments on these issues remains an open question. In debating the current state of federal juvenile justice grant programs and the potential reauthorization of the JJDPA, there have been questions surrounding the oversight of these programs. Specifically, questions involve accountability of grantees receiving funding, adequacy of existing regulations and guidance, and strength of the current compliance monitoring process. Some have questioned whether the JJDPA has sufficient metrics in place for OJJDP to effectively monitor states' compliance with the state formula grants four core mandates. Of these four mandates, many view the "disproportionate minority contact," or DMC, requirement as the most challenging and difficult-to-monitor mandate. According to this mandate, states are required to show that they are implementing juvenile delinquency prevention programs designed to reduce—without establishing or requiring numerical standards or quotas—the disproportionate number of minorities confined within their juvenile justice systems. OJJDP has given guidance to states on how to identify and comply with the DMC requirement. However, some have suggested that the DMC core mandate be strengthened to include a requirement that states make measurable progress toward reducing racial and ethnic disparities in their juvenile justice systems. If policymakers evaluate that OJJDP is not adequately enforcing the DMC core requirement, they may debate whether to exercise additional oversight over OJJDP's enforcement of the requirement or whether to amend the DMC requirement itself. There have also been concerns that OJJDP may not adequately enforce states' adherence to the JJDPA's core requirements as a foundation for receiving State Formula Grant funding. There are a number of factors that might contribute to this. For instance, states may not fully report non-compliance to OJJDP, OJJDP's compliance monitoring process may not have the capacity to accurately detect noncompliance, or OJJDP may not enforce the core requirements as a basis for states receiving funding. Should Congress take up the reauthorization of the JJDPA, policymakers may debate whether or how to amend the act to ensure transparency and states' compliance with the core mandates as a condition of receiving funding. Appendix A. The Juvenile Justice and Delinquency Prevention Act (JJDPA) of 1974 The Juvenile Justice and Delinquency Prevention Act (JJDPA) was first passed by Congress in 1974 and was most recently reauthorized in 2002 by the 21 st Century Department of Justice Appropriations Authorization Act. Its provisions are currently authorized through FY2007. This appendix will analyze the original JJDPA. The original JJDPA had three main components: it created a set of institutions within the federal government that were dedicated to coordinating and administering federal juvenile justice efforts; it established grant programs to assist the states with setting up and running their juvenile justice systems; and it promulgated core mandates that states had to adhere to in order to be eligible to receive grant funding. As it was passed in 1974, the JJDPA focused largely on preventing juvenile delinquency and on rehabilitating juvenile offenders. Federal Government Entities Established The JJDPA established a range of federal government entities charged with overseeing the federal government's juvenile justice efforts that continue to exist today. In addition to establishing the first federal agency dedicated to the promulgation of juvenile justice, the act established a series of institutions aimed at increasing the federal government's coordination of juvenile delinquency programs and of programs that affect juveniles generally. The Office of Juvenile Justice and Delinquency Prevention (OJJDP) Title II, Part A of the original JJDPA established OJJDP within DOJ's Law Enforcement Assistance Administration (LEAA) as the new clearing house for federal juvenile justice efforts. The act established the Office of the Assistant Administrator of OJJDP, who is charged with overseeing the Office and coordinating the federal government-wide juvenile justice efforts under the direction of the Administrator of the LEAA. The act endowed the Administrator with a series of powers, including the authority to require other federal entities with juvenile delinquency programs to submit information and reports to OJJDP, and charged the new entity with administering the programs that were created by the act. The act also directed the Administrator to implement the overall policy and develop the objectives and priorities for all federal juvenile delinquency activities as well as "all activities relating to prevention, diversion, training, treatment, rehabilitation, evaluation, research, and improvement of the juvenile justice system of the United States." The LEAA Administrator, acting through the OJJDP Assistant Administrator, was thus given a broad mandate to oversee and coordinate not just the new agency's activities but all federal activities relating to the treatment of juveniles. OJJDP was required to present Congress with an annual report of its activities and of the federal government's overall juvenile delinquency programs. Coordinating Council on Juvenile Justice and Delinquency Prevention (Coordinating Council) The act established an independent organization known as the Coordinating Council on Juvenile Justice and Delinquency Prevention to coordinate the federal government's juvenile delinquency programs. The Coordinating Council was to be comprised of representatives from a broad range of federal agencies who "exercise significant decision making authority in the Federal agency involved," including the Attorney General, Secretary of Health, Education, and Welfare, the Secretary of Labor, Director of the Special Action Office for Drug Abuse Prevention, Secretary of Housing and Urban Development, or their respective designees. Additionally, the Coordinating Council was to include the Assistant Administrator of OJJDP and the Deputy Assistant Administrator of the National Institute for Juvenile Justice and Delinquency Prevention. The Coordinating Council was to meet a minimum of six times per year and was to report its activities as part of OJJDP's annual report. Advisory Committee on Juvenile Justice and Delinquency Prevention (Advisory Committee) The act established an Advisory Committee composed of 21 individuals who were to be appointed by the President to serve in an advisory capacity. These individuals were to be experts in the fields of juvenile delinquency prevention or treatment; juvenile justice administration; or community based programs and private voluntary organizations. The majority of the Advisory Committee was to be drawn from the private sector and at least one-third of the members were to be younger than 26 at the time of their appointment. The members were to serve without compensation and to meet no less than four times a year. The Advisory Committee was charged with making recommendations to the Administrator of OJJDP concerning the planning, policies, priorities, operations, and management of all juvenile delinquency programs within the federal government. The National Institute for Juvenile Justice and Delinquency Prevention (National Institute) The act created the National Institute to coordinate the collection, preparation, and dissemination of data regarding the treatment and control of juvenile offenders. The National Institute was charged with serving as a clearing house for all information relating to juvenile delinquency and with conducting and encouraging research on juvenile delinquency. The National Institute was also charged with training juvenile justice practitioners from every level of government and the private sector who were connected with the treatment and control of juvenile offenders. The National Institute was endowed with the power to request other federal agencies to supply the data and statistics that were necessary for its mission, and to reimburse these agencies for the expenses associated with these requests. Federal Grant Programs for Juvenile Justice In addition to creating entities charged with overseeing and developing the juvenile delinquency prevention programs within the federal government, the JJDPA created two main grant programs that were aimed at helping states build up and manage their juvenile justice systems and prevent juvenile delinquency. Additionally, the JJDPA created a grant program aimed at helping states handle runaway youth. Formula Grant Program The first federal grant program established by the JJDPA was a formula grant program for states and local governments. This formula grant program was broadly aimed at helping states improve their juvenile justice systems by providing funding that could be used to assist in the planning, establishing, operating, coordinating, and evaluating of juvenile delinquency programs. Funding under this grant program was to be allocated to states based on their relative populations of people under the age of 18, and no state was to receive less than $200,000. To receive funding under this grant program, the states were required to submit plans for how they were going to disburse the funding. The state plans were to describe a series of steps that states were to take in order to be eligible for funding, including the creation of juvenile justice entities within the state systems. States were required to pass along two-thirds of the funding to local government programs, unless granted a waiver by the Administrator, and 75% of the funds expended by the states were to be "used for advanced techniques in developing, maintaining, and expanding programs and services designed to prevent juvenile delinquency, to divert juveniles from the juvenile justice system, and to provide community based alternatives to juvenile detention and correctional facilities." In addition to these restrictions on how the money was to be spent, the JJDPA established two core mandates that states had to adhere to in order to receive funding. The first of these mandates required states to ensure that juveniles who had committed offenses that would not be crimes if they were committed by an adult (known as status offenses) not be placed in juvenile detention or correctional facilities. This has become known as the deinstitutionalization of status offenders. The second mandate required states to ensure that juveniles were not detained or confined in any institution in which they would have regular contact with adults in the criminal justice system. Prevention and Treatment Programs Grant The act authorized the Administrator to make grants to and enter into contracts with public and private agencies, organizations, institutions, and individuals that focused on delinquency prevention and treatment. The act authorized the Administrator to enter into these grants and contracts to, among other things, develop and implement new approaches and methods for juvenile delinquency programs; develop and maintain community based alternatives to institutionalization; develop and implement programs that diverted juveniles from the traditional correctional system; improve the delivery of services to delinquents and to at-risk youth; and implement programs aimed at keeping students in school. Demonstration Programs Grant The JJDPA also created a discretionary grant program aimed at supporting "innovative approaches to youth development and the prevention and treatment of delinquent behavior." Grants under this program could be awarded to any state or local government agency, as well as nonprofit organizations, and were to last one year. The overarching goal of the program was to foster innovation in youth development. Appendix B. Subsequent Revisions to the JJDPA Between 1974 and 2001, there were a number of laws enacted that modified the JJDPA in some manner. This appendix will outline the main changes that were made to the JJDPA over the past three decades. The Juvenile Justice Amendments of 1980 ( P.L. 96-509 ) In 1980, Congress made three major changes to the JJDPA and reauthorized the act through FY1984. One of the major changes enacted by P.L. 96-509 was the streamlining of the juvenile justice apparatus within DOJ; whereas the JJDPA placed OJJDP underneath the Law Enforcement Assistance Administration (LEAA) and gave the LEAA Administrator authority over the agency, under the new act's provisions the Administrator of OJJDP reported directly to the Attorney General. In essence, this gave OJJDP a measure of independence and removed the filter between the administrator of OJJDP and the Attorney General. Despite this, however, OJJDP remained administratively within LEAA. Another major change made to the JJPDA was the creation of a new core mandate that states were to adhere to in order to receive funding under the formula grant program: the removal of juveniles from adult jails and lockups. P.L. 96-509 also began the process of shifting the JJDPA's focus away from rehabilitation and towards sanctions, including language that called for OJJDP to focus additional attention on the problem of juveniles committing serious crimes by paying special attention to sentencing and adding resources to the juvenile court system. The act also made a series of minor modifications to the Coordinating Council, the Advisory Committee, and the National Institute aimed at increasing the coordination of federal juvenile justice efforts and at including the perspective of juveniles into the process. Among the changes made to the JJPDA, the act allowed 7.5% of OJJDP's overall appropriation to be used for the concentration of federal juvenile delinquency efforts, and it added the Director of the Bureau of Prisons, the Commissioner of the Bureau of Indian Affairs, the Commissioner for the Administration for Children, Youth, and Families, and the Director of the Youth Development Bureau to the Coordinating Council. The act directed the Advisory Committee to include at least five individuals younger than 24 years of age, at least two of whom should have been or continue to be under the jurisdiction of the juvenile justice system, and to contact and seek regular input from juveniles currently under the jurisdiction of the juvenile justice system. The main alteration made by the act was the new requirement that states stop detaining or confining juveniles in any jail or lockup for adults in order to be eligible for the state formula grant. The act did, however, allow for the temporary detention of juveniles accused of serious crimes in such facilities where no existing acceptable alternative placement was possible, subject to the promulgation of regulations by the Administrator. Failure to achieve compliance with this mandate within five years would terminate a state's ability to receive funding unless the Administrator determined that the state was in substantial compliance with the requirements. Substantial compliance was defined as a state's achieving the removal of not less than 75% of juveniles from adult jails and lockups, and making an unequivocal commitment to achieving full compliance within two additional years. The act also expanded the scope of the Prevention and Treatment Programs Grant to include programs that were aimed at removing juveniles from adult jails and lockups, and provided that at least 5% of the funding available under this grant program be allocated to the Virgin Islands, Guam, American Samoa, the Trust Territory of the Pacific Islands, and the Commonwealth of the Northern Mariana Islands. The Juvenile Justice, Runaway Youth, and Missing Children's Act Amendments of 1984 Act ( P.L. 98-473 ) P.L. 98-473 reauthorized the JJDPA through FY1988 and formally elevated OJJDP to a stand-alone office within DOJ under the general authority of the Attorney General. Another major change made to the JJDPA by this act was the expansion of the Prevention and Treatment Programs Grant program. The act dedicated 15% to 25% of the overall funding for state formula grants to this program, and expanded the number of purpose areas that this discretionary grant could be used for, including, but not limited to, community based alternatives to detention; diversion mechanisms including restitution and reconciliation projects; advocacy activities aimed at improving services; programs that strengthen families; prevention and treatment programs; developing a national education program aimed at reducing juvenile delinquency; developing programs aimed at fostering youth employment; and developing programs aimed at keeping youths in school. At least 30% of the funding available under this program was to be apportioned to private nonprofit agencies and institutions. The Amendments to the Juvenile Justice and Delinquency Prevention Act of 1988 ( P.L. 100-690 ) In 1988, Congress reauthorized the JJDPA through FY1992. Among other things, the act required OJJDP to publish a comprehensive plan of the activities it would undertake each year in the federal register. It also required OJJDP to prepare an annual report each fiscal year providing a detailed summary and analysis of the national trends in juvenile justice, including the numbers and types of offenses with which juveniles were being charged; the rate at which juveniles were being taken into custody; the extent to which states were complying with their state plan requirements; and OJJDP and the Coordinating Council's activities. The act also required states, as part of their plans, to include information on their efforts to end the disproportionate confinement of minority youth in their detention systems, and it raised the minimum funding allocations available for states under the formula grant program. The act also directed OJJDP to include technical assistance as a purpose area for each of its grant programs and for the National Institute. The act modified the Prevention and Treatment Programs Grant program by deleting language inserted by P.L. 98-473 that required 15% to 25% of the formula grant funding be allocated to this program and by expanding the number and types of considerations required to approve applications for funding. Gang Prevention Grant P.L. 100-690 also established a new grant program under Part D of Title II of the JJDPA aimed at funding prevention and treatment programs for juvenile gang members. The new discretionary grant program authorized the Administrator to make grants to public and private agencies and organizations. The new grant program identified 10 broad purpose areas aimed at reducing the numbers of juveniles joining gangs and providing treatment for juveniles convicted of gang-related criminal activities. The Juvenile Justice and Delinquency Prevention Amendments Act of 1992 ( P.L. 102-586 ) P.L. 102-586 reauthorized the JJDPA through FY1996. The main change enacted by this act was the elevation of disproportionate minority confinement to core mandate status. States that were not in compliance with this requirement within three years of the act's passage would no longer be eligible for formula grant funding. However, states that had shown "substantial compliance" with the requirement would be eligible for funding for two additional years. The act created a number of new grant programs within Title II of the JJDPA, including grants for community-based gang intervention, for state challenge activities, for juvenile victims of child abuse, and for mentoring. The act also added a new Title V to the JJDPA establishing a new program, the Incentive Grants for Local Delinquency Prevention Program. The act also modified the composition of the Coordinating Council. In addition to the leaders (or their designated representatives) of the various federal agencies with a stake in the juvenile justice system, the Coordinating Council was to include nine individuals working in the field of juvenile justice who were not federal employees. They were to be appointed without regard to political affiliation. Three members were to be appointed by the President, three by the Speaker of the House, and three by the majority leader of the Senate. Following is a description of the various grant programs that were implemented by the 1992 revision to the JJDPA. Community Based Gang Intervention Grant The act slightly modified the discretionary gang prevention grant authorized within Part D of Title II of the JJDPA by P.L. 100-690 , renaming it the Gang-Free Schools and Communities Grant. The act also created a new grant program, the Community-Based Gang Intervention Grant. The new grant program authorized the Administrator to make grants to public and private nonprofit agencies, organizations, and institutions to reduce the participation of juveniles in gangs by engaging the community. The grant allowed funding to be provided for coordinating mechanisms such as regional task-forces, as well as for a variety of prevention and accountability measures. For example, on the accountability side the grant authorized funding for graduated sanctions, including the expanded use of a wide variety of interventions such as probation, mediation, restitution, community service, intensive supervision, electronic monitoring, and bootcamps, among others. On the prevention side the program authorized funding for, among other things: treatment for juvenile gang members; prevention and treatment services for substance abuse by juveniles; and services to prevent juveniles from coming into contact with the juvenile justice system again as a result of gang-related activity. State Challenge Activities Grant The act created another new grant program under Part E of Title II of the JJDPA, the State Challenge Activities Grant (Challenge Grant). The Challenge Grant program allowed the Administrator to designate up to 10% of a state's formula grant for this new grant program. The act defined a challenge activity as a program that is aimed at, among other things, developing policies to provide services for juveniles in the juvenile justice system; increasing community-based alternatives to detention; developing programs that replaced traditional training schools with secure settings; developing programs that prohibited gender bias within the state's juvenile justice system and ensured that female juveniles had access to a full range of services, including treatment for physical or sexual assault and education in parenting; and increasing aftercare services for juveniles coming out of placement. Juvenile Victims of Child Abuse Grant The act created a third new grant program under Part F of Title II of the JJDPA for Juvenile Victims of Child Abuse. This program enabled the Administrator to enter into grants with public agencies and private nonprofit organizations to provide treatment for juvenile offenders who are victims of child abuse and neglect; provide transitional services, including individual, group, and family counseling; and carry out research on juvenile child abuse issues associated with these grants. Juvenile Mentoring Grant The act created a fourth new grant program under Part G of Title II of the JJDPA for juvenile mentoring programs. These grants could be awarded to local educational agencies (in partnership with public or private agencies) to establish and support mentoring programs. Mentoring programs eligible for funding included programs designed to link at-risk youth with responsible adults; promote personal and social responsibility; increase educational participation; discourage the use of drugs and violence; discourage participation in gangs; and encourage participation in community service and other community activities. Grant funding could not be used to directly compensate mentors (apart from reimbursement for incidental expenses) or support litigation of any kind, among other things. Boot Camp Grants The act created a fifth new grant program under Part H of Title II of the JJDPA to fund the establishment of up to 10 military-style boot camps in one or more states. These boot camps were to provide highly regimented schedules involving discipline, physical training, work, and drill, and to include educational and counseling services. States receiving funding under this program would be required to provide for post-release supervision and after-care services for the juveniles participating in their boot camps. Incentive Grants for Local Delinquency Prevention Programs (Incentive Grants) The act created a new Title V within the JJDPA for Incentive Grants aimed at creating delinquency prevention programs at the local level. The grants would be allocated by state and passed along by each state's advisory group (as created under the state plan stipulations) to local government entities. Funding could be used to provide recreation services, tutoring and remedial education, job skills, mental health services, substance abuse services, leadership development services, and programs that teach juveniles accountability for their actions. States were required to provide a 50% match for the grants and be in compliance with the core mandates in Title II in order to receive funding under this program. The 21 st Century Department of Justice Appropriations Authorization Act of 2002 ( P.L. 107-273 ) P.L. 107-273 in 2002 represents the last major revision to the JJDPA. The act reauthorized OJJDP, which had remained unauthorized since FY1997 but which had been appropriated annually, through FY2007. The act also made some significant revisions to the JJDPA, most notably repealing all of the new grant programs in Title II created by P.L. 102-586 and consolidating their purpose areas within the Juvenile Justice and Delinquency Prevention Block Grant. Among other things, the act amended the state plans section of the JJDPA and modified the disproportionate minority confinement core mandate provision. The revision to the core mandate directed the states to address the problem of disproportionate minority confinement, but stated that the states were not required to meet numerical quotas or standards in order to receive formula grant funding. The act also mandated that states enact policies requiring that individuals who work with both juveniles and adults in detention facilities be certified and trained to work with juveniles. In addition, the act added a number of additional stipulations to the state plans, including, among other things, that states notify appropriate public agencies within 24 hours of a child's apprehension for a status offense; that states specify up to 5% of their formula grant funding for incentive grants to reduce probation officer case loads; and that states establish systems and policies to incorporate child protective services records into juvenile case files and to ensure that child welfare records are available to the court. If states failed to comply with any of the four core mandates they would have their formula grant funding reduced by not less than 20% for each mandate with which they were not in compliance. Additionally, states would be ineligible to receive any formula funding unless they agreed to spend 50% of the funding they received on achieving compliance with whichever core mandate they were non-compliant with, unless the Administrator determined that the state had achieved substantial compliance with the mandate. Juvenile Delinquency Prevention Block Grant Perhaps the major structural change enacted by P.L. 107-273 was the elimination of the series of grant programs that had been created within Title II of the JJDPA: the Gang-Free Schools and Communities Grant; the Community Based Gang Intervention Grant; the States Challenge Activities Grant; the Juvenile Victims of Child Abuse Grant; the Juvenile Mentoring Grant; and the Boot Camps Grant. In their stead, the act created a Juvenile Delinquency Prevention Block Grant aimed at funding programs that reduced juvenile delinquency that incorporated most of the general purpose areas that had been eligible for funding under the previous grant programs. Included under this broad umbrella were 25 purpose areas that run the gamut of juvenile delinquency prevention, including, but not limited to, treatment programs; counseling programs; educational programs; programs that expanded the use of probation officers; community-based programs; drug-prevention programs; and gang-prevention programs. | Juvenile justice in the United States has predominantly been the province of the states and their localities. The first juvenile court in America was founded in 1899 in Cook County, Illinois, and, by 1925, all but two states had established juvenile court systems. The mission of these early juvenile courts was to rehabilitate young delinquents instead of just punishing them for their crimes; in practice, this led to marked procedural and substantive differences between the adult and juvenile court systems in the states, including a focus on the offenders and not the offenses, and rehabilitation instead of punishment. The federal government began to play a role in the states' juvenile justice systems in the 1960s and 1970s. In 1974, Congress passed the first comprehensive piece of juvenile justice legislation, the Juvenile Justice and Delinquency Prevention Act (JJDPA). The JJDPA had three main components: it created a set of institutions within the federal government that were dedicated to coordinating and administering federal juvenile justice efforts; it established grant programs to assist the states with setting up and running their juvenile justice systems; and it promulgated core mandates that states had to adhere to in order to be eligible to receive grant funding. Although the JJDPA has been amended several times over the past 30 years, its basic shape remains similar to that of its original conception. As it was passed in 1974, the JJDPA focused largely on preventing juvenile delinquency and on rehabilitating juvenile offenders. Subsequent revisions to the act added sanctions and accountability measures to some existing federal grant programs, and new grant programs to the act's purview. In altering the JJDPA to include a greater emphasis on punishing juveniles for their crimes, Congress has essentially followed the lead of the states. During the 1980s and 1990s, most states revised their juvenile justice systems to include more punitive measures and to allow juveniles to be tried as adults in more instances. In 1997, Congress created the Juvenile Accountability Block Grant (JABG), allowing the Attorney General to make grants to states and units of local government to strengthen their juvenile justice systems and foster accountability within their juvenile populations. This has marked a significant change in the philosophy of the juvenile justice system, both at the state level and at the federal level, from its original conception. Juvenile justice in general has thus moved away from emphasizing the rehabilitation of juveniles and toward a greater reliance on sanctioning them for their crimes. Authorization for the JJDPA's main provisions expired at the end of FY2007 and FY2008, but its major programs have continued to receive appropriations. Congress may choose to consider the JJDPA's reauthorization. Policy issues associated with its reauthorization include what the best federal response to juvenile violence and juvenile crime should be; whether the system should focus on the rehabilitation of juvenile offenders or on holding juvenile offenders accountable for their actions; and whether the grant programs as currently comprised represent the best way to support juvenile justice efforts in the states. Similarly, authorization for the JABG expired at the end of FY2009. One of the issues surrounding its potential reauthorization involves whether grant program purpose areas should be modified, expanded, or clarified. |
On January 23, 2004, President Bush signed into law the Consolidated Appropriations Act,2004 ( P.L. 108-199 ) within which Congress authorized the creation of the Millennium ChallengeAccount and appropriated $994 million for FY2004. The MCA legislation, included in Division Dof the omnibus spending bill, resolved several key issues on which the House and Senate differed. The measure creates a new Millennium Challenge Corporation (MCC), headed by a CEO whoreports to the Board of MCC Directions, instead of the Secretary of State (Senate) or the President(House). The Board includes the Secretary of State (chairman), the Secretary of the Treasury, theU.S. Trade Representative, the USAID Administrator, the MCC CEO, and four others from listssubmitted by congressional leaders and nominated by the President. Low-middle income countriesmay participate in MCA programs beginning in FY2006, as proposed, but may not receive more than25% of MCA appropriations. The legislation creates a roughly 90-day period during which theCorporation will name the list of countries that will compete for MCA selection in the first year("candidate countries"), publish the methodology that will be used for identifying best performingcountries, seek public comment on the initiative, and consult with Congress. Following this reviewperiod, countries will be selected ("eligible countries") and invited to submit program proposals forfunding. This could take place as early as May 2004. In a speech on March 14, 2002, at the Inter-American Development Bank, President Bushoutlined a proposal for the United States to increase foreign economic assistance beginning inFY2004 so that by FY2006 American aid would be $5 billion higher than three years earlier. Hefurther pledged to maintain economic aid amounts at least at this level into the future. The fundswould be placed in a new Millennium Challenge Account (MCA) and be available on a competitivebasis to a few countries that have demonstrated a commitment to sound development policies andwhere U.S. support will have the best opportunities for achieving the intended results. These"best-performers" will be selected based on their records in three areas: Ruling justly -- promoting good governance, fighting corruption, respecting human rights, and adhering to the rule of law. Investing in people -- providing adequate health care, education, and other opportunities that sustain an educated and healthy population. Pursuing sound economic policies that stimulate enterprise and entrepreneurship -- promoting open markets, sustainable budgets, and opportunities for economicgrowth. If fully implemented, the initiative would represent one of the largest increases in foreign aid spending in half a century, outpaced only by the Marshall Plan following World War II and the LatinAmerica-focused Alliance for Progress in the early 1960s. Administration officials characterize theMCA as representing the most comprehensive policy change ever in how the United States designs,implements, and monitors development assistance to low and lower-middle income nations. Inparticular, Executive officials emphasize the "results-based" aspect of the initiative in whichcountries will be selected based on past and current performance, and programs will be evaluatedon and required to show measurable achievements that impact favorably on economic growth andpoverty reduction. Conditioning assistance on policy performance and accountability by recipient nations is not a new element of U.S. aid programs. Since the late 1980s at least, portions of Americandevelopment assistance have been allocated by the U.S. Agency for International Development(USAID) to some degree on a performance-based system. What is significantly different about theMCA is that the entire $5 billion money pool -- which is nearly twice the size of the FY2003USAID "core" development aid budget -- will be tied to performance and results. Moreover,program proposals will be based on national development strategies developed by the countriesthemselves, with a U.S. role limited to providing technical assistance in project design. Further, inanother major departure from past policy, the MCA is intended to focus exclusively on developmentgoals without being influenced by other U.S. foreign policy and geo-strategic objectives that oftenstrongly influence U.S. aid decision making. Nevertheless, while new details regarding countryeligibility, selection criteria, and organizational structure were announced in December 2003, manyissues have not yet been decided and remain under review by the Executive branch. Congress plays a key role in the approval of the initiative by way of considering authorization and funding legislation, and in confirming the head, or CEO, of the Millennium ChallengeCorporation that manages the MCA under the President's plan. Congress will also maintaincontinuing oversight of the program as it is implemented and additional funding is sought insubsequent years. Among numerous policy issues for Congress raised by the MCA proposal were: Country eligibility : Should the MCA target both low and lower-middle income countries, as proposed by the Administration, or should it focus exclusively on the poorestnations where the needs are the greatest and where access to other financial resources is limited? And, if both, how should funds be allocated between the two groups? Performance indicators and selection process : Will the indicators and the methodology proposed by the Administration identify the "best performers"? Implications for other U.S. development aid programs : How will the MCA affect global and country aid programs not part of the new initiative? U.S. organizational structures: Is the proposed Millennium Challenge Corporation, with a staff of 100, the most appropriate structural model for managing the MCA? What are the implications for the U.S. Agency for International Development, the primarygovernment bilateral aid agency? Program development and selection: What types of activities should the MCA fund and how will these programs be designed? Legislative and funding matters: What should be the relationship between MCA authorizing legislation and current foreign aid laws and legislative practice? What are thebudgetary implications on the MCA? The concept of the Millennium Challenge Account is based on the premise that economic development succeeds best where it is linked to sound economic and good governance policies,especially where these conditions exist prior to expanding resource transfers. Past failures ofeconomic aid provided by the United States and other international donors, some argue, have beencaused to a large extent by a lack of attention to performance and the requirement for measurableresults. (1) Executive branch officials say that theMCA abandons the process of basing aid allocationson promises by recipient governments to initiate policy changes in the future, and instead will makethose decisions based on achievements already made and policies that are currently working. (2) This view has been joined by a growing body of literature in the late 1990s concluding that there was little relationship between the amount of development aid provided and success in raisingeconomic levels and reducing poverty. Rather, some researchers argued that foreign assistanceproduced the greatest impact where the recipient country had already adopted sound policies. (3) Others have concluded that international development assistance has largely failed and will continueto do so unless the donor community fundamentally shifts its focus to support real policy change. (4) Despite many development successes in such areas as agricultural production and childimmunization, by one calculation 97 countries receiving $144 billion (constant dollars) in U.S. aidsince 1980 had their median per capita gross domestic product (GDP) decline from $1,076 to $994by 2000. (5) Also influencing the debate over the launch of a new foreign aid initiative are the terrorist attacks of September 11and an evaluation of their causes. There remain differences of perspectiveregarding a possible direct relationship between poverty and terrorism, especially given the fact thatmany terrorist leaders come from relatively wealthy backgrounds. But most agree that poverty canbe a contributing factor. President Bush, in announcing the MCA on March 14, 2002, madenumerous references to the war on terrorism, noting that "We also work for prosperity andopportunity because they help defeat terror." He further emphasized that although poverty does notcause terrorism, "poverty prevents governments from controlling their borders, policing theirterritory, and enforcing their laws. Development provides the resources to build hope and prosperity,and security." (6) Accompanying this was a renewed interest in global development aid funding levels as governments, international institutions, and non-governmental organizations prepared for amid-March 2002 U.N.-sponsored International Conference on Financing for Development inMonterrey, Mexico. Conference proponents hoped the session would serve as a catalyst for donorsto increase aid commitments in order to achieve by 2015 the ambitious goal of reducing poverty byone-half relative to 1990. At the 2000 Millennium Summit, international leaders, including theUnited States, had pledged support for a set of specific targets, including those related to hunger,education, women's empowerment, child health, HIV/AIDS, and other infectious diseases, thatbecame known collectively as the Millennium Development Goals. A World Bank analysis, releasedFebruary 2002, estimated that to achieve these goals by 2015, donors would need to increasespending by $40 to $60 billion per year, or roughly double the amount provided in 2001. (7) As theMonterrey conference approached, international development advocates began pressing participatinggovernments to issue specific pledges that would help close this funding gap identified by the WorldBank. Following the President's speech in March, an inter-agency team, including representatives from the National Security Council, Office of Management and Budget, State Department, USAID,and the Department of Treasury, met frequently to work out proposals to design and implement theU.S. initiative. The NSC managed overall policy development while the State Department tookcharge of outreach -- seeking input from the non-governmental community -- and the TreasuryDepartment assembled economic and governance indicators that would be used to determine eligiblecountries. The team drafted recommendations on many, but not all MCA issues, and after beingapproved by the Secretaries of State and Treasury, the proposals were forwarded to the President. After making further modifications, on November 25 President Bush endorsed several key principles of the initiative. Thereafter, the process of writing legislation, deciding on budget levelsfor FY2004, and consulting with Congress began. On February 3, 2003, the President proposed $1.3billion for the MCA in FY2004, followed two days later by submission of a draft bill authorizing theinitiative. The requested legislation was introduced as H.R. 1966 and S. 571 , but ultimately enacted as part of the Consolidated Appropriations Act, 2004 (Division D of P.L.108-199 ). While several important issues have been decided, both through enactment of authorizing legislation and through inter-agency discussions, others remain under review as the MCA frameworkevolves. These issues are highlighted below and discussed in more detail in the following sectionon the MCA and congressional consideration. MCA features announced by the Administration. The Administration issued proposals on a number of key MCA elements, some of which wereincorporated into the enacted authorizing legislation: Country eligibility. In the first year -- FY2004 -- countries that can borrow from the World Bank's International Development Association (IDA) with a per capita incomebelow $1,415 are eligible. The list will expand to 115 over the next two years to include allcountries with per capita GNI less than $2,935. (For complete list, see appendixB.) Selection criteria and performance indicators. MCA participants will be selected based on their performance measured by 16 economic and political indicators. In mostcases, a score above the group median on the indicator would represent a passing "grade". The MCABoard of Directors will be guided by the statistical outcomes, but maintain some discretion over thefinal selection. Corruption measure is "pass-fail". To be eligible, a country must score above the median on the corruption indicator, as compiled by the World BankInstitute. Program development and submission. MCA programs will be "country-driven" in which participating country officials will design and submit project proposalsbased on national development objectives. Types of programs supported. MCA programs will be available not only for government-sponsored projects, but for activities proposed and implemented by local governmentsand communities, civil society, and other private entities. National governments, however, wouldremain responsible for the program and be the party to sign a compact between the U.S. and thecountry. Moreover, according to Administration officials, all types of assistance -- budget supportfor government initiatives, infrastructure projects, and more targeted activities focused on specificsectors -- are available for consideration. Organizational management of the MCA. The Administration asked and Congress approved the creation of a new entity -- the Millennium Challenge Corporation (MCC)-- that will be supervised by a Board of Directors chaired by the Secretary ofState. FY2004 funding. The Administration proposed $1.3 billion for the MCA's first year and continues to support its pledge of $5 billion by FY2006. Congress, however, reducedthe FY2004 funding to $994 million. MCA issues undecided within the Administration. Beyond some of these key decisions, other matters remain under discussion. Number of countries participating. Because the MCA will be a "performance-driven" program, it is difficult to predict how many nations will qualify andparticipate. Administration officials have suggested, however, that the number will be relativelysmall -- perhaps less than 20 by the third year. It is also undecided whether all or only some of thecountries that qualify based on the performance indicators will receive MCA funding. The final listmay comprise selections from the pool of best performing countries or the selection could be basedon the quality of program proposals submitted by qualifying nations. Other options are also underreview. Impact on USAID program objectives in MCA countries. MCA participants may or may not continue to receive regular development aid under existing USAIDprograms. If they do, it is unclear whether those activities will change focus in order to supportMCA projects. The role of USAID missions in MCA countries is also yet to be clearlystated. Monitoring and accountability. Executive officials say that MCA programs will be closely monitored and scrutinized, perhaps by some independent auditing system, but theyhave not established plans or procedures. Graduation or exit strategies. A main objective in providing an increased resource pool to help "jump-start" or accelerate a country's development process, is to set it on theroad toward graduation. What criteria to use to end programs in successful countries or how towithdraw from a non-performing MCA participant remain undecided. As Congress considered MCA authorizing legislation and funding recommendations in 2003,and will later debate the confirmation of the MCC chief officer, followed by continuing oversightof program implementation, several key elements of the initiative have been, and will continue tobe closely examined. These will include matters that have already been decided within the executivebranch, as well as issues that remain under discussion. One of the first questions addressed by the executive steering committee was where the income cutoff point should be drawn for purposes of defining potential MCA participants. The debatechiefly focused on whether only the poorest nations should be considered for MCA programs. Asnoted above, the Administration announced in late November 2002 that a pool of 115 countries,phased in over three years, would compete for MCA resources. They are grouped into three clustersaccording to income level and World Bank borrowing status, with a new cluster added to thecompetition each year corresponding to the anticipated rise in MCA resources. In FY2004, only the75 IDA-eligible countries with per capita incomes below $1,415 can compete, while 12 more willbe added the next year. (8) By FY2006, when $5 billionis planned for MCA programs, countries withper capita incomes between $1,415 and $2,935 -- 28 in number -- will be added. Since countriesabove $1,415 per capita income are likely to score higher on the eligibility indicators, the WhiteHouse further has decided to have separate competitions for the low and low-middle income groupsto avoid income bias. Issue: Income eligibility. There emerged at the outset a relatively broad consensus within the U.S. development community that the MCA shouldfocus on IDA-eligible, low-income countries. (9) Fora policy aimed at promoting economic growth and reducing poverty, mostagreed that it made sense to place emphasis where the greatest needs existed. By expanding thenumber and income level of MCA participants beyond IDA-eligible status, some argued, the amountof money available for the poorest nations would be reduced. Some also noted that the 28 memberlow-middle income group includes nations that maintain strong political and strategic ties with theU.S. -- Egypt, Jordan, Colombia, Turkey, and Russia. That would increase the possibility, or atleast the perception, that countries might be selected on criteria other than MCA performancemeasures. It may further tend to blur the distinction between MCA goals and objectives of other aidprograms, jeopardizing the unique approach of the MCA and the need for programmatic flexibility. (10) Achieving economic results as an objective has frequently taken a position secondary to strategicinterests in U.S. aid allocation considerations in the past. In addition, some point out that the poorest countries have far less access to capital from private sources, making MCA resources even more valuable to them. According to one analysis, aid as apercent of gross national income (GNI) for IDA-eligible countries with per capita incomes below$1,415 totals 10.8% compared with 1.4% for the higher income group (below $2,935); gross privatecapital flows as a percent of GDP for the poorer IDA-eligible countries (below $1,415) is 6.9% whilethose between $1,415 and $2,935 receive 10.3%. Tax revenues and domestic savings as a percentof GDP among low-middle income countries are roughly double the level of those for IDA-eligibleborrowers below $1,415, thus providing a more expansive potential source of financing. (11) Others, however, argue that low-middle income countries deserve equal consideration in a program intended to identify and partner with the "best-performers." In some cases, they assert,commitments to sound policies have enabled nations to move into the higher income range. If aprimary goal of the MCA is to maximize the effectiveness of aid resources, then non-IDA countriesshould be included. (12) In addition, countries fallingin the $1,415 - $2,935 per capita income range,while maintaining higher income levels, also have large numbers of people living in poverty. Thesecountries, with stronger institutions and better capacity may also be better positioned to apply MCAresources more effectively. One argument of those favoring exclusive participation of countries below the $1,415 level -- that better-off economies would score higher on the eligibility indicators, raise the median standardsfor qualification, and squeeze out the poorest nations -- seems to be addressed by theAdministration. Based on a preliminary estimate of the median scores of each group, the medianwould be higher -- and in some cases significantly higher -- for 14 of the 16 indicators forlow-middle income countries compared with those below $1,415 GNI per capita. (13) In FY2006, whenthe 28 higher-income countries become eligible, they will be evaluated separately from the other 87,competing against each other to score above the group median on the 16 indicators. This wouldallow countries to qualify based on comparisons with their income-level peers. Whether theAdministration will divide MCA resources into two pots of money for each income group has notbeen determined. In any case, unless the Administration and Congress agree to increase the MCAbeyond the proposed $5 billion target, whatever number of low-middle income nations that qualifywill reduce the amount of resources that would otherwise be available for those below the $1,415level. Congressional proposals to modify income eligibility. Reflecting the perspective that the MCA should remain focused on thepoorest countries, the Senate Foreign Relations Committee recommended in S. 1160 (as added to S. 950 ) to permit participation by low-middle income country in FY2006and beyond only if MCA funding exceeds $5 billion. If not, MCA programs could only be supportedin countries that fall below the "historical per capita income cutoff of the International DevelopmentAssociation," a level that is currently $1,415. Even in years when the MCA appropriation exceeds$5 billion, the Senate bill would limit funding to low-middle income participants to 20% of the totalamount. The Foreign Relations Committee further expressed its intention that MCA programs inthe low-middle income countries should focus on poor communities in those nations. The House International Relations Committee, in H.R. 1950 , also limited to 20% the amount of MCA resources that could be allocated in FY2006 to low-middle income participants. But unlike the Senate, the House measure did not require an appropriation in excess of $5 billion forinclusion of the low-income group in FY2006. The Committee considered two amendments duringmarkup related to the income issue. The first, offered by Congressman Payne and approved by theHouse panel, would have required low-middle income countries that are selected for MCA grantsto make a contribution from their own resources to whatever MCA programs are funded. Thesecond amendment, proposed by Congressman Menendez, originated out of concern that few (7)Latin American nations would be eligible to compete for MCA resources in the first two years,despite large pockets of poverty in these countries. The Menendez amendment, which was defeated(10-24), would have made low-middle income nations, a group which includes nine from LatinAmerica eligible from the beginning. Similarly, Congressman Kolbe proposed an amendment duringHouse floor debate that would have allowed low-middle income countries to be eligible beginningin FY2005 rather than FY2006. The Kolbe amendment failed 110-313. While sympathetic to theconcerns expressed by sponsors of the amendment, those opposed to changing the income eligibilitystructure argued that resources diverted from Latin America and many other nations would come atthe expense of the world's poorest nations where the needs are greatest. As enacted in Division D of P.L. 108-199 , the MCA authorizing legislation follows the earlier House and Senate plan of including only low-income countries in the program during FY2004 andFY2005. Beginning in FY2006, low-middle income nations, with per-capita income above $1,415,may also participate, but they can only receive 25% of the amount appropriated for the MCA in thatyear. Executive branch decisions on which performance indicators to use have been guided by whether the data and methodology are transparent, publically available, accurate, and easy tounderstand. Another key factor is whether the data source provides full coverage for as manycountries as possible and is relatively current. Officials further sought to identify indicators thatwould be few in number but sufficient to reflect broad policy results in each of the three policycategories, and valid relationships between the indicators and economic growth and povertyreduction. Finding indicators that meet all of these requirements is difficult, and according to some,impossible. Gathering valid economic, social, and political statistics, especially in developingnations, has always been difficult, often resulting in significant gaps in coverage and long lag times. Gaining consensus on whether a given set of indicators accurately measures policy achievementsunfettered of institutional bias by whatever organization or individuals collect and interpret the datais also a major challenge. As noted above, the Administration has settled on 16 indicators for measuring performance and determining country eligibility. As shown in Table 1, six fall within each of the ruling justly andencouraging economic freedom categories, while four will determine results in the area of investingin people. Sources include international institutions, such as the World Bank, IMF, and U.N., andnon-governmental and private organizations like Freedom House, Heritage Foundation, and theInstitutional Investor Magazine. National statistics will also be drawn upon where gaps occur, butnone of the data sets will be compiled by the U.S. government. For aggregating country scores, the Administration decided to use a "hurdles" approach instead of adding up the results and ranking nations top to bottom. To qualify, a country must score above the median on half of the indicators in each policy area; in other words, a country's ranking must beabove the median of all 75 countries in the first year on three of the six indicators for ruling justlyand economic freedom, and two of the four for investing in people. The one exception to the medianstandard is the inflation indicator -- a country's inflation must be below 20 percent in order to passthat hurdle. Officials believe that the hurdle methodology will demonstrate that a country iscommitted in all three areas and more precisely identify policy weaknesses. In year three andbeyond, when low-middle income countries are added to the competition, there will be separateevaluations for countries below and above $1,415 per capita incomes so that higher income countrieswill not drive up the median and exclude poorer nations from qualifying. Importantly, one indicator -- control of corruption -- will be a "pass-fail" test, in which any country scoring at or below the median on this measure will be disqualified regardless ofperformance on any of the other 15 indicators. Executive officials argue that since there are stronglinks between financial accountability and economic success, a strong commitment to fightcorruption must be demonstrated by all MCA participants. Further, after passing all the required hurdles, a country's score will be evaluated by the MCC Board of Directors who will make the final recommendations to the President. The Board will begranted a degree of discretion in selecting the final participants, taking into account such things asmissing or old data, trends in performance, and other information that might reflect on a country'scommitment to economic growth and poverty reduction. Moreover, officials have yet to decidewhether to fund programs in all countries that qualify and pass the final review. Final selection, forexample, could hinge on the quality of program proposals submitted by the best performing nations,although other selection options are also under discussion. Presumably, the President will alsomaintain flexibility as to whether to agree with the Board's recommendations. Congressional action on performance indicators. Measures considered in the Senate and House ( S. 1160 , as amended and incorporatedinto S. 925 ; and H.R. 2441 , as amended and incorporated into H.R. 1950 ) did not directly legislate the list of performance indicators to be used,thereby allowing the executive branch to apply the measures that it has recommended. Both,however, provided for advance congressional consultation and public awareness. S. 925 required that the list of proposed indicators be published in the Federal Register and on theInternet and that the Administration consider public comment prior to issuing the final determinationof the indicators. In this way, the Committee believed that the indicators could be refined andimproved. H.R. 1950 required the Corporation's CEO to consult with congressional committees prior to establishing eligibility criteria and methodology and publish such criteria oncefinalized. Both bills further directed that country eligibility would be based on an evaluation ofperformance criteria that closely matched the 16 indicators listed in Table 1 below. In its report on S. 1160 , the Senate Foreign Relations Committee expressed its intent that the selectionbe based on development needs and performance, and not on immediate political considerations. The enacted legislation, like earlier House and Senate bills, does not specify the specific performance indicators. In describing the criteria by which countries should be assessed, the MCAAct makes reference to the extent to which countries respect the rights of people with disabilities,promote the sustainable management of natural resources, and invest especially the health andeducation for women and girls. While none of the 16 indicators chosen by the Administrationdirectly address these three additional concerns, it is likely that MCC officials will review existingindicators or search for new performance measure in order to better evaluate progress on these threefactors added by Congress. The legislation further requires the Corporation to publish the eligibilitycriteria and methodology used for country evaluation on its website and in the Federal Register , andreceive public comment and congressional input prior to country selection decisions. Table 1. MCA Performance Indicators Issue: Association of performance indicators with economic growth and poverty reduction. Analysts will beexamining the set of 16 indicators to determine how well they predict successfuldevelopment outcomes. An initial assessment by the Center for Global Developmentsuggests that many of the indicators show a reasonable or strong relationship witheconomic growth, infant mortality, and literacy rates, although a few show weakassociations, especially in the economic freedom category. According to the Center'sanalysis, each of the six governance indicators maintains good or strong correlationto development outcomes. The measure of public primary education spending as apercent of GDP, however, is weakly associated with the three development standards. Three of the six economic freedom indicators -- trade policy, days to start a business,and three-year budget deficits -- are also found in the study as being weaklycorrelated with development achievements. (14) Issue: Hurdles and median vs. aggregated ranking. Some argue that an aggregation of scores andtop-to-bottom ranking rather than the use of hurdles is a better way in which todetermine eligibility with an above-the-median score requirement. While theAdministration holds that passing half the hurdles in each of the three policy areasensures broad commitment to both economic growth and poverty reduction, it alsomeans that countries do not have to meet each of the 16 standards to qualify. Thisapproach departs from more traditional aid requirements in which recipients mustcomply with all conditions associated with a program framework, especially thoseof the World Bank, IMF, and in some cases U.S. aid agreements. Once a countrypasses a hurdle, there are limited incentives to keep improving in those areas. Forcountries that miss qualifying by a small margin, however, the incentive remains. PDF version Use of the median also in some cases complicates efforts for a country to passthe hurdle due to outcomes beyond its control. The median will change over time,sometimes because new countries are added to the pool, as will be the case inFY2005. In other instances, a country may improve on a particular indicator but stillnot pass the hurdle because other countries improve more significantly and push themedian higher. Conversely, a government could regress or remain stagnant over timebut pass a hurdle it had failed the previous year because the median drops. A numberof observers have suggested that instead of using the median, it would be better eitherto set specific, individual thresholds that would be relevant to each indicator or to useabsolute scores. (15) A further issue in use of the median is that for three of the indicators -- political rights, civil liberties, and trade policy -- the range is relatively narrow for scoringcountry performance, resulting in many falling at the median. The Freedom Houseassigns scores on a 1-7 scale, while the Heritage Foundation uses a scale of 1-5. Forthe trade policy indicator, for example, 15 of the 75 IDA-eligible countries areassigned the median score of 4. Since a country must place above the median to passa hurdle, this eliminates a number of candidates with limited differentiation ofperformance. Issue: Surprising country outcomes and modifying the indicators. Many have been surprised by the possibility thatcountries such as Vietnam and China might qualify, despite scoring near the bottomon half of the indicators for ruling justly. Both countries pass the hurdles forcorruption, rule of law, and government effectiveness, but have some of the worstscores in the categories of political rights, civil liberties, and voice andaccountability. Since they score above the median for three of the six indicators andpass the corruption measure, they would qualify, at least in the ruling justly category. One analyst attributes this to the high degree of correlation among several indicators in a single category that tends to magnify existing data deficiencies. Whenhalf the indicators in a single category are strongly related to one another, and acountry scores well in those areas, the other indicators essentially become irrelevant. Egypt is also cited as an example of a country with a poor record on regulation andtrade, but would have passed the economic freedom grouping with data available inearly 2003 based on the strength of macroeconomic indicators. (16) One modification to the current proposal that would address this potential weakness would be to make sure that highly correlated indicators represent less thanone-half the total cluster. In this way, a country would not pass one of the threecategories based on a strong showing in one respect but very poor standards for theother measures. Another alteration to the Administration's plan would be to add anadditional indicator in each category so that there would be an odd number ofmeasurements in each category. In a sense, the added element would become a"tie-breaker" in cases where the current indicators tended to cluster in two, evenlydivided, highly correlated groupings. One review of the MCA proposal argues thatthe initiative does not include sufficient attention to democracy issues because itincludes indicators in the ruling justly category that are better measures of economic,not political freedoms. This analysis recommends a shift of the corruption, rule oflaw, and government effectiveness indicators to the economic policy category. Under this scenario, countries like Vietnam and China would fail the ruling justly test. (17) Issue: Data accuracy and availability. Due to the difficulty in collecting accurate data,especially those based on perceptions, a certain degree of error can be expected ineach of the 16 measurements. This cannot be overcome but is mitigated to someextent by the requirement of only having to pass half the hurdles in each policy area. But it appears most problematic for the pass/fail test of corruption. According to anassessment made by the authors of the corruption index, there is a large margin oferror and high degree of uncertainty for 25 countries that score slightly above orslightly below the median. Either cross-country data are not informative or sourcesdisagree on a country's corruption standing. Of the total of 25, 13 fall below themedian and would therefore be eliminated from further consideration, despite strongdoubt as to whether the data measured performance accurately. To overcome thispotential weakness, the authors recommend that MCA managers employ in-depthcountry diagnostics regarding governance performance for countries that fall near themedium -- the "yellow light countries." (18) Missing data also pose challenges. A strict interpretation of the data would result in a failing grade on a hurdle where no figures were available. Only 87 of the115 possible MCA-eligible countries have been reported with regard to the indicator"days to start a business," although the number has increase from 63 a year ago. Forother indicators where data were incomplete or lagged, especially in the cases ofeducation and health spending as a percent of GDP, executive officials say they willrely on information collected at U.S. embassies in each country. Issue: MCA Board of Directors discretionary authority. Allowing the Board some latitude to depart from thepurely statistical record will help address some of the data accuracy and availabilityproblems. But there appears to be divided opinion over how much discretion shouldbe permitted. Arguing for broader flexibility, some note that countries that just miss qualifying, possibly because of the lack of data, could still be reconsidered andapproved. (19) In the case of "close-calls," the Boardcould examine trends over timeto assess if a borderline country was improving or falling back in performance, andmake appropriate adjustments. In order to maintain the integrity and transparency ofthe selection process, final judgments that deviate from the methodological base willneed to be clearly explained and closely examined. (20) This will be especiallyimportant in cases where the country with close strategic and political ties to theUnited States is included despite not meeting all the hurdle tests. The same will betrue should the President decide to reject a country that has recently opposed orrefused to support an important U.S. security-related policy. Others disagree,however, contending that any discretion on the part of the Board would inviteunwarranted political influence and undermine MCA effectiveness. (21) Anotheranalyst argues that one way to avoid undue foreign policy intrusion would be tochannel MCA funds through multilateral entities, such as the World Bank. (22) Congressional proposals to modify Board of Directors discretion. As noted below, the Senate Foreign RelationsCommittee initially reported an MCA authorization bill that did not authorize thecreation of a Millennium Challenge Corporation, with a Board overseeing itsoperations. Instead, S. 1160 placed the MCA within the StateDepartment under the authority of the Secretary of State and gave the Secretary thepower to determine eligible countries through the evaluation of a government'scommitment to several factors in the three areas of ruling justly, economic freedom,and investing in people. Subsequently, however, the Senate voted on July 9, 2003, to modify the MCC structure and the role of the Board of Directors by adopting revised text that waslargely based on a proposal offered by Senator Lugar ( S. 1240 ). Themodified arrangement, which was incorporated as Division C of S. 925 ,established a Corporation to be managed by a CEO. Under the Senate measure, theCEO would report to and be under the direct authority and foreign policy guidanceof the Secretary of State. S. 925 , as amended, further established aBoard of Directors, chaired by the Secretary of State, and grants the Board the powerto determine eligible countries by evaluating the commitment of a country todemocratic governance, economic freedom, and investments in people. This did not,however, appear to limit the Board's selections based solely on the results of theperformance indicators. In this way, the Senate measure seemed to permit a similardegree of discretion that the Administration's plan envisioned. The House-passed measure ( H.R. 1950 ) was similar to the Senate bill in that it required eligible countries to have demonstrated a commitment tobolstering democracy, investing in health and education, and promoting soundeconomic policies, but did not specifically identify how such a commitment wouldbe determined, other than through the creation of eligibility criteria and amethodology. As enacted, the MCA authorizing legislation follows the general themes of earlier House and Senate bills. "Eligible" countries are to be determined, to themaximum extent possible, by objective and quantifiable indicators measuring acountry's commitment to the three core policy goals of ruling justly, promotingeconomic freedom, and investing in people. The legislation directs that the selectionis to be based on the consideration of three factors: the extent to which the countrymeets or exceeds the eligibility criteria; the opportunity to reduce poverty andpromote economic growth in the country; and how much money is available to carryout MCA programs. This appears to provide substantial flexibility and discretionaryauthority in the selection process. Where the House and Senate bills diverged, however, regarded who made the determination of eligibility and therefore, who would be in position to exercisediscretion in deviating from a strictly statistical evaluation. S. 925 , asamended on July 9, gave the Board of Directors authority to determine whether acountry is eligible, while H.R. 1950 placed the power with theCorporation's CEO. The enacted legislation gives this authority to the Board ofDirectors. The MCA initiative will be an additional economic assistance tool of the United States, and is not intended to replace or substitute for any existing channel of U.S.foreign aid. It can be expected, therefore, that overall American aid will continue toserve multiple national interests and foreign policy goals, including security,humanitarian, multilateral, and commercial objectives. Administration officials havemade a commitment that the MCA will be in addition to existing aid activities andthat regular U.S. programs will continue even in MCA-participating countries. Nevertheless, because of the priority being placed on the MCA policy orientation andthe size of the financial investment, there almost certainly will be ramifications of thenew initiative for current programs. Foremost may be funding tradeoffs, especiallygiven rising budget deficits and the costs of fighting the war on terrorism. (Spendingissues are also discussed below in the section on legislation and budgets.) Issue: Commitment to global initiatives. During the past year, some analysts have argued that aportion of the MCA should be dedicated to effective and results-oriented globalprograms operated on a multilateral basis. One concern is that the large amount ofresources directed to the MCA may limit the U.S. ability to maintain or expand uponcommitments to such activities as the Global Fund to Fight HIV/AIDS, Tuberculosis,and Malaria. Another worry is that soundly managed, high impact programs incountries with weak governance and poor corruption standards will miss out on theMCA opportunity to accelerate a process that is already making a contribution tolong-term economic growth and poverty reduction. Proponents of this view advocatea "two-tiered" approach to the MCA in which separate pools -- and perhapsmultiple pools -- are maintained to serve several types of activities. (23) The trade-off for this approach would be that significantly fewer resources per country would be available, most likely reducing the impact of MCA assistance. Some also caution that multilateral programs, regardless of their merits, do notnecessarily have the same results-oriented performance requirements of the MCA,a fact that would undermine the main objective of the MCA. Increased resources areonly one important feature of the new initiative, and to many MCA advocates, themost significant feature by far is the goal of allocating the aid where it will have thegreatest impact and be most readily accounted for. Issue: Policy coherence and USAID program goals in MCA countries. The Administration says it will maintain regulardevelopment aid programs in a country while it simultaneously launches a far largerMCA-designed activity. Executive officials have not said, however, how this mightaffect the shape and goals of continuing programs managed by USAID missions. Some may argue that regular aid objectives should be re-oriented to maintain policyconsistency with the MCA initiative and in some cases to help facilitate the corefocus of the larger pool of resources. Others, especially within USAID countrymissions, may question whether successful projects should be abandoned, with apotential negative impact on the target population. In perhaps the clearest statementto date, USAID Administrator Natsios told the House Foreign OperationsAppropriations Subcommittee that actions may vary from country to country. Henoted that USAID missions in MCA-selected countries would likely undertake astrategic review of their programs and may adjust projects to support the MCAcontract. In other cases, however, missions might continue high-priority activities,such as those combating HIV/AIDS or curbing trafficking in persons, or terminatecertain activities. (24) Some of these same issues regarding policy coherence are being raised regarding the relationship between the MCA and other U.S. economic and trade tools aimed atpromoting economic growth in developing nations. One study, for example,concludes that there is very little overlap between countries likely to qualify for theMCA and those currently eligible for debt reduction under the Heavily Indebted PoorCountry (HIPC) initiative or for trade preferences under the African Growth andOpportunity Act. (25) Congressman Jim Kolbe,Chairman of the House ForeignOperations Subcommittee, the House panel with jurisdiction over funding the MCA,suggests that MCA qualifiers should get special consideration for expedited tradepreferences that would further accelerate economic growth possibilities. (26) Still otherswho support the MCA framework find fault with the Administration for not devisingsimultaneously an overall foreign aid strategy into which the MCA fills one ofseveral elements of a comprehensive policy. (27) Beyond U.S. programs and policies, other foreign aid donors and institutions are expressing concerns that the MCA may be creating additional, and perhapscompeting performance goals to those that already exist. How MCA program goalsalign with the Millennium Development Goals is of particular concern. One of the most contentious issues associated with the MCA policy review process has been and is likely to continue to be where the MCA programmanagement will be placed. This debate has raised issues discussed for many yearsconcerning under what auspices U.S. foreign aid policy should be designed,coordinated, and managed. Over the years, suggestions have ranged fromcoordination within the National Security Council, creation of umbrellaorganizations, like the ill-fated International Development Cooperation Agency, andmost recently the merger of such responsibilities into the State Department. Afterextensive debate during the mid-1990s, a decision was reached to make USAID, theprincipal U.S. government bilateral aid agency, totally independent, but to have itoperate under the guidance of the Secretary of State. After considering numerous options, including the placement of the MCA as a separate unit with the State Department, the Administration proposed to create a newgovernment entity -- the Millennium Challenge Corporation -- to manage theinitiative. Given the innovative and non-traditional approach inherent in the MCAconcept, executive officials said it makes sense to establish a new entity to overseeits implementation. The Corporation, as proposed, would have a CEO, confirmedby the Senate, and a staff of no more than 100 that would be drawn largely from othergovernment agencies and serve for limited-term appointments. A Board of Directors,chaired by the Secretary of State and include the Treasury Secretary and OMBDirector, would oversee the MCC. Although it appears there is no precise existingmodel in the U.S. government, officials said that the MCC would most closelyresemble the Overseas Private Investment Corporation, an organization that promotesprivate American investment overseas, and the Commodity Credit Corporation, anarm of the Department of Agriculture that manages export credit guarantee programsfor the commercial sale of American agricultural goods. An important differencebetween these and the MCC, however, is the proposal to have a cabinet-memberBoard oversee the latter and make final recommendations. Issue: The need for a new organization. Before agreeing on the MCC, the inter-agencysteering committee reportedly looked seriously at the option of creating a separateunit within the State Department to manage the MCA. One reason for rejecting thisproposal may have been the relative lack of experience of State Department staff inadministering aid programs. This was one of the central issues considered when thequestion of whether to fold USAID into the Department was under debate. Thistechnical shortcoming, however, could have been overcome by adopting the MCCprinciple of detailing aid experts from other agencies to staff the office. A broaderreason for not placing the MCA within the State Department, however, may havebeen a concern that it would be located too close to the center of the U.S. foreignpolicy apparatus that would limit the program's immunity from strategic and politicalinfluences. At a minimum, many observers believed, there would be a perceptionproblem -- whether true or not -- that the MCA did not truly represent a departurefrom the past aid entanglements with broad U.S. foreign policy interests. At the same time, many groups encouraged the Administration to establish the MCA as an office within USAID, but apart from the normal operations of the agency. Various external groups have argued that USAID, with its 40 years of developmentexperience, maintained the knowledge, staff, and on-the-ground country presence tomost effectively administer and monitor the MCA. To place responsibilityelsewhere, they contend, would risk duplication of effort, competing priorities, andinconsistent policies. (28) Another, business-relatedorganization also opposes thecreation of a new institution. Rather it recommends the establishment of a "smallcore office" (unspecified as to where it would be placed) that would identify programpriorities and distribute the MCA funds to USAID and the Trade and DevelopmentAgency (TDA). (29) Others are skeptical, however, that USAID is best suited to implement the MCA concept. The Agency is frequently criticized as encumbered with excessiveregulations, managed with poor financial systems and time-consuming planningcycles, and burdened by extensive congressional oversight. One analysis, afterweighing both the merits and disadvantages of placing the MCA within USAID,concluded that if the Administration wants the MCA to operate differently than USAID, it should create a new agency to manage it. (30) Congressional proposals to modify the organization structure. Proposals considered by the Senate shifted positions onthe organizational issue as bills moved through the legislative process in 2003. S. 1160 , as reported by the Foreign Relations Committee in May 2003,did not authorize the creation of the MCC, as proposed by the President. Instead, thelegislation designated the Secretary of State as the coordinator of MCA assistanceand directed the Secretary to designate a coordinator within the State Department formanaging the program. The coordinator, who would be confirmed by the Senate,would have authority to develop the list of performance indicators, select eligiblecountries, and to coordinate MCA programs with other donors. The Committee adopted this approach by approving an amendment offered by Senators Hagel and Biden (approved 11-8). The sponsors noted that in 1998Congress had consolidated two independent agencies -- USIA and ACDA -- in theState Department in order to give the Secretary more director authority over all toolsof U.S. foreign policy. To create a separate entity to manage what could become thecornerstone of American foreign assistance, they argued, would run counter to theserecent efforts to better integrate and coordinate foreign policy decision-making. Supporters further questioned what value the OMB Director would provide by beingon the Board of Directors, given that the Director is generally not assignedpolicy-making responsibilities. The Administration strongly opposed the Committee's action to place the MCA in the State Department. At the markup session on May 21, 2003, Chairman Lugarread a letter from Secretary Powell underscoring the value of a new, independent, andcreative entity for managing this "new start" to U.S. foreign aid. The Secretary saidthat if this approach remains in the final bill, he would recommend that the Presidentveto the legislation. Senator Lugar, who opposed the Biden-Hagel amendment, proposed an alternative structure in new legislation. S. 1240 , as introduced on June11, would create a Millennium Challenge Corporation, headed by a CEO who wouldreport to the Secretary of State. Senator Lugar intended that such an arrangementwould provide the Corporation with the same degree of independence and status asUSAID, but establish a chain of command that would permit the Secretary of Stateto exercise broad authority over the MCA. S. 1240 created a Board ofDirectors, made up of the Secretary of State (Chairman), the Secretary of theTreasury, the USAID Administrator, the U.S. Trade Representative, and the MCCCEO. The full Senate adopted the general approach proposed by Senator Lugar whenit voted on July 9, 2003, to incorporate a modified text of MCA authorizinglegislation into S. 925 , an omnibus foreign policy authorization bill. The approved text further strengthened the explicit relationship between theCorporation and the Secretary of State by adding that the CEO shall "report to andbe under the direct authority and foreign policy guidance of the Secretary." TheAdministration did not express objection to the revised legislation. The House bill, H.R. 1950 , took a somewhat different approach than the modified Senate proposal that was closer to the Administration's position,although with some important differences. H.R. 1950 would create anew Millennium Challenge Corporation sought by the President, but altered thecomposition of the Board of Directors and, as noted above, the authority of theMCC's Chief Executive Officer. The Board would include the Secretary of State asChairman and the Secretary of the Treasury, as proposed, but deleted the Director ofOMB and added the USAID Administrator, the U.S. Trade Representative, and theCEO of the MCC. The bill also included four additional members, to be appointedby the President from a list submitted by the majority and minority leaders of theHouse and Senate. The Board would further include as non-voting ex-officiomembers, the CEO of OPIC, and the Directors of the Trade and DevelopmentAgency, Peace Corps, and OMB. The House measure further created an AdvisoryCouncil that would advise, consult, and make recommendations to the CEO andBoard of Directors for improving the MCA. The Council would include sevenCEO-appointed members from the non-governmental sector, including business,labor, private and voluntary organizations, foundations, public policy organizations,and the academic community. As enacted (Title VI of the Foreign Operations Appropriations Act, 2004, as included in Division D of P.L. 108-199 ), the MCA authorizing legislation combinedapproaches found in both House and Senate bills. The statute creates an independentMillennium Challenge Corporation, headed by a CEO who is confirmed by theSenate and reports to the Board of Directors. The Board consists of the Secretary ofState (Chairman), the Secretary of the Treasury, the USAID Administrator, the U.S.Trade Representative, and the CEO. Four additional individuals will be on the Boardthat "should" be named by the President from lists of candidates supplied by theMajority and Minority leaders in the House and Senate. The enacted legislation,however, does not require Advisory Council as proposed by the House. Issue: Role of MCC staff in managing and monitoring the MCA. One of the first concerns of aid managers isthe ability of a 100-staff organization to maintain proper oversight and accountabilitystandards over what will become a $5 billion program. By comparison, USAIDmaintains a staff of nearly 2,000 American direct-hires and several thousand morecontractors and foreign nationals based overseas to implement a roughly $8 billionprogram. Few would argue that a similar work-force is needed -- indeed, therewould likely be minimal support for a bureaucracy even half that size. But with acentral mandate of performance, results, and accountability, the MCA requires astrong monitoring capability. The Administration has mentioned the prospect of anoutside, independent auditing system, but the issue appears to remain unresolved. Even though USAID will not manage the MCA, it is likely that its staff, especially those located in MCA participant countries, will play a supporting role invarious capacities. USAID Administrator Andrew Natsios has told his staff that theAgency's long record of best practices and experience will be required if the MCCis to be successful. But how this will operate in the field is an open question. Thereis concern among some USAID professionals that the time and attention of missionstaff to support administrative, contracting, and procurement needs of MCAprograms will diminish their ability to manage regular aid programs. And asmentioned above, how the current mission portfolio relates to MCA objectives isunclear. Issue: Future of USAID. The creation of a new agency to manage the MCA is likely to be viewed by some as avote of no confidence in USAID. This may stimulate renewed debate over whetherthe USAID mandate should be modified -- perhaps limiting it to a strictlyhumanitarian aid agency -- or folding it into the State Department or the MCC itselfat some future date. USAID supporters are concerned that an MCA managed outsidethe principal U.S. development organization will establish a two-class aid systemwith USAID responsible for addressing the needs of the "weaker" performers whilethe main emphasis will transfer to the MCC. The potential impact on staffrecruitment and morale, and eventually resources, they believe, could be serious. Anargument could be made as well, however, that this provides an opportunity forUSAID not only to demonstrate its expertise as an aid organization and serve theMCC as a valued "consultant," but also can serve as incentive to review its ownoperations and correct some of the persistent problems identified by critics. (31) Congressional proposals to modify USAID's role. During legislative consideration of MCA authorizing bills,Congress attempted to clarify the relationship between the MCC and USAID inefforts to minimize overlap and inconsistency of aid policies and operations. Asmentioned above, under both bills the USAID Administrator would become a votingmember of the Board of Directors. S. 925 , as amended, further directedCorporation staff posted overseas to coordinate the MCA program with the USAIDmission director in that country. The legislation also directed USAID to ensure thatagency programs would help prepare potential MCA participant countries to becomeeligible for assistance. Similarly, H.R. 1950 gave USAID the lead role in assisting countries to become eligible in the future that had demonstrated a commitment todevelopment but failed to qualify based on the performance indicators (the so-called"near-miss" countries). Up to 15% of the amount authorized annually for the MCAcould be made available for such USAID programs. (The Senate measure alsoprovided up to 10% of annual MCA funds be available to countries that failed toqualify because of unreliable data or lack of performance on only one indicator,although the Corporation, not USAID would provide the assistance.) H.R. 1950 also directed the MCC to consult with USAID officialsregarding the contents of a contract -- or Compact -- between the U.S. and an MCAparticipant country, and required that the MCC and USAID coordinate their programsto the maximum extent possible. During House floor debate, Members adopted anamendment by Congressman Kolbe intended to further clarify USAID's role inproviding U.S. economic assistance. The language stated that the USAIDAdministrator shall report to the President "through, and operate under the foreignpolicy authority and direction of the Secretary of State." (32) The Kolbe amendmentalso authorized USAID to extend assistance to countries ineligible for MCA aid sothat they may become eligible, and permitted USAID to help in the evaluation,execution, and oversight of the MCA projects. The enacted legislation authorizing the MCA (Title VI of the Foreign Operations Appropriations Act, 2004, as included in Division D of P.L. 108-199 ),specifically addresses the issue of the MCA and USAID relationship. Section 615of the measure requires the CEO to consult with the USAID Administrator, and thatUSAID must ensure that its programs play a primary role in preparing countries tobecome eligible for the MCA. As such, the legislation makes available up to 10%of the MCA appropriation ($99 million in FY2004) for assisting countries thatdemonstrate a "significant commitment" to the MCA requirements, but narrowlymiss qualifying. USAID may provide this support. The statute further requiresUSAID to seek to ensure that agency programs play a primary role in helping preparea country that has failed to qualify previously to better compete in the next selectionprocess. With broad agreement that development programs work best when they are designed and therefore "owned" by the host country and not imposed from outside,executive officials stress that MCA programs will be country-driven. Once a nationis identified as eligible, it will be invited to draft and submit program proposals forevaluation and selection through the MCC. Projects should directly support broadnational development strategies already in place, preferably constructed withextensive input from civil society. Since several of the possible MCA countries havealready designed such strategies as part of the Heavily Indebted Poor Country (HIPC)debt reduction initiative -- the Poverty Reduction Strategy Papers -- these PRSPsmight serve as the guiding framework for program goals where appropriate. The Administration has outlined numerous types of programs that might be supported by the MCA: budget support for various community, sector, or nationalinitiatives; infrastructure development, commodity financing, training and technicalassistance, and capitalization of enterprise funds or foundations. Selection woulddepend on country-specific circumstances and would not be appropriate in all cases. For example, budget support programs would only be suitable where governmentsmaintain transparent budgeting, accounting, and control systems and have stronggovernance and anti-corruption records. Endowing enterprise funds or foundationsmight be appropriate where other alternatives are weak or where innovative ways offinancing development proposals appear attractive. An eligible country could submit multiple proposals annually, some of which might take several years to implement. The MCC would create a contractualrelationship with selected countries and require the establishment of project performance goals so that progress could be closely monitored. Should performancefall behind or fail, the contract could be declared void and funding cut-off. Issue: Detailing the types and targets of programs. One of the next steps for MCA planners will be to refinemore precisely the nature of programs the MCA will support, who the beneficiarieswill be, and what criteria will be used in making the selection. A number of groups,especially in the U.S. NGO community, have stressed the need to include programsthat will directly support non-governmental and civil society activities that mayoperate independently of the government. Some advocate that the MCC solicitproposals directly from private, non-governmental groups. (33) The Administration appears to be receptive to the principle that MCA funded activities need not support only government-run or sponsored initiatives, but alsocould include projects operated directly by the private sector or NGOs. The draftlegislation submitted to Congress in February 2003 allowed the MCC to issue grantsto both private and public entities. What may be more problematic is the receipt ofproposals straight from these non-governmental sources. This might result in anawkward competitive relationship between government and non-governmentsubmissions, a competition that might be best settled by the country itself prior totransferring recommendations to the MCC. USAID Administrator Natsios told theHouse Appropriations Foreign Operations Subcommittee on May 21, 2003. thatwhile the MCA would likely include programs proposed by non-governmentalentities, the contract would need to be signed by the host government and that thegovernment would be responsible for managing and overseeing the project. Another issue related to the types of programs eligible for MCA resources is the capacity of both the U.S. and participant countries to manage the projects. Budgetsupport, infrastructure, and commodity assistance most likely would be large-scaleactivities where substantial amounts of resources could be invested, thereby reducingthe total number of projects to be managed and monitored. Community-based orNGO projects, on the other hand, likely would be much smaller in size and fundingrequirements, but far more numerous in totality. While supporting the broadest arrayof development programs with MCA funds provides the maximum opportunities,U.S. policy makers will have to decide whether they are prepared to assumeresponsibility for a large number of projects in the MCA portfolio and the associatedmanagement, oversight, and accountability demands. A key principal endorsed by numerous MCA proponents is that programs must be country-owned, designed by a broad spectrum of government and civil society. As noted above, some have suggested that PRSPs that have been developed by manypotential MCA countries could be used as the guiding framework in devisingprogram proposals. (34) Recognizing, however, thatmany MCA countries do not havesufficient capacity to design program proposals on their own, many suggest thatUSAID and others assist -- but do not control -- the development of programsubmissions. (35) Congressional action on program issues. The enacted MCA authorizing legislation permits resourcesto be provided to a wide range of entities, including central governments, NGOs,regional and local governments, and private groups. Assistance may take the formof a grant, cooperative agreement, or contract with any of these eligible entities. Thelegislation requires that the United States enters into a "Compact" with a qualifyingcountry that describes the program to be funded, how it will be monitored, and howthe development goals will be achieved. The Compact cannot exceed a five yearcommitment. The measure specifically prohibits assistance for military purposes, forany project that would likely result in the loss of American jobs, for projects thatwould likely cause a significant environmental, health, or safety hazard, or forabortions or involuntary sterilizations. The legislation further sets out the process bywhich the CEO can suspend or terminate a Compact in cases where the country hasengaged in activities contrary to U.S. national security interests, has taken actionsinconsistent with the criteria for determining MCA country eligibility, or has failedto meet the requirements of the Compact. The Administration submitted in early February 2003 draft MCA authorizing legislation and separately proposed $1.3 billion for the first year funding level. Program flexibility, as expected, was one of the key themes integrated throughout thedraft bill. Executive officials said that while the MCA should have its own statutorybase separate from existing laws, including the Foreign Assistance Act of 1961,current restrictions that prohibit U.S. assistance to countries would remain. Theseinclude a lengthy list of potential infractions including those related to human rights,drug production, terrorism, nuclear weapons transfers and testing, military coups,debt payment arrears, and trafficking in women and children, just to name a few. In keeping with the desire for flexibility the draft legislation would make available MCA resources "notwithstanding any provision of law," but with a notableexception. Countries that currently cannot qualify for U.S. assistance under part 1of the Foreign Assistance Act of 1961 -- that part of the Act authorizing programsfor bilateral development aid, narcotics control, international disasters, the formerSoviet Union, and Central Asia, among others -- would remain ineligible for MCAfunds. However, if the President waived any prohibition under Part 1 for a particularcountry, that nation would then be eligible for MCA resources. (36) Another area of flexibility highlighted in the draft bill concerned personnel and administrative authorities. The CEO of the Corporation would be granted authorityto establish and modify in the future a human resources management system withoutregard to existing laws governing Civil Service and Foreign Service activities,although certain provisions, including merit and fitness principles, cannot be waived. The draft submission further granted the CEO the authority to appoint and terminatepersonnel notwithstanding Civil Service and Foreign Service laws and regulations. The bill would also allow the MCC to transfer MCA resources to any U.S. agency,and would permit the Corporation to draw on the services and facilities of otherfederal agencies in carrying out the program. On the funding question, the Administration expressed a commitment to a $5 billion MCA program by FY2006, although the pace at which resources approachthat figure would be influenced by anticipated demand as well as larger budgetaryconsiderations stemming from competing spending priorities, a growing deficit, andother possible policy initiatives. For FY2004, the President requested $1.3 billion,a figure less than one-third of the three year goal that some had expected. TheAdministration did not provide any projections for FY2005. The President further made a commitment that MCA resources would not be drawn from existing aid programs, but would be in addition to those appropriations,although of course final decisions on appropriations are made by Congress. TheAdministration sought a large -- $2.6 billion, or 16% -- increase in ForeignOperations Appropriations programs for FY2004, including the MCA funds, butsome areas of the proposal, especially for bilateral development assistance programs,fell below current amounts for FY2003. Issue: Flexibility and congressional directives and oversight. An issue that has been heatedly argued between Congressand all Administrations for many years has been the practice of congressionallegislative directives and earmarks in foreign aid authorization and spending laws. Executive officials argue that the excessive use of such directives, both formal andinformal, seriously erodes their ability to manage foreign policy and operate acoherent foreign aid program. Most in Congress view the use of directives and earmarks, however, as a legitimate tool for congressional participation in setting foreign aid policy andspending priorities. Some Members point to congressional emphasis in recent yearson initiatives such as child health, basic education, and international HIV/AIDS,programs that both the Clinton and Bush Administrations subsequently came toembrace and support with higher budget requests. Without congressional pressurethrough earmarks, U.S. commitment and leadership on these policies would not existto the extent they do today, many argue. Moreover, some contend that these broad,sector allocation directives represent priority-setting decisions by lawmakers andreflect the appropriate and constructive power of Congress to manage the federal"purse." It is the far more targeted earmarks, they contend, benefitting specialinterests or specific organizations and firms, that are problematic from theExecutive's perspective. The dispute over congressional foreign aid directives is unlikely to be resolved during any MCA debate. However, the distinctive nature of the MCA initiative provided the Administration with a different set of arguments against earmarks. Because of the demand-based, results-driven concept of the MCA, executive officialscontended that the traditional pattern of congressional directives -- specifyingfunding amounts for selected countries or activities, and placing restrictions oncertain operations -- would undermine the basic principles of the MCA concept. Legislative set-asides for a particular set of countries or for certain program activitieswould arguably undercut the transparent, objective process of selecting thebest-performers. In settling these differences, one model to examine might be how Congress authorizes and funds other demand-driven programs in the annual Foreign Operationsappropriation bill. Since it is not known in advance who may request or requiresupport under programs such as the Export-Import Bank, the Trade and DevelopmentAgency, or international disaster assistance, Congress generally appropriates amountsthat are expected to be needed to meet the resource demands placed on theseactivities, with few or no set-asides for specific requirements. Authorizing laws forthese programs include some restrictions, but are generally not nearly as extensiveas those for regular bilateral economic and military aid programs. An importantdifference, however, between such programs and the MCA is that their purpose is farmore narrowly defined than that of the MCA. Linking existing foreign aid eligibility requirements with the MCA drew broad support within Congress, since many of those requirements reflect fundamental socialand political values and were congressionally initiated. But the prospect of applyingto an MCA participant these overarching aid prohibitions, especially those thatrequire an Administration discretionary determination to trigger the aid cut-off, raiseda new set of issues. Would, for example, the extent to which the U.S. has a majorfinancial investment in a successful MCA project influence a decision on whether todeclare the government in violation of narcotics cooperation standards? Congressional action on flexibility and oversight issues. For the most part, the enacted MCA authorizing act refrainsfrom earmarking, providing authorities consistent with MCA principals set out by theAdministration, and permitting the executive to implement the program with a degreeof flexibility. The measure authorizes assistance "notwithstanding any otherprovision of law." However, countries which are ineligible for American economicaid due to restrictions contained in the Foreign Assistance Act of 1961 or any otherprovision of law cannot be selected for MCA support. This provision will likelyeliminate consideration of a number of countries, although in most cases thesecountries would most likely be weak performers under the MCA selection criteria. Moreover, as noted above, assistance may not result in the loss of American jobs,displace U.S. production, pose a major environmental, health, or safety hazard, beused for military support, or finance abortions or involuntary sterilizations. Thestatute also adds several requirements aimed at strengthening congressional oversightof the MCA. The legislation requires the Secretary of State to post information aboutthe MCA in the Federal Register and on the Internet, and to submit an annual reporton MCA operations. Issue: Funding and possible tradeoffs. Following submission of the FY2004 budget, MCAadvocates closely examined two funding issues: the size of the MCA request andproposals for other U.S. economic aid programs. Many believed that MCA resourcesshould and would grow in equal amounts of $1.67 billion per year to reach the $5billion total in three years. Conflicting Administration statements gave credibilityto the view that this was the intention, although officials have said more recently thatthis is not the case. For one reason, since the number of qualifiers the first year isstill far from certain, the funding requirements may be quite different from $1.67billion. In addition, the budget environment was much different than it was in March 2002 when the President issued his policy statement. Budget deficits had risen,creating greater pressure to hold spending down in nearly all areas. Such pressuresare likely to continue throughout future budget debates, making the task ofaccommodating a new and large funding initiative more difficult. One way to manage MCA increases would be to rearrange overall foreign aid spending priorities and reduce amounts elsewhere. But the President said theAdministration would not take that path. While the FY2004 budget request largelymaintained funding for other foreign aid programs at existing levels -- although witha few important exceptions -- congressional appropriators faced limitations in theirability to fully provide for both the MCA and other aid accounts. The effects of awar in Iraq and unanticipated foreign policy contingencies arising later in 2003created new resource demands. When Congress decided on different appropriationpriorities than the President and allocated a smaller amount to the Foreign Operationsfunding bill, it set the stage for direct trade-offs between the MCA and competingsecurity, economic, and humanitarian activities. In addition, the MCA was not theonly Foreign Operations program that was vying for increased spending for FY2004. The President's budget included several other new initiatives, including those foradditional HIV/AIDS resources, "topping up" the HIPC debt reduction initiative, acontingency funds addressing famine and conflict needs. While the overall requestfor Foreign Operations was well above FY2003 enacted levels -- up 16% -- thesenew initiatives accounted for most of the increase, leaving continuing programs witha more modest 3.6% rise. Some foreign aid proponents were especially concerned about reductions in the President's FY2004 budget for development assistance and global health programs. Compared with the Administration's request for FY2003, the FY2004 budgetblueprint was the same -- a combined $2.96 billion total for these "core" bilateraldevelopment aid activities. But due to Congressional additions, the FY2003 levelshad increased to $3.23 billion, making the FY2004 request 8% less than enactedamounts for FY2003. Some argued that these, and similar reductions below FY2003appropriations for refugees, disaster, and food aid, broke the President's pledge tomake the MCA an additional source of funding. In order to reach a conclusion,however, one would have to know whether funds proposed for the MCA would bemade available for accounts supporting similar activities if this new initiative was notsubmitted. It is unclear that in the absence of the MCA or any of the other newinitiatives, that an equivalent amount of resources would have been made availablefor other bilateral economic aid programs. Congressional proposals to modify MCA funding levels. Throughout the 2003 debate over MCA authorization andappropriation funding amounts, Congress struggled with the challenge of fullyfunding the President's $1.3 billion MCA request and addressing other foreign aidpriorities. Senate bills ( S. 1160 and S. 1426 ) authorizedand appropriated $1 billion for the MCA in FY2004. The authorization furtherprovided for $2.3 billion in FY2005 and $5 billion for FY2006. In the House, H.R. 1950 authorized $1.3 billion, while H.R. 2800 appropriated $800 million. As enacted in Title VI of the Foreign Operations Appropriations Act, 2004 (included in Division D of P.L. 108-199 ), authorizations for MCA appropriations forFY2004 and FY2005 are set as "such sums as may be necessary." Elsewhere in thesame Act, Congress provides $1 billion for MCA appropriations in FY2004, $300million less than requested. (37) This appropriationreduction may affect the number ofcountries and program proposals selected for FY2004, and the pace at which theinitiative would move forward towards the $5 billion goal by FY2006. Throughout this report, Congressional recommendations to alter key elements of the President's MCA initiativeare discussed. The table belowsummarizes these changes. a. The status of the Senate bill is based on S. 925 , the Foreign Affairs Act, Fiscal Year 2004, as amended during debate on July 9 and 10. S. 925 remains pending in the Senate. Previously, the Senate Foreign Relations Committee had approvedlegislation authorizing theMillennium Challenge Account in S. 1160 . A modified text of S. 1160 was subsequently incorporatedinto S. 925 as Division C on July 9. The House bill, H.R. 1950 , is also a combined foreign policy authorization measureto which earlier MCAauthorizing text was added. The House International Relations Committee had reported H.R. 2441 , whichwas incorporated, withmodifications, to H.R. 1950 , and passed by the House on July 16. For many years, the United States has been criticized by other nations andinternational development organizations for not contributing enough to fight globalpoverty and promote economic growth. Although the United States was the largestprovider of Official Development Assistance (ODA) (38) until the early 1990s and wassecond to Japan in most years since until 2001, its contribution has been at or nearthe bottom of the list of international donors when measured as a proportion ofnational wealth. Figure 1. ODA Performance 2002 The United States defends its record as a development aid provider, arguing that contributions to global poverty reduction should not be measured simply in terms ofaid transfers as a percent of GNP. (39) U.S. officialsnote that in dollar terms, AmericanODA has remained substantial, and is programmed on more favorable terms than thatof other donors. The United States, they emphasize, was a leading voice over thepast several years in the Heavily Indebted Poor Country (HIPC) debt initiative, beingthe first government to advocate 100% cancellation of bilateral debt owed by theworld's poorest nations. American charitable organizations and businesses providea significant proportion of annual aid transfers and private investment to thedeveloping world. Given the large amount spent by the United States on defense andthe security it provides to allies and friends around the world, American contributionsto global stability and a stable environment in which economic development can takeshape is much larger than ODA expenditures suggest, they contend. In the coming years, if Congress continues to appropriate funds for the MCA initiative that are in addition to other ODA resources, the dollar value of U.S. ODAwill increase -- perhaps significantly -- especially if other new foreign aid programs,like the Global HIV/AIDS Initiative, proceed as planned. The Administration saysthat the MCA would add 50% to U.S. ODA contributions, and while that figure maynot be reached by FY2006, it is likely to be in the 25-40% range. But on the otherpoint of measurement -- ODA as a percent of GDP -- the impact will not be sodramatic, largely because MCA appropriations are likely to be very small relative tothe size of the U.S. economy and because of projected GDP growth estimates overthe next several years. According to current projections, assistance would rise fromthe 2002 level of 0.12% of GDP to 0.15%. IDA-eligible, per capita income $1,415 and below MCA eligible FY2004 and beyond * Gross National Income, dollars per capita, 2002. World Bank Annual Report, 2003. ** Precise data unavailable. Per capita income $1,415 and below MCA eligible FY2005 and beyond Per capita income $1,416 - $2,935 MCA eligible FY2006 and beyond * Gross National Income, dollars per capita, 2002. World Bank Annual Report, 2003. | In a speech on March 14, 2002, at the Inter-American Development Bank, President Bush outlined a proposal for the United States to increase foreign economic assistance beginning inFY2004 so that by FY2006 American aid would be $5 billion higher than three years earlier. Thenew funds, which would supplement the roughly $16.3 billion economic aid budget for FY2003,would be placed in a separate fund -- Millennium Challenge Account (MCA) -- and be availableon a competitive basis to a few countries that have demonstrated a commitment to sounddevelopment policies and where U.S. support is believed to have the best opportunities for achievingthe intended results. These "best-performers" would be selected based on their records in three areas -- ruling justly, investing in people, and pursuing sound economic policies. Development of a new foreign aid initiative by the Bush Administration was influenced by a number of factors, including the widely perceived poor track record of past aid programs, recentevidence that the existence of certain policies by aid recipients may be more important for successthan the amount of resources invested, the war on terrorism, and the March 2002 U.N.-sponsoredInternational Conference on Financing for Development in Monterrey, Mexico. The MCA initiative is limited to countries with per capita incomes below $2,935, although in the first two years -- FY2004 and FY2005 -- only countries below the $1,415 level would competefor MCA resources. Participants will be selected based on a transparent evaluation of a country'sperformance on 16 economic and political indicators, divided into three clusters corresponding tothe three policy areas of governance, economic policy, and investment in people. Eligible countriesmust score above the median on half of the indicators in each area. One indicator -- control ofcorruption -- is a pass/fail measure: a country must score above the median on this single measureor be excluded from further consideration. The Administration proposed to create a new entity -- the Millennium Challenge Corporation (MCC) -- to manage the initiative. The MCC would be supervised by a Board of Directors chairedby the Secretary of State. Several other key issues, including the number of participating countriesand monitoring mechanisms, have yet to be determined. Congress plays a key role in the policy initiative by considering authorization and funding legislation, and confirming the head of the proposed MCC. A number of issues have been addressedin the congressional debate, including country eligibility criteria, performance indicators used toselect participants, creation of the new MCC, and budget considerations. Congress approvedlegislation (Division D of P.L. 108-199 ) authorizing the new program and appropriating $994million for the first year. The measure creates a Corporation, as proposed, but alters the compositionand size of the Board of Directors. It further limits the extent to which lower-middle incomecountries in FY2006 and beyond can participate in the MCA so that more resources will be availablefor the poorest nations. The legislation creates a roughly 90-day period after the Corporation isestablished for consultation and public comment before selecting MCA participants for FY2004. It is expected that the Board will name the initial MCA eligible countries in May 2004. |
All commercial nuclear power plants in the United States, as well as nearly all nuclear plants worldwide, use light water reactor (LWR) technology that was initially developed for naval propulsion. Cooled by ordinary water, LWRs in the early years were widely considered to be an interim technology that would pave the way for advanced nuclear concepts. After the early 1960s, the federal government focused most of its nuclear power research and development efforts on breeder reactors and high temperature reactors that could use uranium resources far more efficiently and potentially operate more safely than LWRs. However, four decades later, LWRs continue to dominate the nuclear power industry, and are the only technology currently being considered for a new generation of U.S. commercial reactors. Federal license applications for as many as 30 new LWRs have been recently announced. The proposed new nuclear power plants would begin coming on line around 2016 and operate for 60 years or longer. Under that scenario, LWRs appear likely to dominate the nuclear power industry for decades to come. If the next generation of nuclear power plants consists of LWRs, what is the potential role of advanced nuclear reactor and fuel cycle technologies? Do current plans for a new generation of LWRs raise potential problems that advanced nuclear technologies could or should address? Can new fuel cycle technologies reduce the risk of nuclear weapons proliferation? What is the appropriate time frame for the commercial deployment of new nuclear technology? This report provides background and analysis to help Congress address those questions. Prominent among the policy issues currently before Congress is the direction of the existing nuclear energy programs in the U.S. Department of Energy (DOE). DOE administers programs to encourage near-term construction of new LWRs, such as the Nuclear Power 2010 program, which is paying half the cost of licensing and first-of-a-kind engineering for new U.S. LWR designs, and loan guarantees for new reactors now under consideration by U.S. utilities. DOE's Global Nuclear Energy Partnership (GNEP) is developing advanced fuel cycle technologies that are intended to allow greater worldwide use of nuclear power without increased weapons proliferation risks. Advanced nuclear reactors that could increase efficiency and safety are being developed by DOE's Generation IV program, which is looking beyond today's "Generation III" light water reactors. The priority given to these options depends not only on the characteristics of existing and advanced nuclear technologies, but on the role that nuclear power is expected to play in addressing national energy and environmental goals. For example, if nuclear energy is seen as a key element in global climate change policy, because of its low carbon dioxide emissions, the deployment of advanced reactor and fuel cycle technologies could be considered to be more urgent than if nuclear power is expected to have a limited long-term role because of economic, non-proliferation, and safety concerns. As their name implies, light water reactors use ordinary water for cooling the reactor core and "moderating," or slowing, the neutrons in a nuclear chain reaction. The slower neutrons, called thermal neutrons, are highly efficient in causing fission (splitting of nuclei) in certain isotopes of heavy elements, such as uranium 235 and plutonium 239 (Pu-239). Therefore, a smaller percentage of those isotopes is needed in nuclear fuel to sustain a nuclear chain reaction (in which neutrons released by fissioned nuclei then induce fission in other nuclei, and so forth). The downside is that thermal neutrons cannot efficiently induce fission in more than a few specific isotopes. Natural uranium has too low a concentration of U-235 (0.7%) to fuel an LWR (the remainder is U-238), so the U-235 concentration must be increased ("enriched") to between 3% and 5%. In the reactor, the U-235 fissions, releasing energy, neutrons, and fission products (highly radioactive fragments of U-235 nuclei). Some neutrons are also absorbed by U-238 nuclei to create Pu-239, which itself may then fission. After several years in an LWR, fuel assemblies will build up too many neutron-absorbing fission products and become too depleted in fissile U-235 to efficiently sustain a nuclear chain reaction. At that point, the assemblies are considered spent nuclear fuel and removed from the reactor. LWR spent fuel typically contains about 1% U-235, 1% plutonium, 4% fission products, and the remainder U-238. Under current policy, the spent fuel is to be disposed of as waste, although only a tiny fraction of the original natural uranium has been used. Long-lived plutonium and other actinides in the spent fuel pose a long-term hazard that greatly increases the complexity of finding a suitable disposal site. Reprocessing, or recycling, of spent nuclear fuel for use in "fast" reactors—in which the neutrons are not slowed—is intended to address some of the shortcomings of the LWR once-through fuel cycle. Fast neutrons are less effective in inducing fission than thermal neutrons but can induce fission in all actinides, including all plutonium isotopes. Therefore, nuclear fuel for a fast reactor must have a higher proportion of fissionable isotopes than a thermal reactor to sustain a chain reaction, but a larger number of different isotopes can constitute that fissionable proportion. A fast reactor's ability to fission all actinides makes it theoretically possible to repeatedly separate those materials from spent fuel and feed them back into the reactor until they are entirely fissioned. Fast reactors are also ideal for "breeding" the maximum amount of Pu-239 from U-238, eventually converting virtually all of natural uranium to useable nuclear fuel. Current reprocessing programs are generally viewed by their proponents as interim steps toward a commercial nuclear fuel cycle based on fast reactors, because the benefits of limited recycling with LWRs are modest. Commercial-scale spent fuel reprocessing is currently conducted in France, Britain, and Russia. The Pu-239 they produce is blended with uranium to make mixed-oxide (MOX) fuel, in which the Pu-239 largely substitutes for U-235. Two French reprocessing plants at La Hague can each reprocess up to 800 metric tons of spent fuel per year, while Britain's THORP facility at Sellafield has a capacity of 900 metric tons per year. Russia has a 400-ton plant at Ozersk, and Japan is building an 800-ton plant at Rokkasho to succeed a 90-ton demonstration facility at Tokai Mura. Britain and France also have older plants to reprocess gas-cooled reactor fuel, and India has a 275-ton plant. About 200 metric tons of MOX fuel is used annually, about 2% of new nuclear fuel, equivalent to about 2,000 metric tons of mined uranium. While long a goal of nuclear power proponents, the reprocessing or recycling of spent nuclear fuel is also seen as a weapons proliferation risk, because plutonium extracted for new reactor fuel can also be used for nuclear weapons. Therefore, a primary goal of U.S. advanced fuel cycle programs, including GNEP, has been to develop recycling technologies that would not produce pure plutonium that could easily be diverted for weapons use. The "proliferation resistance" of these technologies is subject to considerable debate. Removing uranium from spent nuclear fuel through reprocessing would eliminate most of the volume of radioactive material requiring disposal in a deep geologic repository. In addition, the removal of plutonium and conversion to shorter-lived fission products would eliminate most of the long-term (post-1,000 years) radioactivity in nuclear waste. But the waste resulting from reprocessing would have nearly the same short-term radioactivity and heat as the original spent fuel, because the reprocessing waste consists primarily of fission products, which generate most of the radioactivity and heat in spent fuel. Because heat is the main limiting factor on repository capacity, conventional reprocessing would not provide major disposal benefits in the near term. DOE is addressing that problem with a proposal to further separate the primary heat-generating fission products—cesium 137 and strontium 90—from high level waste for separate storage and decay over several hundred years. That proposal would greatly increase repository capacity, although it would require an alternative secure storage system for the cesium and strontium that has yet to be designed. Safety and efficiency are other areas in which improvements have long been envisioned over LWR technology. The primary safety vulnerability of LWRs is a loss-of-coolant accident, in which the water level in the reactor falls below the nuclear fuel. When the water is lost, the chain reaction stops, because the neutrons are no longer moderated. But the heat of radioactive decay continues and will quickly melt the nuclear fuel, as occurred during the 1979 Three Mile Island accident. DOE's Generation IV program is focusing on high temperature, gas-cooled reactors that would use fuel whose melting point would be higher than the maximum reactor temperature. The high operating temperature of such reactors would also result in greater fuel efficiency and the potential for cost-effective production of hydrogen, which could be used as a non-polluting transportation fuel. However, the commercial viability of Generation IV reactors remains uncertain. DOE's advanced nuclear technology programs date back to the early years of the Atomic Energy Commission in the 1940s and 1950s. In particular, it was widely believed that breeder reactors would be necessary for providing sufficient fuel for a commercial nuclear power industry. Early research was also conducted on a wide variety of other power reactor concepts, some of which are still under active consideration. The U.S. research effort on various advanced nuclear concepts has waxed and waned during subsequent decades, sometimes resulting from changes in Administrations. Technical and engineering advances have appeared to move some of the technologies closer to commercial viability, but significantly greater federal support would be necessary to move them beyond the indefinite research and development stage. GNEP is the Bush Administration's program for commercial deployment of reprocessing or recycling of spent nuclear fuel. The program's goal is to develop "proliferation resistant" fuel cycle technologies—not producing pure plutonium—that could be used around the world. Previous U.S. commercial reprocessing programs have been blocked at least partly over concerns that they would encourage other countries to begin separating weapons-useable plutonium. The fundamental technology for spent fuel reprocessing is the PUREX process (plutonium-uranium extraction) developed to provide pure plutonium for nuclear weapons. A commercial PUREX plant operated from 1966 through 1972 in West Valley, New York, and two other commercial U.S. plants were built but never operated. Meanwhile, DOE and its predecessor agencies worked to develop fast breeder reactors that could run on the reprocessed plutonium fuel. Major facilities included Experimental Breeder Reactors I and II, which began operating in Idaho in 1951 and 1964, and the Fast Flux Test Facility (FFTF), a larger fast reactor that began full operation in Hanford, Washington, in 1982. FFTF was designed to pave the way for the first U.S. commercial-scale breeder reactor, planned to begin construction near Clinch River, Tennessee, in 1977. However, the Clinch River Breeder Reactor (CRBR) and the federal government's support for commercial reprocessing were halted by President Carter in 1977 because of the nuclear proliferation issues noted above. Upon taking office in 1981, President Reagan reversed the Carter policy and restarted preparations for CRBR, but Congress eliminated further funding for the project in 1983. DOE then turned to an alternative technology based on work carried out at Experimental Breeder Reactor II (EBR-II), which used metal fuel that could be recycled through pyroprocessing (melting and electrochemical separation) rather than with the aqueous (water-based) PUREX process. Supporters of this program, called the Integral Faster Reactor (IFR) and the Advanced Liquid Metal Reactor (ALMR), contended that pyroprocessing would not produce a pure plutonium product and could be carried out at a small scale at reactor sites, reducing weapons proliferation risks. The Clinton Administration, however, moved in 1993 to terminate DOE's advanced reactor programs, including shutdown of EBR-II. Congress agreed to the proposed phaseout but continued funding for pyroprocessing technology as a way to treat EBR-II spent fuel for eventual disposal. The George W. Bush Administration made energy policy a high priority and placed particular emphasis on nuclear energy. The National Energy Policy Development (NEPD) Group, headed by Vice President Cheney, recommended in May 2001 that nuclear power be expanded in the United States and that reprocessing once again become integral to the U.S. nuclear program: • The NEPD Group recommends that, in the context of developing advanced nuclear fuel cycles and next generation technologies for nuclear energy, the United States should reexamine its policies to allow for research, development and deployment of fuel conditioning methods (such as pyroprocessing) that reduce waste streams and enhance proliferation resistance. In doing so, the United States will continue to discourage the accumulation of separated plutonium, worldwide. • The United States should also consider technologies (in collaboration with international partners with highly developed fuel cycles and a record of close cooperation) to develop reprocessing and fuel treatment technologies that are cleaner, more efficient, less waste-intensive, and more proliferation-resistant. The Bush Administration's first major step toward implementing those recommendations was to announce the Advanced Fuel Cycle Initiative in 2003 (AFCI), a DOE program to develop proliferation-resistant reprocessing technologies. The program built on the ongoing pyroprocessing technology development effort and reprocessing research conducted under other DOE nuclear programs. Much of the program's research has focused on an aqueous separations technology called UREX+, in which uranium and other elements are chemically removed from dissolved spent fuel, leaving a mixture of plutonium and other highly radioactive elements. Congress provided $5 million above the Administration's $63 million initial request in FY2004 for AFCI, and the program received statutory authorization in the Energy Policy Act of 2005 ( P.L. 109-58 , Sec. 953), including support for international cooperation. The announcement of the GNEP initiative in February 2006 (as part of the Administration's FY2007 budget request) appeared to further address the 2001 reprocessing goals of the National Energy Policy Development Group. Using reprocessing technologies to be developed by AFCI, GNEP envisioned a consortium of nations with advanced nuclear technology that would guarantee to provide fuel services and reactors to countries that would agree not to conduct fuel cycle activities, such as enrichment and reprocessing. GNEP has attracted significant international attention, but no country has yet indicated interest in becoming solely a fuel recipient rather than a supplier. The Nuclear Nonproliferation Treaty guarantees the right of all participants to develop fuel cycle facilities, and a GNEP Statement of Principles signed by the United States and 15 other countries on September 16, 2007, preserves that right, while encouraging the establishment of a "viable alternative to acquisition of sensitive fuel cycle technologies." According to DOE, GNEP currently has 21 member countries and 17 candidates and observers. Although GNEP is largely conceptual at this point, DOE issued a Spent Nuclear Fuel Recycling Program Plan in May 2006 that provided a general schedule for a GNEP Technology Demonstration Program (TDP), which would develop the necessary technologies to achieve GNEP's goals. According to the Program Plan, the first phase of the TDP, running through FY2006, consisted of "program definition and development" and acceleration of AFCI. Phase 2, running through FY2008, was to focus on the design of technology demonstration facilities, which then were to begin operating during Phase 3, from FY2008 to FY2020. The National Academy of Sciences in October 2007 strongly criticized DOE's "aggressive" deployment schedule for GNEP and recommended that the program instead focus on research and development. Similar criticism was raised in April 2008 by the Government Accountability Office. As part of GNEP, AFCI is conducting R&D on an Advanced Burner Reactor (ABR) that could destroy recycled plutonium and other long-lived radioactive elements. The ABR is similar to a breeder reactor, except that its core would be configured to produce less plutonium (from U-238) than it consumes, reducing potential plutonium stockpiles. AFCI, the primary funding component of GNEP, has received steadily increased funding from Congress, but far less than requested during the past two budget cycles. For FY2007, DOE sought $243.0 million and received $166.1 million, and for FY2008 the request of $395.0 million was cut to $179.4 million. Typically, the Senate recommends more for the program than the House does, and that pattern appears to be continuing for FY2009. The FY2009 Advanced Fuel Cycle Initiative funding request is $301.5 million, nearly 70% above the FY2008 appropriation of $179.4 million but below the FY2008 request of $395.0 million. The House Appropriations Committee recommended cutting AFCI to $90.0 million in FY2009, eliminating all funding for GNEP. The remaining funds would be used for research on advanced fuel cycle technology, but none could be used for design or construction of new facilities. The Committee urged DOE to continue coordinating its fuel cycle research with other countries that already have spent fuel recycling capability, but not with "countries aspiring to have nuclear capabilities." FY2009 funding of $10.4 million was requested for conceptual design work on an Advanced Fuel Cycle Facility (AFCF) to provide an engineering-scale demonstration of AFCI technologies, according to the budget justification. The FY2008 Consolidated Appropriations act rejected funding for development of AFCF, as did the House Appropriations Committee for FY2009. DOE requested $18.0 million for the ABR program for FY2009, up from $11.7 million in FY2008. The program is expected to focus on developing a sodium-cooled fast reactor (SFR). The House Appropriations Committee recommended no FY2009 funding for the ABR. DOE describes "Generation IV" as advanced reactor technologies that could be available for commercial deployment after 2030. These technologies are intended to offer significant advantages over existing "Generation III" reactors (LWRs in the United States) in the areas of cost, safety, waste, and proliferation. DOE is conducting some Generation IV research in cooperation with other countries through the Generation IV International Forum (GIF), established in 2001. A technology roadmap issued by GIF and DOE in 2002 identified six Generation IV nuclear technologies to pursue: fast neutron gas-cooled, lead-cooled, sodium-cooled, molten salt, supercritical water-cooled, and very high temperature reactors. These reactor concepts are not new, and some have been demonstrated at the commercial scale, but none has been sufficiently developed for successful commercialization. The DOE Generation IV Nuclear Energy Systems Initiative (Gen IV) is focusing on a helium-cooled Very High Temperature Gas Reactor (VHTR) and conducting cross-cutting research on materials and other areas that could apply to all reactor technologies, including LWRs. The VHTR technology is being developed for the Next Generation Nuclear Plant (NGNP) authorized by the Energy Policy Act of 2005. Development of sodium-cooled fast reactors is being conducted by the AFCI program as part of the ABR effort described above. DOE requested $70.0 million for Gen IV for FY2009—$44.9 million below the FY2008 funding level of $114.9 million, which was nearly triple the Administration's FY2008 budget request of $36.1 million. The House Appropriations Committee recommended an increase to $200.0 million. Most of the FY2009 request—$59.5 million—is for the NGNP program. The VHTR technology being developed by DOE uses helium as a coolant and coated-particle fuel that can withstand temperatures up to 1,600 degrees celsius. Phase I research on the NGNP is to continue until 2011, when a decision will be made on moving to the Phase II design and construction stage, according to the FY2009 DOE budget justification. The House Appropriations Committee provided $196.0 million "to accelerate work" on NGNP—all but $4.0 million of the Committee's total funding level for the Generation IV program. The Energy Policy Act of 2005 authorizes $1.25 billion through FY2015 for NGNP development and construction (Title VI, Subtitle C). The authorization requires that NGNP be based on research conducted by the Generation IV program and be capable of producing electricity, hydrogen, or both. DOE's plans for commercial nuclear fuel recycling facilities are still being formulated. The Department is currently preparing a draft Programmatic Environmental Impact Statement (PEIS) for GNEP that will lead to decisions about development of an advanced fuel cycle research facility. The PEIS will not consider the next stages of the program, which would include commercial-scale reprocessing/recycling facilities and an advanced fast reactor, according to DOE. A schedule for completing this process has not been announced. To help determine the future direction of the GNEP program, DOE solicited studies from four industry consortia. The four studies, released by DOE on May 28, 2008, describe concepts for advanced fuel recycling/reprocessing facilities, along with general cost estimates and schedules. The four teams have signed cooperative agreements with DOE to continue developing "conceptual designs, technology development roadmaps, and business plans for potential deployment and commercialization of recycling and reactor technologies" at least through FY2008 and possibly through FY2009. According to DOE, these additional studies will "help inform a decision on the potential path forward for technologies and facilities associated with domestic implementation of GNEP." EnergySolutions, a waste treatment and disposal firm, Shaw Group, an engineering and construction firm, and Westinghouse Electric Company, a reactor design firm, led an industry team that proposed that aqueous reprocessing facilities to handle 1,500 metric tons per year of LWR spent fuel begin operating by 2023. A fuel fabrication plant would be built to supply MOX fuel to existing LWRs. Recycling facilities during this initial phase would be funded and built by DOE. The next phase of the EnergySolutions proposal would run from 2030 to 2049. A 410 megawatt (electric) fast reactor would begin operating in 2033, with four additional units starting up by 2045. Aqueous reprocessing capacity would be expanded by 3,000 metric tons per year, and non-aqueous reprocessing facilities would be added. In the final phase, 2050 through 2100, the fast reactor recycling fleet would expand to 96 gigawatts (about the capacity of today's U.S. LWR fleet), and less aqueous reprocessing capacity would be needed. A federal corporation would be established to sign long-term contracts with industry for spent fuel recycling and fuel fabrication, build and operate a waste repository, and transport spent fuel. The federal corporation's funding would come from nearly doubling the nuclear waste fee currently imposed on nuclear power generation, from 1 mill per kilowatt-hour to 1.95 mills/kwh, assuming the previously collected balance in the Nuclear Waste Fund (the Treasury account that holds the waste fees) is not used. At the current rate of nuclear power generation, the proposed fee would produce revenues of about $1.5 billion per year. A team led by General Electric Hitachi Nuclear Energy prepared a proposal based on the IFR/ALMR program that was halted in 1993. The pyroprocessing facility that is proposed would use the electrometallurgical separations process developed by the IFR program, with improvements that have been made during the subsequent 15 years. The fast reactor is the Power Reactor Inherently Safe Module (PRISM) that GE developed for the ALMR program, also with subsequent refinements. According to the report, a power plant consisting of six PRISM modules (totaling 1,866 megawatts electric, mwe), along with the necessary reprocessing capacity, would consume 5,800 metric tons of LWR spent fuel over its planned 60-year operating life. The first phase of the GE-Hitachi proposal, taking about 20 years, would consist of construction and operation of one or two PRISM modules. The second phase, lasting about 10 years, would feature commercial deployment of at least one Advanced Recycling Center (ARC), consisting of six PRISM modules and a reprocessing and fuel fabrication facility. Multiple ARCs would be constructed in the third phase, after 30 years. General Atomics, long associated with gas-cooled reactor technology, led a team that proposed a two-tier spent fuel recycling system. In the first tier, LWR spent fuel would be sent to aqueous reprocessing plants to extract nuclear fuel material to be used in high-temperature gas reactors, such as the type being developed by the DOE Gen IV program. Because of their high fuel burnup, the gas reactors would eliminate most plutonium and minor actinides. In the second tier, spent fuel from the gas reactors would be pyroprocessed so that the remaining plutonium and minor actinides could be fissioned in a fast reactor. Under the team's preferred scenario, LWRs would continue to be constructed through 2050 (136 in all) and be phased out by 2110. The first gas-cooled reactor module (385 mwe) would start up by 2025, and the first aqueous reprocessing center would begin operation by about 2030. The aqueous reprocessing centers would have a capacity of about 1,500 tons of LWR spent fuel per year and cost about $8.3 billion to construct (in 2006 dollars). The first pyroprocessing facility would open in 2040, and the first fast reactor would open by 2075. The team recommended that initial facilities for the program be developed by a government corporation, which would be privatized by 2035. The French nuclear firm Areva, which has long experience with commercial PUREX reprocessing plants in France, led a team that proposed continued reliance on LWRs with a gradual buildup of fast reactors. Through 2019, the team recommended that MOX fuel be tested in existing U.S. reactors, from plutonium extracted from U.S.-origin spent fuel reprocessed overseas. The first 800-ton per year aqueous recycling plant would open in 2023, with additional 800-ton modules starting up in 2045 and 2070. A 500 mwe fast reactor would begin operating in 2025, a 1,000 mwe reactor would open in 2035, and a 1,500 mwe reactor would begin operating in 2050, with additional 1,500 mwe units starting up about every two years thereafter. A government corporation would be established to run the recycling program. Costs are estimated to be 10%-70% higher than the existing 1 mill/kwh nuclear waste fee. For Congress and other federal policymakers, issues posed by current GNEP and Gen IV proposals are similar to those of the past several decades. The fundamental policy question is whether the government should encourage the expansion of nuclear power. The industry has long contended that new commercial reactors will not be constructed without increased government incentives or subsidies. After the initial federal push to commercialize nuclear power in the 1950s and 1960s, government support waned to the point where a nuclear phaseout seemed possible. But nuclear power proponents now contend that dramatic growth will be needed (with federal support) to meet future energy demand in a carbon-constrained environment. Such high-growth scenarios must overcome many of the same perceived challenges that faced the optimistic initial expectations for nuclear power. If dramatic growth were to finally occur, could light water reactors meet the challenge, or is a transition to advanced nuclear technologies necessary? And if new technologies will be needed, how urgently must the federal government move forward? As in the early years of the nuclear power program, a primary concern with renewed nuclear power growth is long-term fuel supply, since LWRs can extract energy from only a fraction of natural uranium. During the past two decades of slowed U.S. and world nuclear power expansion, the only problem with uranium was oversupply and chronically low prices. Supply has since tightened, but uranium production capacity is expanding rapidly in response. Whether increased exploration activity will result in higher worldwide resource estimates will have important implications for this issue. The long-proposed solution to the fuel problem—replacing LWRs with fast breeder reactors—raises the nuclear weapons proliferation issue. LWR spent fuel is highly resistant to proliferation at least for the first 100 years, although the technology requires uranium enrichment facilities that may pose their own risks. GNEP's goal of expanding nuclear power while limiting the proliferation of fuel cycle facilities is widely shared, but the success of the program's current approach remains uncertain. Nuclear waste management has also been a longstanding problem in the United States and the world. The once-through LWR fuel cycle requires extremely long-term isolation of plutonium and other long-lived radionuclides. Reprocessing could potentially shorten the disposal horizon and make siting easier for waste repositories. But if long-term isolation is determined to be feasible, the waste disposal benefits of reprocessing may become less significant. Other anticipated benefits of advanced reactor technologies over LWRs include improved safety, lower costs, and high-temperature heat production for hydrogen and other industrial purposes. LWR technology has improved steadily in safety, particularly in its vulnerability to loss-of-coolant accidents, and the projected risks of the latest designs have been reduced one to two orders of magnitude below that of existing reactors. Proposed Generation IV designs are intended to virtually eliminate the major risk factors inherent in LWRs, although they may have other safety risks that have yet to be as fully quantified. New LWR designs are also intended to reduce costs from those incurred by existing reactors, but cost estimates have recently escalated (along with those of all competing power systems). Generation IV reactors are projected by their designers to reduce both construction and operating costs, but these projections have yet to be demonstrated. LWRs are limited to relatively low-temperature operation, so high-temperature gas reactors could be the most practical technology for nuclear generation of hydrogen as a transportation fuel. If hydrogen were to become a major transportation fuel—which remains far from certain—nuclear power could begin to play a significant role in replacing petroleum. However, more commercial attention has recently been focused on battery-based electric vehicle systems, which could be recharged by LWRs. Recent U.S. nuclear energy policy has focused primarily on large government incentives for private-sector construction of new LWRs, such as loan guarantees, tax credits, and regulatory risk insurance. Imposition of federal controls on carbon dioxide emissions would provide additional powerful incentives for LWR construction. As shown by the industry studies described above, the advanced nuclear technologies under development by GNEP and Gen IV will require many years of government-supported development before they reach the current stage of LWRs. The Bush Administration has renewed the federal research effort on these technologies, so now the question before Congress is whether the time has come to move to the next, more expensive, development stages. | Current U.S. nuclear energy policy focuses on the near-term construction of improved versions of existing nuclear power plants. All of today's U.S. nuclear plants are light water reactors (LWRs), which are cooled by ordinary water. Under current policy, the highly radioactive spent nuclear fuel from LWRs is to be permanently disposed of in a deep underground repository. The Bush Administration is also promoting an aggressive U.S. effort to move beyond LWR technology into advanced reactors and fuel cycles. Specifically, the Global Nuclear Energy Partnership (GNEP), under the Department of Energy (DOE) is developing advanced reprocessing (or recycling) technologies to extract plutonium and uranium from spent nuclear fuel, as well as an advanced reactor that could fully destroy long-lived radioactive isotopes. DOE's Generation IV Nuclear Energy Systems Initiative is developing other advanced reactor technologies that could be safer than LWRs and produce high-temperature heat to make hydrogen. DOE's advanced nuclear technology programs date back to the early years of the Atomic Energy Commission in the 1940s and 1950s. In particular, it was widely believed that breeder reactors—designed to produce maximum amounts of plutonium from natural uranium—would be necessary for providing sufficient fuel for a large commercial nuclear power industry. Early research was also conducted on a wide variety of other power reactor concepts, some of which are still under active consideration. Although long a goal of nuclear power proponents, the reprocessing of spent nuclear fuel is also seen as a weapons proliferation risk, because plutonium extracted for new reactor fuel can also be used for nuclear weapons. Therefore, a primary goal of U.S. advanced fuel cycle programs, including GNEP, has been to develop recycling technologies that would not produce pure plutonium that could easily be diverted for weapons use. The "proliferation resistance" of these technologies is subject to considerable debate. Much of the current policy debate over advanced nuclear technologies is being conducted in the appropriations process. For FY2009, the House Appropriations Committee recommended no further funding for GNEP, although it increased funding for the Generation IV program. Typically, the Senate is more supportive of GNEP and reprocessing technologies. Recent industry studies conducted for the GNEP program conclude that advanced nuclear technologies will require many decades of government-supported development before they reach the current stage of LWRs. Key questions before Congress are whether the time has come to move beyond laboratory research on advanced nuclear technologies to the next, more expensive, development stages and what role, if any, the federal government should play. |
On June 28, 2007, the House approved $43.8 billion for agencies funded through the Financial Services and General Government (FSGG) appropriations bill ( H.R. 2829 ), a $3.1 billion increase over FY2007 enacted funding and $101 million above the President's FY2008 request. Discretionary spending in the bill totaled $21.4 billion, a decrease of $245 million from the President's request, but $1.9 billion more than was enacted in FY2007. The Senate appropriations FSGG subcommittee marked up its version of the bill July 10, and the full committee reported it July 12. The Senate bill recommended $44.2 billion in appropriations, a $3.4 billion increase over FY2007 enacted funding and $414 million above the President's FY2008 request. Discretionary spending in the Senate bill totaled $21.8 billion, approximately $20 million above the President's request and $2.3 billion more than was enacted in FY2007. The Senate took no further action on H.R. 2829 , and the agencies included in the FSGG appropriations bill were funded until December 31, 2007, by a series of continuing resolutions. Under the continuing resolutions, FSGG agencies were generally funded at FY2007 rates. FSGG appropriations were ultimately included in a consolidated appropriations bill, H.R. 2764 , which passed the Senate, as amended, on December 18, and passed the House on December 19, 2007. President Bush signed H.R. 2764 , the Consolidated Appropriations Act, 2008 ( P.L. 110-161 ), on December 26, 2007. Division D of the act provides a total of $43.3 billion for FSGG agencies, $2.6 billion more than enacted in FY2007, but $421 million less than requested by the President. Compared with H.R. 2829 , the act provides $583 million less than approved by the House, and $829 million less than approved by the Senate Appropriations Committee. Discretionary spending in the act totals $20.6 billion, which is $1.1 billion more than enacted in FY2007, but $1.1 billion less than the amount requested by the President. Compared with H.R. 2829 , discretionary funding in the act is $1.1 billion below the amount recommended by the Senate Appropriations Committee, and $883 million less than the amount approved by the House. Table 1 notes the status of H.R. 2829 and the Consolidated Appropriations Act, 2008 ( H.R. 2764 ). In early 2007, the House and Senate Committees on Appropriations reorganized their subcommittee structures. Each chamber created a new Subcommittee on Financial Services and General Government (FSGG). In the House, the jurisdiction of the FSGG Subcommittee was formed primarily of agencies that had been under the jurisdiction of the Subcommittee on Transportation, Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, and Independent Agencies, commonly referred to as "TTHUD." In addition, the House FSGG Subcommittee was assigned four independent agencies that had been under the jurisdiction of the Science, State, Justice, Commerce, and Related Agencies Subcommittee. In the Senate, the jurisdiction of the new FSGG Subcommittee was a combination of agencies from the jurisdiction of three previously existing subcommittees. The District of Columbia, which had its own subcommittee in the 109 th Congress, was placed under the purview of the FSGG Subcommittee, as were four independent agencies that had been under the jurisdiction of the Commerce, Justice, Science, and Related Agencies Subcommittee. Additionally, most of the agencies that had been under the jurisdiction of the Subcommittee on Transportation, Treasury, the Judiciary, Housing and Urban Development, and Related Agencies were assigned to the FSGG Subcommittee. As a result of this reorganization, the House and Senate FSGG subcommittees have nearly identical jurisdictions. Appropriations provisions relating to FSGG agencies are in Division D of the Consolidated Appropriations Act, 2008. Division D provides funding through five titles, each of which is discussed in a separate section of this report. In addition, Division D includes three titles relating to general provisions. The language for government-wide general provisions was proposed by the Administration in the appendix to the FY2008 budget request, and was included in Title VII of Division D. The House Appropriations Subcommittee on Financial Services and General Government is the primary source of the House funding figures used throughout the report. Senate funding figures are taken from S.Rept. 110-129 , which accompanied H.R. 2829 . Other sources include the President's FY2008 budget request, the House Appropriations Committee print of P.L. 110-161 and its accompanying explanatory statement, and agency budget materials. On June 28, 2007, the House approved $43.8 billion for FY2008 appropriations for FSGG agencies. Compared to FY2007 enacted amounts, the House bill, H.R. 2829 , would have increased appropriations for each of five titles, with the largest gains proposed for the District of Columbia (+10.8%) and the smallest for the Executive Office of the President (+0.25%). The House bill would have also increased funding for the Department of the Treasury (+5.4%), the Judiciary (+4.7%), and Independent Agencies (+9.7%). Compared to the President's FY2008 request, the House bill would have increased funding for the District of Columbia (+9.5%), the Department of the Treasury (+1.0%), and Independent Agencies (+1.0%). Funding under the House bill would have decreased relative to the President's request for the Judiciary (-3.9%) and the Executive Office of the President (-2.1%). On July 12, 2007, the Senate Appropriations Committee reported its version of the FSGG appropriations bill. Compared to FY2007 enacted amounts, the Senate bill would have increased funding for each of the five titles, with the largest gains proposed for Independent Agencies (+11.0%) and the smallest for the Executive Office of the President (+0.9%). The Senate bill would have also increased funding for the Department of the Treasury (+5.4%), the Judiciary (+6.0%), and the District of Columbia (+3.8%). Compared to the President's FY2008 request, the Senate bill would have increased funding for the Department of the Treasury (+0.9%), the District of Columbia (+2.7%), and Independent Agencies (+2.0%). Funding under the Senate bill would have decreased relative to the President's request for the Executive Office of the President (-1.5%) and the Judiciary (-2.7%). No further action on H.R. 2829 was taken by the Senate. The agencies included in the FSGG appropriations bill were funded from the start of FY2007 until December 31, 2007, by a series of continuing resolutions. Under the continuing resolutions, FSGG agencies were generally funded at FY2007 rates, although the District of Columbia had special funding provisions. The FSGG agencies were ultimately funded through H.R. 2764 , a consolidated appropriations bill which passed the Senate on December 18, and passed the House, as amended, on December 19. The bill was signed by President Bush on December 26, 2007, becoming P.L. 110-161 , the Consolidated Appropriations Act, 2008. Table 2 lists, by title, the enacted amounts for FY2007, the President's request for FY2008, funding levels approved by the House under H.R. 2829 , the amounts reported by the Senate Appropriations Committee under H.R. 2829 , and the amounts enacted. The wide scope of FY2008 FSGG appropriations—which provide funding for two of the three branches of the federal government, a city government, and 20 independent agencies with a range of functions—encompasses a number of potentially controversial issues, some of which are identified below. Department of the Treasury. Did the proposed budget provide adequate funding for enforcement, taxpayer services, and business systems modernization at the Internal Revenue Service? Executive Office of the President (EOP). Should Congress accept the President's proposals to (1) consolidate EOP budget accounts into a single appropriation, (2) expand the authority of the EOP to transfer funds among separate appropriations accounts, and (3) centralize funding for administrative services provided throughout the EOP in the Office of Administration? The Judiciary. What level of funding should Congress provide for judicial security enhancements and other workforce issues, such as pay raises for judges, and the hiring of additional staff and creation of additional judgeships to meet the demands of rising caseloads? Independent Agencies. Should Congress enact the President's proposed budget for the United States Postal Service (USPS), which is $64 million less than what USPS had requested and $20 million below the amount enacted for FY2007? This section examines FY2008 appropriations for the Treasury Department and its operating bureaus, including the Internal Revenue Service (IRS). Table 3 shows the FY2007 enacted amount, the President's FY2008 request, the FY2008 amount approved by the House, the FY2008 amount recommended by the Senate Appropriations Committee, and the amount enacted for FY2008. The Treasury Department performs a variety of governmental functions. Foremost among them are protecting the nation's financial system against a host of illicit activities (e.g., money laundering and terrorist financing), collecting tax revenue, enforcing tax laws, managing and accounting for federal debt, administering the federal government's finances, regulating financial institutions, and producing and distributing coins and currency. At its most basic level of organization, Treasury consists of departmental offices and operating bureaus. In general, the offices are responsible for formulating and implementing policy initiatives and managing Treasury's operations, while the bureaus perform specific duties assigned to Treasury, mainly through statutory mandates. In the past decade or so, the bureaus have accounted for over 95% of the agency's funding and work force. With one possible exception, the bureaus can be divided into those engaged in financial management and regulation and those engaged in law enforcement. In recent decades, the Comptroller of the Currency, U.S. Mint, Bureau of Engraving and Printing, Financial Management Service (FMS), Bureau of the Public Debt, Community Development Financial Institutions Fund (CDFI), and Office of Thrift Supervision have undertaken tasks related to the management of the federal government's finances or the supervision and regulation of the U.S. financial system. By contrast, law enforcement has been the central focus of the tasks handled by the Bureau of Alcohol, Tobacco, and Firearms; U.S. Secret Service; Federal Law Enforcement Training Center; U.S. Customs Service; Financial Crimes Enforcement Network (FinCEN); and the Treasury Forfeiture Fund. Since the advent of the Department of Homeland Security in 2002, Treasury's direct involvement in law enforcement has shrunk considerably. The possible exception to this simplified dichotomy is the Internal Revenue Service (IRS), whose main duties encompass both the collection of tax revenue and the enforcement of tax laws and regulations. Funding for many bureaus comes largely from annual appropriations. Such is the case for the IRS, FMS, Bureau of Public Debt, FinCEN, Alcohol and Tobacco Tax and Trade Bureau, Office of the Inspector General (OIG), Treasury Inspector General for Tax Administration (TIGTA), and the CDFI. But there are some exceptions to this heavy reliance on appropriated funds. The Treasury Franchise Fund, U.S. Mint, Bureau of Engraving and Printing, Office of the Comptroller of the Currency, and the Office of Thrift Supervision finance their operations largely from the fees they charge for services and products they provide. In FY2007, Treasury received $11.624 billion in appropriated funds, or 0.4% more than it received in FY2006, after allowing for a rescission of 1%. Most of these funds were used to finance the operations of the IRS, which received $10.597 billion in FY2007. The remaining $1.027 billion was distributed among Treasury's other bureaus and departmental offices in the following amounts: departmental offices (which include the Office of Terrorism and Financial Intelligence, or TFI, and the Office of Foreign Assets Control) received $216 million; department-wide systems and capital investments, $30 million; OIG, $17 million; TIGTA, $133 million; CDFI, $55 million; FinCEN, $73 million; FMS, $235 million; Alcohol and Tobacco Tax and Trade Bureau (ATB), $91 million; and Bureau of the Public Debt, $176 million. For FY2008, the Bush Administration asked Congress to approve $12.141 billion in funding for Treasury, or 4.4% more than the amount enacted for FY2007. Once again, most of the requested funding (91%) would have gone to the IRS, which would have received $11.095 billion in appropriated funds. The remaining $1.045 billion would have been distributed among Treasury's other bureaus and departmental offices in the following amounts: departmental offices would have received $250 million; departmental systems and capital investments, $19 million; OIG, $18 million; TIGTA, $141 million; a rescission of about $4 million from the Air Transportation Stabilization program; CDFI, $29 million; no funding for the Treasury building and annex repair and restoration; FinCEN, $86 million; FMS, $235 million; ATB, $94 million; and Bureau of the Public Debt, $177 million. Except for department-wide systems and capital investments and CDFI, all the major accounts would have been funded at the same level as or at higher levels than the amounts enacted for FY2007. (The Air Transportation Stabilization program represented something of an anomaly in this regard, because the Administration asked Congress to rescind about $4 million that had already been appropriated.) Under the Administration's budget proposal, total full-time equivalent employment at Treasury was projected to rise from 107,734 in FY2006 to 108,965 in FY2008. The projected gain of 1,231 employees would have been spread unevenly among the departmental offices, TIGTA, FinCEN, and the IRS. Treasury budget documents and congressional testimony by Secretary Henry Paulson indicate that the Treasury Department's proposed budget for FY2008 was intended to support five strategic objectives: (1) promote economic growth, security, and opportunity; (2) strengthen national security; (3) manage the federal government's finances; (4) strengthen financial institutions; and (5) manage Treasury's operations effectively. In evaluating the Administration's budget proposal, one consideration might be the extent to which the proposed budget would likely support or promote these objectives, and whether other approaches might be more desirable. The Administration maintained that the budget proposal would promote the first objective, in part, by channeling more resources into Treasury's contribution to international economic policy coordination and the Committee on Foreign Investment in the United States, and by eliminating funding for the Bank Enterprise Awards program, which is administered through the CDFI. The Administration claimed the proposal would support the second objective largely by increasing funding for TFI and FinCEN. TFI collects and analyzes financial intelligence, formulates and implements measures to combat money laundering, enforces economic sanctions against foreign entities, and conducts criminal investigations of alleged financial crimes. The Administration asked Congress to boost appropriated funds for TFI from $43 million in FY2007 to $56 million in FY2008. Most of the additional money would be used to expand Treasury's capacity to "identify potential national security threats and to enforce U.S. policies to counter those threats," improve the "information technology and physical infrastructure of TFI and its component bureaus and offices," and deepen the involvement of TFI in the "broader Intelligence Community." FinCEN is responsible for protecting the U.S. financial system from a wide range of financial crimes, including money laundering and terrorist financing. Foremost among its main tasks is administering the Bank Secrecy Act (BSA). The Administration asked Congress to increase funding for FinCEN from $73 million in FY2007 to $86 million in FY2008. A portion of the added funds would be used to upgrade an electronic filing system for BSA forms and FinCEN's "critical information technology system," and to enhance its project management capabilities. In the Administration's view, the budget proposal supported the third objective by boosting IRS's budget for enforcement, taxpayer service, and business systems modernization, and by implementing several new initiatives intended to improve taxpayer compliance. (See the next section for more details.) As the Administration correctly noted in the documents describing its budget proposal for Treasury, no appropriated funds directly support the fourth objective. This is because funding for the four Treasury bureaus primarily responsible for ensuring and sustaining the health and integrity of the U.S. financial institutions—the Office of the Comptroller, the Office of Thrift Supervision, the U.S. Mint, and the Bureau of Engraving and Printing—comes mostly from fees they charge for the services and products they provide. To support the fifth objective, the Administration asked Congress to approve funding for the following projects in the following amounts for FY2008: $6 million to launch a pilot project known as the Enterprise Content Management system, $2 million to operate and maintain the Treasury Secure Data Network, and $4 million to improve Treasury's compliance with the requirements of the Federal Information Security Management Act and the agency's "overall security posture." On June 28, the House passed a spending measure ( H.R. 2829 ) that would have provided $12.257 billion for the operations of the Treasury Department and its operating bureaus in FY2008. This amount was $120.5 million more than the amount requested by the Administration. Under the measure, three Treasury accounts would have received more in appropriated funds in FY2008 than the Administration has requested. Specifically, departmental offices would have received $251 million in FY2008 (or $450,000 more than the amount requested by the Administration). Of this amount, $56.5 million would have gone to the Office of Terrorism and Financial Intelligence ($250,000 above the Administration's budget request) and $900,000 to the Office of Financial Education ($200,000 above the Administration's budget request). CDFI would have received $100 million (or $71 million more than the amount requested by the Administration). The House Appropriations Committee recommended that $13.5 million of $100 million be used for administrative costs, and that no less than another $14 million be set aside for the Bank Enterprise Award program. The IRS would have received $11.147 billion (or $52 million more than the amount requested by the Administration). Two Treasury accounts would have been funded at lower levels in FY2008 than the Administration wanted. Specifically, FinCEN would have received $83 million, or $2.5 million less than the amount requested by the Administration. The recommended reduction in spending reflected a concern that FinCEN was not ready to undertake a planned border wire transfer initiative. The FMS would have received $234 million, or $768,000 less than the amount requested by the Administration. About $9 million of this amount would have been set aside for "information systems modernization initiatives" and would have been available until September 30, 2010. Six Treasury accounts would have received the same amount of funding that was recommended in the Administration's budget request. They were department-wide systems and capital investments ($19 million), OIG ($18 million), TIGTA ($140.5 million), the Air Transportation Stabilization program (-$4 million), ATB ($93.5 million), and the Bureau of Public Debt ($173 million). The version of H.R. 2829 passed by the House would have also required the Treasury Department to prepare an "operating plan" for FY2008 and submit it to the House Appropriations Committee within 60 days of the bill's enactment. The plan was to provide figures on funding and full-time employment for all offices and operating bureaus in FY2007 and FY2008, and detailed information on any "initiative, major procurement, and program at the Department." In addition, the plan was to indicate the number of full-time employees at OFAC working on Cuba sanctions and the number of full-time employees working on sanctions programs targeted at foreign terrorist organizations. Members of the House adopted by voice vote a controversial amendment that would have prevented the Treasury Department from enforcing a rule adopted in 2005 that effectively restricted sales of U.S. agricultural products to Cuba. The rule would have required payments for such products to be made before a ship left port. The Senate Appropriations Committee favorably reported an amended version of H.R. 2829 on July 13. It would provide $12.249 billion in appropriated funds for Treasury in FY2008, or $112 million more than the amount requested by the Bush Administration but $8 million less than the amount approved by the House. Of this amount, the IRS would have received $11.142 billion (or $6 million less than the House version of H.R. 2829 ); departmental offices, $252 million (or $1 million more than the House bill); department-wide systems and capital investments program, $19 million (the same as the House bill); Office of Inspector General, $18 million (the same as the House bill); TIGTA, $141 million (the same as the House bill); the Air Transportation Stabilization program, -$4 million (the same as the House bill); FinCEN, $86 million (or $3 million more than the House bill); FMS, $235 million (or $1 million more than the House bill); ATB, $97 million (or $3 million more than the House bill); Bureau of the Public Debt, $173 million (the same as the House bill); and CDFI, $90 million (or $10 million less than the House bill). The committee endorsed the Administration's request to spend $56.2 million (or $11.8 million more than the amount appropriated for FY2007) on the Office Terrorism and Financial Intelligence in FY2008. Among the departments under the direction of the Office, the Office of Foreign Assets Control would have received an additional $1.4 million in funding; the Office of Intelligence Analysis, an additional $2.0 million; and the Office of Terrorist Financing and Financial Crimes, an additional $0.6 million. In its report on H.R. 2829 , the committee urged Treasury to "harness [its] unique expertise and assume a stronger leadership role in the [intelligence community] on illicit finance issues." As a step in that direction, the committee directed the Department to work with the Director of National Intelligence to develop a "mission plan for financial intelligence," and to report to the committee on the status of this collaborative effort by September 30, 2008. Like the House-passed version of H.R. 2829 , the version reported by the committee would have appropriated much more money for the CDFI than the amount requested by the Bush Administration. The committee opposed the proposed reductions on the grounds that the programs supported by CDFI "play an important role in providing financial services to underserved communities in both urban and rural communities across the country." Of the $90 million in funding for CDFI approved by the committee, $8 million would have been reserved for "grants, loans, and technical assistance and training programs to benefit Native American, Alaskan Natives, and Native Hawaiian communities." In marking up the bill on July 12, the committee approved a controversial amendment that would have both limited the ability of Treasury to enforce certain regulations restricting sales of U.S. agricultural products to Cuba and dismantled some of the barriers to traveling there to sell agricultural and medical products. The amendment was broader in scope than a similar one adopted by the House during its consideration of H.R. 2829 . The Consolidated Appropriations Act includes $11.996 billion in funding for the Treasury Department—or $371 million more than the amount enacted for FY2007 but $141 million less than the amount requested by the Bush Administration. Of the total amount appropriated for Treasury in FY2008, $10.892 billion goes to the IRS ($203 million less than the Administration's budget request), $248 million to departmental offices ($2 million less than requested), $234 million to the FMS ($1 million less than requested), $173 million to the Bureau of Public Debt (the same amount as requested), $141 million to TIGTA (the same as requested), $94 million to ATB (the same as requested), $94 million to CDFI ($65 million above the Administration's request), $86 million to FinCEN (the same as requested), $19 million to department-wide systems and capital investments (the same as requested), $18 million to OIG (the same as requested), and a recapture (or rescission) of $4 million in previously appropriated but unobligated funds for the Air Transportation Stabilization program (the same as requested). Treasury is receiving $57 million in appropriated funds in FY2008 (or $13 million more than the amount enacted for FY2007) for its programs dealing with terrorism and financial intelligence. The act directs the agency to use $300,000 of this amount to establish within TFI a permanent office to manage TFI's information technology systems. In addition, OFAC is to receive $250,000 to bolster its efforts to reduce OFAC's backlog of Freedom of Information requests. The act also attached certain conditions to the use of the funds appropriated for CDFI in FY2008. Specifically, Treasury may use up to $13.5 million for general administrative costs, up to $7.5 million for the cost of direct loans, and up to $250,000 for administrative expenses related to the direct loan program. In addition, $8 million is to be used to support programs aimed at Native American, Native Hawaiian, and Native Alaskan communities. The act further directs Treasury to spend a minimum of $20 million on the Black Enterprise Award program. To help finance its operations and multitude of spending programs, the federal government levies individual and corporate income taxes, social insurance taxes, excise taxes, estate and gift taxes, customs duties, and miscellaneous taxes and fees. The federal agency responsible for administering and collecting these taxes and fees (except for customs duties) is the Internal Revenue Service. In discharging this responsibility, the IRS receives and processes tax returns, related documents, and tax payments; disburses refunds; enforces compliance through audits and other procedures; collects delinquent taxes; and provides a host of services to taxpayers with the aim of enabling them to understand their rights and responsibilities under the federal tax code and resolving problems without litigation. In FY2006, the agency collected $2.537 trillion before refunds, the largest component of which was individual income tax revenue of $1.236 trillion. The IRS receives funding for its operations from three sources: appropriated funds, user fees, and so-called reimbursables, which are payments the IRS receives from other federal agencies and state governments for services it provides. In FY2006, appropriated funds accounted for 98% of IRS's operating budget, with user fees and reimbursables each adding another 1%. Appropriated funds are distributed among five accounts: (1) taxpayer services , which provides resources for pre-filing taxpayer assistance, filing and account services, administrative services for IRS employees, and senior IRS management; (2) enforcement , which covers the cost of compliance services, research and statistical analysis, and administration of the earned income tax credit; (3) operations support , which addresses the improvement and maintenance of the agency's information and management systems; (4) business systems modernization (or BSM) , which provides funds for developing new information systems for tax administration and acquiring the hardware and software needed to integrate them into IRS's operations; and (5) health insurance tax credit administration , which covers the cost of administering the refundable tax credit for health insurance established by the Trade Adjustment Assistance Reform Act of 2002. In FY2007, the IRS received $10.597 billion in appropriated funds, or 0.5% more than it received in FY2006. Of this amount, $2.138 billion was designated for taxpayer services, $4.686 billion for enforcement, $3.545 billion for operations support, $213 million for the BSM program, and $15 million for administration of the health insurance tax credit. The IRS was one of the many federal agencies funded in FY2007 under a year-long continuing resolution ( H.J.Res. 20 ; P.L. 110-5 ) enacted in February 2007. Under the resolution, the "requirements, authorities, conditions, limitations, and other provisions" that governed the use of FY2006 appropriations by all affected agencies also governed their use of FY2007 appropriations. As a result, certain restrictions that applied to funding for IRS operations in FY2006 also applied to the funding for IRS operations in FY2007. Specifically, the IRS could not reorganize or reduce its workforce in FY2007 without the consent of the House and Senate Appropriations Committees. In addition, during FY2007, the IRS was barred from entering the market for tax return preparation software, and from instituting reductions in taxpayer service until TIGTA completes a report on the effects of such reductions on taxpayer compliance. The Bush Administration asked Congress to appropriate $11.095 billion for IRS operations in FY2008, or 4.7% more than the amount enacted for FY2007. Of this amount, $2.103 billion (1.7% less than FY2006) was for taxpayer services, $4.925 billion (5.1% more than FY2007) for enforcement, $3.770 billion (6.3% more than FY2007) for operations support, $282 million (32.4% more than FY2007) for the BSM program, and $15 million (the same amount as FY2007) for administering the health insurance tax credit. Under the budget proposal, total full-time equivalent employment at the IRS was projected to rise from an estimated 92,404 in FY2007 to 92,814 in FY2008, a gain of 0.4%. Budget documents indicate that the FY2008 budget proposal for the IRS was intended to support three strategic goals: (1) bolster taxpayer compliance without imposing additional reporting burdens on taxpayers, (2) continue the agency's recent efforts to "increase and improve the delivery of services offered to taxpayers," and (3) invest in information technology designed to "give (IRS) employees the tools they need to administer and improve both taxpayer service and enforcement programs." Guiding the pursuit of these goals was a commitment to "provide quality service to taxpayers while enforcing America's tax laws in a balanced manner." As part of its budget proposal for the IRS, the Administration also asked Congress to pass a number of legislative proposals. Most were intended to improve taxpayer compliance through actions such as expanded information reporting, mandatory electronic filing for "certain large businesses," and expanded penalties for fraudulent actions by tax preparers and for erroneous refund claims. In assessing the Administration's FY2008 budget proposal for the IRS, it may be useful to consider the extent to which it supported these objectives and whether or not the proposed budgets for enforcement, taxpayer service, and BSM were adequate in light of the many challenges facing the agency. Foremost among those challenges are improving compliance rates among individuals and businesses without sacrificing recent gains in taxpayer service, generating more reliable estimates of the rates of non-compliance among business taxpayers, increasing the share of tax returns filed electronically, upgrading the agency's computer systems, managing the agency's private tax debt collection program in a way that meets the concerns of critics, and hiring and training sufficient numbers of enforcement agents to replace those who have retired or quit in recent years. The IRS Oversight Board came into existence through the IRS Restructuring and Reform Act of 1998. Its primary responsibilities are to oversee IRS's administration of the federal tax code and to ensure that the agency has the resources and management needed to carry out its mission and achieve its strategic objectives. Section 7802 of the Internal Revenue Code (IRC) requires the Board to review and approve the annual budget requests submitted by IRS to the Treasury Department, and to assess whether the annual budget request for the IRS submitted to Congress supports the strategic plans of the agency. The Board released its assessment of the Administration's FY2008 budget request for the IRS in April 2007. While the Board took a mostly favorable view of the Administration's proposal, it did favor giving the agency a larger budget than the Administration asked for. The Board commended the Administration for seeking a 4.7% increase in the IRS's budget for FY2008 "during a time when discretionary spending is under great constraints and there is stiff competition among federal departments and agencies for resources." It also applauded the Administration for recognizing "the importance of the IRS' mission to the fiscal well-being of our nation and (for) proposing these important and much needed investments at this time." In the Board's view, both its budget proposal and the Administration's were "focused on improving the ability of the IRS to aggressively pursue its strategic goals in order to reduce the tax gap." It saw the Administration's budget proposal as "clearly aligned with the IRS' most recent strategic plan." At the same time, the Board wanted more funds appropriated for enforcement and infrastructure than the Administration called for. Specifically, the Board called for spending $105 million more on a variety of enforcement initiatives than the Administration's budget request, and $205 million more on projects related to the BSM and newly installed information systems. In the Board's view, these added expenditures were critical to the success of current plans to improve taxpayer compliance and shrink the tax gap. The spending measure ( H.R. 2829 ) for financial services and general government passed by the House on June 28 would have provided $11.147 billion in appropriated funds for the IRS in FY2008. This amount was $52 million more than the amount requested by the Administration. This entire difference lay in recommended funding for taxpayers services. H.R. 2829 would have provided $2.155 billion for such services in FY2008, or $52 million more than the amount requested by the Administration. Of this amount, $8 million would have been for low-income taxpayer clinic grants, up to $4.1 million would have been funneled into the Tax Counseling for the Elderly program, and no less than $179.6 million would have funded the operations of the Taxpayer Advocate Service. In addition, the bill recommended spending $71.5 million for pre-filing services management ($6.2 million more than the Administration requested), $127.5 million for taxpayer communications and education (or $12.8 million more than the Administration requested), $70 million for media and publications ($5.2 million more than requested), and $165.2 million for account management and assistance ($18.3 million more than requested). In its report on H.R. 2829 , the House Appropriations Committee noted that the recommended increase in spending on taxpayer services was intended to counter recent reductions in taxpayer services and give the IRS the resources it needed "to strengthen, improve, and expand taxpayer service." H.R. 2829 also would have provided the IRS with $4.925 billion for enforcement (including $116.7 million to examine ways to improve taxpayer compliance), $3.770 billion for operations support, $282 million for the BSM program, and $15 million for the administration of the health insurance tax credit. The Administration requested the same amounts for each account. A controversial provision of the bill would have limited funding for the administration of the private tax debt collection (PDC) program to $1 million. Such a limitation would have effectively ended the program, which has been embroiled in controversy since the IRS gained the authority to hire private debt collectors in 2004. During the floor debate on the bill in the House, Representative Jose Serrano, the chairman of the House Appropriations Subcommittee on Financial Services, agreed to drop the provision in the face of opposition from some Republicans. Representative Jim McCreary raised a budget point of order against the provision on the grounds that any measure capping funding for the private tax debt collection program should fall under the jurisdiction of the Ways and Means Committee, and thus should not be considered as part of an appropriations bill. While conceding the point of order, Representative Serrano disagreed that eliminating the program would necessarily result in a loss of revenue. The version of H.R. 2829 reported favorably by the Senate Appropriations Committee on July 13 would have provided $11.142 billion in appropriated funds for the IRS in FY2008—or $46 million more than the amount requested by the Bush Administration but about $6 million less than the amount recommended by the House. Of this amount, $2.149 billion would have been used for taxpayer services ($46 million more than the Administration's budget request but $6 million less than the House bill); $4.925 billion would have gone to enforcement (the same as the Administration's budget request and the House bill); $3.770 billion would have been set aside for operations support (the same as the Administration's budget request and the House bill); $282 million would have been channeled into the BSM (the same as the Administration's budget request and the House bill); and $15 million would have been spent on administering the health insurance tax credit (same as the Administration's request and the House bill). In its report on H.R. 2829 , the committee expressed a variety of concerns about the IRS's readiness to address several key issues. One was the tax gap. The gap is the difference between federal taxes owed and federal taxes paid in a timely manner. According to the latest estimate by IRS, the gross tax gap amounted to $345 billion in 2001. In the committee's view, the IRS "must and can reduce the tax gap if the IRS is given additional resources and is able to improve its operational capabilities (most notably the Business Systems Modernization program)." Yet it could find no strategy in the Administration's budget request for the IRS in FY2008 that would have enabled the agency to achieve the stated goal of raising the voluntary compliance rate for all taxpayers from its estimated level of 83.7% in 2007 to 85% by 2009. So the committee added a provision to H.R. 2829 requiring the IRS to develop such a plan, without specifying a deadline. Of the $2.149 billion recommended for taxpayer services in the bill, "not less than" $3 million would have been set aside for the tax counseling program for the elderly, "not less than" $9 million for low-income taxpayer clinic grants, and "not less than" $10 million to establish and administer a matching grant program for tax return preparation assistance involving volunteers from local communities. On other matters dealing with appropriations for taxpayer service, the committee directed the IRS, after consulting with the IRS Oversight Board and the National Taxpayer Advocate, to submit to Congress an annual update of its current five-year strategic plan for taxpayer services known as the "Taxpayer Assistance Blueprint." It also expressed disappointment with the slow progress made by the IRS in increasing the number of tax returns that are filed electronically and directed the agency to develop a strategic plan to meet the 80% electronic filing goal it was supposed to reach by 2007. The plan would have been required to be submitted to the House and Senate Appropriations Committees by March 1, 2008. On matters related to appropriations for enforcement, the committee directed the IRS to submit to the House and Senate Appropriations Committees by March 1, 2008 a "detailed research plan" to correct problems with its National Research Program (NRP). The IRS uses data collected through the NRP to generate estimates of the underreporting of taxable income by individual taxpayers, a major component of the federal tax gap. But the IRS, Government Accountability Office, and TIGTA, among others, have expressed concern about the quality of the data from the NRP and gaps in its coverage. The committee also expressed concern about the loss of tax revenue arising from the misclassification of workers as independent contractors and directed the IRS to channel more enforcement resources into "industries where misclassification is widespread." A controversial provision of the bill would have reduced funding to administer the PDC program to $1 million. At such a low level of funding, the IRS could have been forced to suspend the program. One noteworthy aspect of the provision is its wording. The version of H.R. 2829 reported by the House Appropriations Committee contained a similar provision, but it was removed during the House floor debate after facing the threat of a budget point of order tied to a ruling by the Joint Committee on Taxation that cutting funding for the private tax debt collection program would result in a loss of revenue. To avoid a similar outcome, the Senate version was crafted so that the provision would cut direct appropriations for the program but allow the program to fund itself through the delinquent taxes collected as a result of it. The consolidated appropriations bill ( H.R. 2764 ) enacted in December 2007 includes $10.892 billion in funding for IRS operations—or $295 million more than the amount enacted for FY2007 but $203 million less than the amount requested by the Administration. Of the total amount of appropriations for the agency in FY2008, $2.150 billion is intended for taxpayer services ($47 million more than the Administration requested), $4.780 billion for enforcement ($145 million less than the Administration requested), $3.680 billion for operations support ($89 million less than the Administration requested), $267 million for BSM ($15 million less than the Administration requested), and $15 million for administering the heath insurance tax credit (the same amount as the Administration requested). Taxpayer Services . The funding for taxpayer services in FY2008 does not take into account $94.5 million in user fees that the IRS hopes to collect over the course of that year to supplement its budget for taxpayers services. Congress also attached certain conditions to IRS's use of this funding. First, at least $31.2 million must be used to expand IRS's efforts to assist and educate individual and business taxpayers and tax-exempt organizations, and to increase the number of tax returns prepared at Taxpayer Assistance Centers (TACs). Second, the IRS is to spend a minimum of $3 million on the Tax Counseling for the Elderly program. Third, at least $9 million is to be used for low-income taxpayer clinic grants. Fourth, at least $177 million is designated for the operating costs of the Taxpayer Advocate Service (TAS). Fifth, $8 million is to be made available through the end of FY2009 to establish a "matching grant demonstration program for Community Volunteer Income Tax Assistance programs"; the IRS is directed to administer the demonstration program in consultation with the TAS. Moreover, the bill uses blunt language to put the IRS on notice that any proposed reductions in taxpayer service must "be consistent with the budget justification, operating plan, and Taxpayer Assistance Blueprint (TAB)," and that the IRS must prove that the proposed reductions "will not result in a decline in voluntary compliance." The IRS released its initial TAB in April 2007, in fulfillment of a mandate included in the law providing appropriations for the agency in FY2005. Prepared jointly with the IRS Oversight Board and the National Taxpayer Advocate, the document set forth a five-year plan to revamp the taxpayer services provided by the IRS. Among the concerns addressed in the report are the cost-effectiveness of the services offered at TACs, the challenges facing the agency in improving taxpayer service, and possible methods for measuring its performance in delivering services. Enforcement . Of the funds appropriated for enforcement in FY2008, $57.252 million are to be transferred to the Interagency Crime and Drug Enforcement program. In addition, the act directs the IRS to work with the National Taxpayer Advocate and the IRS Oversight Board to develop a five-year strategic plan for research that must be submitted to the Senate and House Appropriations Committees by September 30, 2008. It also requires the agency to issue two additional reports to the same committees: one on the factors that influence taxpayer compliance by the end of September 2008, and one on problems with the NRP by March 1, 2008. No limit is imposed on how much the IRS can spend to manage its PDC program in FY2008. But the act does provide IRS with $7.35 million for the purpose of enlarging its workforce for the Automated Collections Systems (ACS) program. There is reason to believe that such an expansion might enable the IRS to collect delinquent individual tax debt with a much higher return on investment than it does through the PDC program. A recent report by the National Taxpayer Advocate notes that the estimated cost of operating the PDC program in FY2008 is $7.35 million. According to the report, if that amount were used to expand the ACS program, the IRS could collect $146 million in delinquent tax debt, or nearly five times the amount of gross revenue the agency expects the PDC program to collect in FY2008. One question raised by the budget for enforcement in FY2008 approved by Congress concerns how it will affect several planned initiatives to improve taxpayer compliance—and thus reduce the federal tax gap. The Administration requested $246 million in FY2008 to fund seven such initiatives, including $73 million for increased audits and collection activities aimed at small firms and self-employed individuals, $28 million for an expansion of the Automated Underreporter program, and $41 million to conduct research on the compliance behavior of new groups of taxpayers. But appropriated funds for enforcement are $145 million less than the amount the Administration requested. Operations Support . The act imposes no specific conditions on how the IRS uses its appropriated funds for operations support. But it does direct the agency to keep Congress informed of any "planned reorganization, job reductions, or increases to offices or activities within the agency, or modifications to any service or enforcement activity" by including them in its operation plan. In addition, the act requires the IRS to give quarterly briefings to the IRS Oversight Board and TIGTA on the status of its information technology systems, and to report to these organizations as soon as possible if any information technology project is likely to experience a cost overrun or a significant delay in its completion. All but three offices in the Executive Office of the President (EOP) are funded in the Financial Services and General Government (FSGG) appropriations bill. Table 4 shows enacted appropriations for FY2007, and, for FY2008, amounts requested by the Administration, passed by the House, reported by the Senate, and as enacted in P.L. 110-161 . The Administration's FY2008 budget requested an appropriation of more than $737 million for the EOP and funds appropriated to the President, a 2.4% increase from the almost $720 million appropriated for FY2007. Within the request, funding for all "White House" accounts, discussed under "Consolidation Proposal" below, would have increased 8.3%, but funding for the Office of Management and Budget (OMB) (-7.6%) and the Office of National Drug Control Policy (ONDCP) (-10.8%) would have decreased. The proposed OMB and ONDCP funding reductions primarily resulted from the transfer of monies to the Office of Administration account for the enterprise services initiative (discussed below). Unlike the FY2006 and FY2007 budget proposals, when the President requested that the High Intensity Drug Trafficking Areas Program (HIDTAP, under federal drug control programs) funding be transferred to the Department of Justice, the FY2008 budget request continued to include the HIDTAP appropriation under the EOP, but at a level that would have been 2.1% less than the program's FY2007 funding. Under federal drug control as well, significant changes in funding were requested for the Other Federal Drug Control Programs (+16.3%) and the Counterdrug Technology Assessment Center (-75%). Overall, though, federal drug control program funding would have increased 2.7%. For the seventh consecutive fiscal year, the President's FY2008 budget proposed to consolidate and financially realign several salaries and expenses accounts that directly support the President into a single annual appropriation, called "The White House." The eight accounts included in the consolidated appropriation were the following: Compensation of the President, White House Office (WHO), Executive Residence at the White House, White House Repair and Restoration, Office of Administration, Office of Policy Development, National Security Council, and Council of Economic Advisers. This consolidated appropriation would have totaled more than $187 million in FY2008 for the accounts proposed to be consolidated, an increase of 8.3% from the almost $173 million appropriated in FY2007. Within "The White House Office" account, funding for the Compensation of the President would have remained unchanged; funding for the Executive Residence at the White House (+3.4%), the Council of Economic Advisers (+2.1%), and the Office of Administration (+16.3%) would have increased; and funding for White House salaries and expenses (-0.9%), White House repair and restoration (-4.9%), the Office of Policy Development (-0.1%), and the National Security Council (-0.5%) would have decreased. The EOP budget submission stated that consolidation "presents the best means for the President to realign or reallocate the resources and staff available in response to changing and emerging needs and priorities." The conference committees on the FY2002 through FY2006 appropriations acts decided to continue with separate appropriations for the EOP accounts to facilitate congressional oversight of their funding and operation. This practice continued for FY2007 under P.L. 110-5 , the Revised Continuing Appropriations Resolution. H.R. 2829 , as passed by the House and reported in the Senate, and P.L. 110-161 continued with separate appropriations for the EOP accounts. As in the FY2007 budget proposal, the FY2008 budget requested a general provision in Title VI to continue and expand the authority for the EOP to transfer 10% of the appropriated funds among several accounts under the EOP. The proposal was included under the government-wide general provisions at Section 833 and would have covered the following accounts in FY2008: The White House, Office of Management and Budget, Office of National Drug Control Policy, Special Assistance to the President and the Official Residence of the Vice President (transfers would be subject to the approval of the Vice President), Council on Environmental Quality and Office of Environmental Quality, Office of Science and Technology Policy, and Office of the United States Trade Representative. The OMB Director (or such other officer as the President designates in writing) would have been able to, 15 days after notifying the House and Senate Committees on Appropriations, transfer up to 10% of any such appropriation to any other such appropriation. The transferred funds would have been merged with, and available for, the same time and purposes as the appropriation receiving the funds. Such transfers could not have increased an appropriation by more than 50%. According to the EOP budget submission, the transfer authority would have allowed the President "to address, in a limited way, emerging priorities and shifting demands" and would have provided the President "with flexibility to improve the efficiency of the EOP." The authority was "not intended to be used for new missions or programs, but to address emerging priorities, shifting demands, and administrative efficiencies within the currently funded programs." P.L. 108-447 , the Consolidated Appropriations Act for FY2005 (Section 533, Title V, Division H) authorizes transfers of up to 10% of FY2005 appropriated funds among the accounts for the White House Office, OMB, ONDCP, and the Special Assistance to the President and Official Residence of the Vice President. For FY2006, P.L. 109-115 , the Transportation, Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, and Independent Agencies Appropriations Act, 2006 (Section 725) authorizes transfers of up to 10% among the accounts for the White House and the Special Assistance to the President and Official Residence of the Vice President. Section 201 of H.R. 2829 , as passed by the House and reported in the Senate, and, as enacted in P.L. 110-161 , continues the current practice. The FY2008 budget request, like that for FY2007, included an enterprise services initiative to simplify and make more efficient the administration of certain common services that are provided throughout the EOP. Services included in the initiative would have been expanded to include burn bag pickup costs, employee transportation subsidies, and Flexible Spending Account administrative fees. The budgets for these services in the WHO, Executive Residence at the White House, Office of Policy Development, National Security Council, Council of Economic Advisers, OMB, ONDCP, Office of Science and Technology Policy, United States Trade Representative, and the Council on Environmental Quality would have been moved into the Office of Administration (OA). In order to "be consistent with other EOP components," the budgets for health unit services costs, space-related rent costs, and rent-based Federal Protective Service costs in OMB and ONDCP also would have been included in the OA. H.R. 2829 , as passed by the House, would have provided appropriations for the accounts under the EOP and funds appropriated to the President at the levels requested by the President's budget except for the OA, OMB, and the various federal drug control accounts. The House Committee on Appropriations report that accompanied the bill stated that the reduction of $10.3 million in the OA appropriation resulted from keeping the rental payments to GSA for OMB ($7.5 million) and ONDCP ($2.8 million) under the salaries and expenses accounts for these entities. The report noted that "all miscellaneous costs in the Enterprise Services Program" were provided as requested. The restoration of the $7.5 million to OMB salaries and expenses for the rental payments to GSA accounted for the increase in the agency's appropriation. The committee report expressed continued concern about OMB using the E-Government initiative "to force its management priorities on agencies that would otherwise choose different approaches to serving the public and other government agencies that are better tailored to meet the needs of their customers and meet their statutory requirements." It noted the continuation of the government-wide general provision at Section 737 that prohibited the use of funds for E-Government without prior consultation and approval by the committee and urged OMB and the agencies "to work directly with the individual appropriations subcommittees in advance of recommending e-Government transfers so that approved worthy initiatives can move forward without disruption." The report also directed OMB to report to the committee within 180 days of the act's enactment on the implementation and effectiveness of OMB's guidance to the agencies on reducing fraud and abuse in the federal transit benefit program. The restoration of the $2.8 million to ONDCP salaries and expenses for the rental payments to GSA accounted for the increase in the agency's appropriation. Included in the House report were directives that ONDCP report to the committee within 90 days of the act's enactment on the aerial eradication program in Columbia and on the update of the November 2004 report listing illicit drug prices and purity. Section 202 of H.R. 2829 , as passed by the House, required the President to submit a financial plan to the House and Senate Committees on Appropriations within 30 days of this act's enactment and prior to the initial obligation of ONDCP funds for FY2008. The plan would have been required to be updated every six months and new projects and changes in funding for ongoing projects are subject to prior approval by the Appropriations Committees. HIDTAP would have received an appropriation which was $6 million above the President's request. The committee report specified that the HIDTAs for FY2008 "receive funding at least equal" to their FY2007 "initial allocation level" and that not less than $2.1 million be used for auditing services and related activities. The appropriation for the other federal drug control programs account would have been $26.7 million below the President's budget request. According to the committee report, increased funding could not be justified for the National Youth Anti-Drug Media Campaign because an ONDCP study and a GAO review found that "there is no clear evidence that the campaign has resulted in a reduction in drug use among youth." The report directed ONDCP to provide recommendations to the committee within 90 days of the act's enactment "on the development of improved and meaningful measurements of the effectiveness of the media campaign, including [those] that would indicate how the campaign influences youth and parent behavior." The $197.8 million appropriation for the other federal drug control programs would have been allocated as follows: Drug Free Communities—$90 million Training and technical assistance for drug court professionals—$1 million Model Acts—$1 million Demonstration programs for chronic hard-drug users under community supervision—$1 million National Youth Anti-Drug Media Campaign—$93 million United States Anti-Doping Agency—$9.6 million World Anti-Doping Agency Dues—$1.7 million Performance Measures Development—$500,000 The $5 million increase in the appropriation for the CTAC resulted from the restoration of funding to the Technology Transfer Program which the President's budget had proposed to be terminated. Established in 1990 and reauthorized in 1998, the CTAC is to serve as the central counterdrug technology research and development organization for the United States Government. The House committee report also addressed two issues under the White House Office account. First, the report noted that the "account had unobligated balances of budget authority in excess of $6,500,000, or more than 10 percent of its appropriation, remaining at the end of fiscal years 2005 and 2006" and stated the expectation that the committee would "be kept fully informed of the reasons for any significant differences between actual and budgeted spending." The report expressed the committee's concern about the Administration's extensive editing of the first report to Congress by the Privacy and Civil Liberties Oversight Board and stated "that the Board must have the authority and independence to thoroughly review, assess, and report accurately on privacy and civil liberties matters." The House-passed bill would have provided $1.5 million for the Board. H.R. 2829 , as reported in the Senate, would have provided appropriations for the accounts under the EOP and funds appropriated to the President at the levels requested by the President's budget except for the WHO, OA, OMB, and the various federal drug control accounts. Unlike the President's budget request, which included funding for the Privacy and Civil Liberties Oversight Board within the WHO account, the Senate Committee on Appropriations report stated that funding for the board would have been provided in a separate account that was funded at $2 million. The committee directed the EOP to include detailed budget information for the board in the FY2009 budget justification and expected the board's annual report "to specifically detail how the additional funds provided have benefited" its work and responsibilities. The reasons for the reduction in the OA appropriation and the increased OMB and ONDCP appropriations were the same as for the House-passed bill. The Senate committee directed the OMB Director to report to Congress by March 1, 2009, on "the extent to which executive departments and agencies that administer directed funding allocate the designated amounts to intended recipients at a level less than the amount specified in any enacted bill or accompanying report describing such directed funding." ONDCP's appropriation of $25.2 million would have included the restoration of the $2.8 million to ONDCP salaries and expenses for the rental payments to GSA. It also would have included $1.5 million for "an independent study and analysis of ONDCP's organization and management" to be conducted by the National Academy of Public Administration (NAPA). The office would have been required to contract with NAPA for the study within two months after the act's enactment. Like the House-passed bill, H.R. 2829 , as reported in the Senate, included the Section 202 provision on submission of a financial plan prior to the obligation of ONDCP funds. In addition, the Senate version of the bill included provisions at Sections 203, 204, and 205 that were not included in the House-passed bill. These provisions related to transfer authority, reprogramming, and budget estimates for ONDCP. According to the Senate report, the committee did not agree with the office's proposal to reorganize 3 of its 12 components. Among the directives included in the Senate report were requirements that the ONDCP Director submit to the House and Senate Committee on Appropriations "quarterly reports on travel expenditures, summarized by office, program, and individual, including dates and purpose of travel" and "quarterly reports on current staffing levels and plans for future hirings ... includ[ing] office, position title, salary, and job classifications of all persons employed by ONDCP, including contractors." The appropriation for HIDTAP would have been $15 million more than the President requested. The committee report included language similar to that in the House committee report on the funding for existing HIDTAs and directed the ONDCP Director "to ensure that the HIDTA funds are transferred to the appropriate drug control agencies expeditiously." Further, the committee report included specific directions on the allocation and use of HIDTA funds: [T]he committee expects the Director of ONDCP to ensure that the entities receiving these limited resources make use of them strictly for implementing the strategy for each HIDTA, taking into consideration local conditions and resource requirements. The HIDTA funds should not be used to supplant existing support for ongoing Federal, State, or local drug control operations normally funded out of the operating budgets of each agency. ONDCP is directed to hold back all HIDTA funds from a State until such time as a State or locality has met its financial obligation. The other federal drug control programs account would have been funded at $204.7 million, $19.8 million less than the President's request. Stating views similar to those expressed in the House committee report, the Senate report reflected the committee's concern "about the direction and efficacy" of the National Youth Anti-Drug Media Campaign. The appropriation for other federal drug control programs would have been allocated as follows: Drug Free Communities—$90 million Training and technical assistance for drug court professionals—$1 million Model Acts—$1.5 million National Youth Anti-Drug Media Campaign—$100 million United States Anti-Doping Agency—$10.3 million World Anti-Doping Agency Dues—$1.7 million Performance Measures Development—$250, H.R. 2829 , as reported in the Senate, did not provide funding for the CTAC. The committee report stated that "Funding from previous years has remained unexpended despite congressional direction to reinstate CTAC programs as previously existed, and congressional intent with regard to this program has been ignored." It also stated that the "committee is highly disappointed in the director of this program and is troubled by his ideas for research and development that appear to have little or no value." The unexpended balances in the account, according to the committee, were "adequate" to fund the program in FY2008. With regard to the appropriation for the Official Residence of the Vice President, the Senate report stated the committee's expectation that it "be kept fully apprised by the Vice President's office of any and all renovations and alterations made to the residence by the Navy." The Senate version of H.R. 2829 , as marked up by the Senate Subcommittee on Financial Services and General Government on July 10, 2007, included a provision to reduce the funding for the Office of the Vice President unless the office complied with Executive Order 12958 on Classified National Security Information. The Vice President's Office had sought to be exempted from the executive order. During markup of the bill on July 12, 2007, the Senate Committee on Appropriations agreed by a 15-14 vote to an amendment offered by Senator Sam Brownback to strike the provision from the bill. The amendment also expressed "the Sense of the Senate that the President should amend Executive Order 12958 to be consistent with the letter from his Counsel dated July 12, 2007" which stated that the Office of the Vice President is exempt from the executive order. The law provides an appropriation of $682 million for the accounts under the EOP and funds appropriated to the President. The accounts are funded at the levels recommended in H.R. 2829 , as passed by the House and reported in the Senate, except for the WHO, OA, OMB, and the various federal drug control accounts. For the WHO, the law provides funding of $51.7 million and funds the Privacy and Civil Liberties Oversight Board in a separate account at $2 million, as recommended by the Senate. The OA receives an appropriation of $91.7 million, some $1 million less than the House and Senate recommended. The appropriation for OMB totals $78 million, $394,000 less than the House and Senate recommended. Administrative provisions direct OMB to apply appropriations "only to the objects for which appropriations were made" and allocate them "in accordance with the terms and conditions set forth in the relevant explanatory statement," and to "publish in the annual budget submission the specific reasons why [an information technology] project is on" the High Risk or Management Watch lists prepared by OMB. Furthermore, OMB cannot evaluate or determine "if Water Resources Project reviews are in compliance with laws, regulations, and requirements relevant to the Civil Works water resource planning process." The appropriation for the federal drug control accounts totals $421.7 million and is allocated among the specific accounts as follow: ONDCP—$26.4 million CTC—$1 million HIDTA—$230 million Other federal drug control programs—$164.3 million The administrative provisions for these accounts include a requirement that the President submit a financial plan showing ONDCP programs, projects, and activities (Section 202) and specifying that no more than 2% of ONDCP's appropriations may be transferred between appropriated programs with approval in advance from the House and Senate Committees on Appropriations. (Section 203). As a co-equal branch of government, the judiciary presents its budget to the President, who transmits it to Congress unaltered. Table 5 shows appropriations for the judiciary as enacted for FY2007, and, for FY2008, amounts requested by the Administration, passed by the House, reported by the Senate, and enacted. Appropriations for the judiciary—about two-tenths of 1% (0.2%) of the entire federal budget—are divided into budget groups and accounts. Two accounts that fund the Supreme Court (the salaries and expenses of the Court and the expenditures for the care of its building and grounds) together make up about 1.2% of the total judiciary budget. The structural and mechanical care of the Supreme Court building, and care of its grounds, are the responsibility of the Architect of the Capitol. The rest of the judiciary's budget provides funding for the "lower" federal courts and for related judicial services. The largest account, about 75% of the total budget—the Salaries and Expenses account for the U.S. Courts of Appeals, District Courts, and Other Judicial Services—covers the salaries of circuit and district judges (including judges of the territorial courts of the United States), justices and judges retired from office or from regular active service, judges of the U.S. Court of Federal Claims, bankruptcy judges, magistrate judges, and all other officers and employees of the federal judiciary not specifically provided for by other accounts; it also covers the necessary expenses of the courts. The judiciary budget does not fund three "special courts" in the U.S. court system: the U.S. Court of Appeals for the Armed Forces, the U.S. Tax Court, and the U.S. Court of Appeals for Veterans Claims. Federal courthouse construction also is not funded within the judiciary's budget. The judiciary also uses non-appropriated funds to offset its appropriations requirement. The majority of these non-appropriated funds are from fee collections, primarily from court filing fees. The fees are used to offset expenses within the Salaries and Expenses account. In some instances, the judiciary also has funds which may carry forward from one year to the next. These funds are considered "unencumbered" because they result from savings from the judiciary's financial plan in areas where budgeted costs did not materialize. According to the judiciary, such savings are usually not under its control (e.g., the judiciary has no control over the confirmation rate of Article III judges and must make its best estimate on the needed funds to budget for judgeships, rent costs based on delivery dates, and technology funding for certain programs). The judiciary has stated that it will keep Congress apprised throughout the appropriations cycle on changes in the anticipated non-appropriated funds and adjust its budget request accordingly. The judiciary also has "encumbered" funds—no-year authority funds for specific purposes, used when planned expenses are delayed, from one year to the next (e.g., costs associated with space delivery, and certain technology needs and projects). The judiciary was one of the few entities in the federal government that was not subjected to a hard freeze in the enacted year-long budget continuing resolution for FY2007 (the Revised Continuing Appropriations Resolution, 2007, P.L. 110-5 ). The FY2007 appropriations for the judiciary essentially maintained on-board staffing levels and addressed the immigration-related caseload. In her March 21, 2007, testimony before the House and Senate Subcommittees on the judiciary's FY2008 budget request, Judge Julia S. Gibbons, chair of the Budget Committee of the Judicial Conference of the United States, said that the judiciary recognized the Administration's and Congress's concerns about overall federal spending and budget deficits. She stated that "every item in our budget request relates to performing the functions entrusted to us under the Constitution. We have no optional programs; everything ultimately contributes to maintaining court operations and preserving the judicial system that is such a critical part of our democracy." According to Judge Gibbons, the Judicial Conference has endeavored, through cost containment policies, to reduce costs and increase productivity in the federal judiciary for many years. For example, to limit the growth of the court rental fees paid to the General Services Administration (GSA), which currently constitute about 20% of the entire judiciary budget (projected to exceed one billion dollars in FY2008), the conference approved a cap of 4.9% on the average rate of growth for courthouse rent to be paid in FY2009 through FY2016. Through a rent validation project, the judiciary identified GSA rent overcharges totaling $30 million over three years, and recently found an additional $22.5 million in overcharges. It is also working with GSA to change the way courthouse rent is determined and calculated. Restricting the appointment of new magistrate judges and using information technology (e.g., consolidating computer servers) to increase efficiency and cost-effectiveness are among other efforts to contain costs. Judicial security—the safe conduct of court proceedings and the security of judges in courtrooms and off-site—continues to be an issue of concern. The 2005 Chicago murders of family members of a federal judge; the Atlanta killings of a state judge, a court reporter, and a sheriff's deputy at a courthouse; and the 2006 sniper shooting of a state judge in the judge's office in Reno spurred efforts to enhance judicial security. Early in the 110 th Congress, the chairmen of Senate and House Judiciary Committees introduced companion bills ( S. 378 and H.R. 660 , respectively), the Court Security Improvement Act of 2007, to strengthen security. The Senate Judiciary Committee approved S. 378 on March 1, 2007 (following a February 2007 hearing on judicial security and independence), and reported the bill on March 29, 2007. On April 19, 2007, the Senate passed S. 378 unanimously. After the House Subcommittee on Crime, Terrorism, and Homeland Security held a hearing, the House Judiciary Committee amended H.R. 660 on June 13, 2007, and reported the bill on July 10, 2007. On that same day, under suspension of the rules, the House approved H.R. 660 by voice vote. As passed in their respective chambers, the Senate and House bills in their key provisions are essentially the same, but differ in a few areas. Legislation in the 109 th Congress ( P.L. 109-13 ) appropriated $11.9 million to the U.S. Marshals Service (USMS) to provide intrusion detection systems in the homes of federal judges who requested them. As of October 26, 2007, installations of alarm systems had been completed in 97% of the homes of federal judges who have requested them. According to the judiciary, it has been experiencing problems with perimeter security functions that the Federal Protective Service (FPS) provides the judiciary at court facilities, as well as FPS billing problems. On March 13, 2007, the Judicial Conference endorsed a recommendation to support efforts to transfer to USMS the security functions that FPS currently provides to court facilities, as well as the associated funding for these functions. According to Judge Gibbons, the President's FY2008 budget request for $13 billion to bolster border security and immigration enforcement would result in a dramatic increase in the judiciary's caseload. Immigration-related cases now make up 25% of the district courts' criminal caseload. Noting the President's funding for 3,000 additional border patrol agents (by the end of 2008, the goal of achieving the level of 18,000-plus agents will double the number of agents in place in 2001), Judge Gibbons stated that the judiciary "cannot absorb the additional workload generated by the homeland security initiatives within current resource levels." The workload in the judiciary's probation and pretrial services programs also continues to grow—in 2006 there were 113,697 people under supervision, with a projected increase to 114,600 in 2007. The Judicial Conference voted on March 13, 2007, to ask Congress to create 67 new federal judgeships—15 for the courts of appeals (13 permanent, 2 temporary) and 52 for the district courts (38 permanent, 14 temporary)—to make permanent five temporary judgeships, and to extend another temporary judgeship for five years. According to the judiciary, since the 1990 omnibus judgeship bill, the number of courts of appeals judges has remained the same, while federal appellate court case filings increased by 55% over the same 17-year period. According to the judiciary, the number of district court judgeships increased by 4%, while case filings increased by 29%, over the same period of time. Another key issue being discussed is the judiciary's advocacy for a significant increase in judicial pay. John G. Roberts Jr., Chief Justice of the United States, stated in his 2006 End-of-the-Year Report on the Federal Judiciary that judges' pay has not kept pace with inflation over the years and has led to judges leaving the bench in increasing numbers. According to the Chief Justice, retaining and attracting the best talent to the courts is a serious concern. He stated that failure to raise judicial salaries has reached the level of a "constitutional crisis that threatens to undermine the strength and independence of the federal Judiciary." On June 15, 2007, Senator Patrick J. Leahy, chairman of the Senate Judiciary Committee, introduced S. 1638 , the "Federal Judicial Salary Restoration Act of 2007," that would have provided a 50% pay adjustment for justices and judges. Representative John Conyers Jr., chairman of the House Judiciary Committee, introduced a companion bill, H.R. 3753 , "Federal Judicial Salary Restoration Act of 2007," on October 4, 2007. The House bill would have provided for a 41.3% pay adjustment to justices and judges. As amended in markup, and ordered to be reported by the respective committees, both bills, S. 1638 and H.R. 3753 would authorize pay increases of 28.7% to 28.8%. On November 14, 2007, Senator Richard J. Durbin introduced S. 2353 , the Fair Judicial Compensation Act of 2007, to authorize a 16.5% increase in the annual salaries of the Chief Justice of the United States, Associate Justices of the Supreme Court, courts of appeals judges, district court judges, and judges of the United States Court of International Trade, and to increase fees for bankruptcy trustees. S. 2353 is pending in the Senate Judiciary Committee. On March 8, 2007, the House Appropriations Subcommittee on Financial Services and General Government held a hearing on the Supreme Court budget request for FY2007, and heard testimony from Supreme Court Justices Anthony M. Kennedy and Clarence Thomas. Issues raised at the hearing included the Supreme Court building modernization project, workload, technology improvements, judicial security, minority clerk hiring, and televising Supreme Court proceedings. The subcommittee held another hearing on March 21, 2007, to hear testimony on the federal judiciary budget request from Judge Julia S. Gibbons, United States Circuit Judge for the Sixth Circuit Court of Appeals and chair of the Budget Committee of the Judicial Conference of the United States, and James C. Duff, director of the Administrative Office of the U.S. Courts (AOUSC). Among issues raised at the hearing were judicial security, rent paid to GSA, and workload. The Senate Appropriations Subcommittee on Financial Services and General Government also held a hearing on the FY2008 budget request on March 21, 2007. Judge Gibbons and Director Duff gave testimony at the hearing on the same issues that were discussed at the House hearing. Judge Gibbons asked the House and Senate subcommittees to fund fully the judiciary's budget request. She stated that, "A funding shortfall for the federal courts could result in a significant loss of existing staff, cutbacks in the level of services provided and a diminution in the administration of justice." For FY2008, the judiciary requested $6,511.5 million in total appropriations, an 8.9% increase over the $5,979.7 million enacted for FY2007. According to the judiciary, about 82% of the increase would have provided for pay adjustments, inflation, and other adjustments necessary to maintain current services. The FY2008 request included funding for 33,675 full-time-equivalent (FTE) positions—an increase of 2.1% over the estimated 32,972 FTEs for FY2007. The House-passed bill would have provided $6,257.8 million for the judiciary—a $278.1 million increase over the FY2007 enacted amount, but $253.7 million below the FY2008 request. The Senate committee recommended $6,337.2 million for the judiciary, or $79.4 million above the House-passed level for FY2008. In report language, the House committee expressed its expectation (as it has in previous years), that the judiciary would submit a financial plan allocating all sources of available funds, including appropriations, fee collections, and carry-over balances, within 90 days of enactment of the appropriations act. The plan would have served as the baseline for determining if reprogramming notification is required. The committee also expressed interest in increasing the number of minorities in clerkship positions and encouraged the judiciary to explore ways to increase outreach to minority law students. The Senate committee, in report language, reminded the judicial branch that it is also "subject to the same funding constraints facing the executive and legislative branches" and urged the judiciary to "devote its resources primarily to the retention of staff." In addition, the judiciary was "encouraged to contain controllable costs such as travel, construction, and other non-essential expenses." The FY2008 total amount enacted for the federal judiciary was $6,246.1 million, an increase of about $266.4 million (4.5%) over the FY2007 appropriation. The following are highlights of the FY2008 judiciary budget request, House-passed amounts and Senate committee-reported amounts, and the FY2008 enacted amount. For FY2008, the total request for the Supreme Court (salaries and expenses plus buildings and grounds) was $78.7 million, a 6.4 % increase over the FY2007 appropriation of $74.0 million. The total request comprised two accounts: (1) Salaries and Expenses—$66.5 million was requested, an increase of $3.9 million (6.3%) over the $62.6 million enacted for FY2007; and (2) Care of the Building and Grounds—$12.2 million was requested, an increase of $0.8 million (6.8%) over the $11.4 million enacted for FY2007. Most of the requested increase in salaries and expenses would have funded increases in salary and benefit costs, and inflationary fixed costs. An additional six FTE were requested. The House approved the full amount requested for this account. The Senate committee recommended $66.5 million (or $4,000 less than the House amount) for the Salaries and Expenses account, but the Senate also approved the full amount requested for the Care of Buildings and Grounds account. The FY2008 enacted amount was $78.7 million, the full amount requested. Language in the House committee report directed the Supreme Court to include in its budget justification materials an annual report providing information on technology carry-over balances, descriptions of each expenditure made in the previous fiscal year, and the planned expenditures in the budget year. The House committee also expressed its expectation to be informed of any changes to the scope and projected completion date of the Supreme Court's building modernization project, and it provided that funds in the Care of Buildings and Grounds account remain available until expended. The Senate report language also directed the Court to report to the Senate committee the Court's construction plans and any changes in construction schedules or budgetary requirements as the Court becomes aware of such changes. This court, consisting of 12 judges, has nationwide jurisdiction and reviews, among other things, lower court rulings in patent, trademark, and copyright cases. The FY2008 request for this account was $28.5 million—a $3.2 million (12.7%) increase over the $25.3 million appropriated for FY2007. The House approved $28.0 million, a $2.7 million increase over the FY2007 enacted amount, but $0.6 million below the request for this account. The Senate committee recommended $27.4 million, or $0.5 million less than the House-passed amount. The FY2008 enacted amount was $27.1 million, a 7.0% increase of $1.8 million over the previous year. This court has exclusive jurisdiction nationwide over the civil actions against the United States, its agencies and officers, and certain civil actions brought by the United States (import transactions and enforcement of federal customs and international trade laws). The FY2008 request was $16.7 million—a $0.9 million (5.7%) increase over the FY2007 appropriation of $15.8 million that the judiciary budget submission ascribes largely to increases in pay and benefits. The House approved $16.5 million, a $0.7 million increase over the FY2007 enacted amount, but $0.2 million below the request. The Senate committee recommended $16.6 million for this account, or $0.09 million less than the House level. The FY2008 enacted amount was $16.6 million, an increase of $0.8 million (5.1%) over the previous year. This budget group includes 12 of the 13 courts of appeals and 94 district judicial courts located in the 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the territories of Guam and the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands. Totaling about 95% of the judiciary budget, the four accounts in the group—salaries and expenses, court security, defender services, and fees of jurors and commissioners—fund most of the day-to-day activities and operations of the federal circuit and district courts. For this budget group, the FY2008 request was $6,202.5 million, a $506.1 million increase over the FY2007 enacted amount of $5,696.4 million. The House approved $5,954.1 million, an increase of $257.6 million over the FY2007 enacted amount, but $248.5 million below the request. The Senate committee recommended $6,030.5 million, or $76.5 million above the House-passed amount. The FY2008 enacted amount was $5,942.5 million, a $246.1 million (4.3%) increase over the previous year. In report language, the Senate committee addressed the issue of judicial rent and space needs, acknowledging the efforts that the judiciary and GSA have made to deal with the rent issue. The committee also encouraged the Judicial Conference to ensure that "checks and balances are in place so that future construction requests and projects are subject to highest standards of cost-efficiency." The committee further directed the Administrative Office of the U.S. Courts (AOUSC) to report to the committee, no later than 120 days after enactment of the bill, on steps that have been taken, and are being taken, to achieve more efficient use of space by district and circuit courts. In addition, the AOUSC was directed to "ensure that current and projected funding needs are met first with carryover funds before enhancing any program." The AOUSC was further directed to separately include in future financial plans (for approval by the House and Senate Committees on Appropriations) "all sources of carryover funds and their desired application." The total of this budget group comprises the following accounts: The FY2008 request for this account was $4,854.5 million, a $377.9 million increase over the FY2007 level of $4,476.6 million. According to the budget request, this increase was needed for inflationary and other adjustments to maintain the courts' current services. The House approved $4,660.6 million, a $184.0 million increase over the FY2007 enacted amount, but $193.9 million below the request. The Senate committee recommended $4,710.0 million, or $49.4 million above the House-passed amount. The FY2008 enacted amount was $4,619.3 million, an increase of $142.7 million (3.2%) over the previous year. This account provides for protective guard services, security systems, and equipment for courthouses and other federal facilities to ensure the safety of judicial officers, employees, and visitors. Under this account, a major portion of the funding is transferred to the U.S. Marshals Service (USMS) for administering the Judicial Facility Security Program to pay for court security officers. The FY2008 request was $421.8 million—a $43.1 million (11.4%) increase over the FY2007 appropriation of $378.7 million. This increase was reportedly driven by pay and benefit adjustments and other adjustments needed to maintain current services. Payment to the Federal Protective Service (FPS) is also covered under this account; $74.6 million requested would be an increase of $6.7 million (10%) over the FY2007 appropriation of $67.9 million. The House approved $396.5 million, a $17.8 million increase over the FY2007 enacted amount, but $25.3 million below the request. The Senate committee recommended $412.7 million, or about $16.2 million above the House-passed amount. The House committee recommendation, as approved by the House, would have provided for inflationary increases, 52 additional court security officers, as well as court security officers and screening equipment at probation and pretrial service offices in leased facilities. Up to $15 million for this account would have remained available until expended. In report language, the House committee expressed concern with "the quality of service" the FPS has provided the judiciary, and encouraged the judiciary to "continue to explore options with other Federal law enforcement agencies that might be able to provide these security services." In report language, the Senate committee expressed its expectation that USMS will fully cooperate as the judiciary conducts fiduciary and program oversight responsibilities for the Judicial Facility Security Funding. The Senate bill also included Section 307, which would have called on the director of USMS to consult with the director of AOUSC to designate certain courthouses for a pilot program under which the USMS—rather than the Department of Homeland Security (FPS)—would have provided building-specific security services. The AOUSC would have reimbursed the USMS for these services under the pilot. The FY2008 enacted amount was $410 million, a $31.3 million (8.3%) increase over the previous year. This account funds the operations of the federal public defender and community defender organizations, and the compensation, reimbursement, and expenses of private practice panel attorneys appointed by the courts to serve as defense counsel to indigent individuals accused of federal crimes. The FY2008 request was $859.8 million—an $83.5 million (10.8 %) increase over the FY2007 appropriation of $776.3 million. The House approved $830.5 million, a $54.2 million increase over the FY2007 enacted amount, or $29.3 million below the request. The Senate committee recommended $840.6 million, or $10.1 million above the House-passed amount. The FY2008 enacted amount was $835.6 million, a $59.3 million (7.6%) increase over the previous year. In addition, as amended, $10.5 million was enacted for emergency funding to address anticipated workload due to increased immigration enforcement along the southwest border. This account funds the fees and allowances provided to grand and petit jurors, and the compensation of jury and land commissioners. The FY2008 request was $62.4 million—a $1.5 million (2.3%) increase over the FY2007 appropriation of $60.9 million. The increase in the request was due mainly to inflationary costs associated with expenses paid to jurors. The House approved the full amount requested. The Senate committee recommended $63.1 million, or $0.7 million above the request. The FY2008 enacted amount was $63.1 million, a $2.1 million (3.5%) increase over the previous year. Established to address a perceived crisis in vaccine tort liability claims, the Vaccine Injury Compensation Program is a federal no-fault program that protects the availability of vaccines in the nation. The FY2008 request for this account was $4.1 million, a slight increase of $0.15 million (3.5%) above the FY2007 enacted amount of $4.0 million. Both the House and the Senate committees recommended the requested amount. The FY2008 enacted amount was $4.1 million, the full amount requested. As the central support entity for the judiciary, the AOUSC provides a wide range of administrative, management, program, and information technology services to the U.S. courts. The AOUSC also provides support to the Judicial Conference of the United States, and implements conference policies and applicable federal statutes and regulations. The FY2008 request for this account was $78.5 million—a $6.1 million (8.5%) increase over the FY2007 level of $72.4 million. The increase was reportedly for pay increases and other inflationary adjustments and for the anticipated reduction in non-appropriated funds. The AOUSC also receives non-appropriated funds from fee collections and carry-over balances to supplement its appropriations requirements. The House approved $75.7 million, a $3.3 million increase over the FY2007 enacted amount, but $2.9 million below the request. The Senate committee recommended the full amount requested, or $2.9 million above the House-passed amount. The FY2008 enacted amount was $76.0 million, a $3.7 million (5.1%) increase over the previous year. As the judiciary's research and education entity, the center undertakes research and evaluation of judicial operations for the Judicial Conference committees and the courts. In addition, the center provides judges, court staff, and others with orientation and continuing education and training. The center's FY2008 request was $24.8 million—a $1.9 million (8.6%) increase over the FY2007 appropriation of $22.9 million. The House approved $24.0 million, a $1.1 million increase over the FY2007 enacted amount, but $0.8 million below the request. The Senate committee recommended $24.5 million, or $0.5 million above the House-passed amount. The FY2008 enacted amount was $24.2 million, a $1.3 million (5.7%) increase over the previous year. The commission promulgates sentencing policies, practices, and guidelines for the federal criminal justice system. The FY2008 request was $16.2 million—a $1.6 million (10.9%) increase over the FY2007 appropriation of $14.6 million. The House approved $15.5 million, a $0.9 million increase over the FY2007 enacted amount, but $0.7 million below the request. The Senate committee recommended the House-passed amount. The FY2008 enacted amount was $15.5 million, a $0.9 million (6.0%) increase over the previous year. This mandatory account provides for three trust funds that finance payments to retired bankruptcy and magistrate judges, retired Court of Federal Claims judges, and spouses and dependent children of deceased judicial officers. The FY2008 request was $65.4 million—a $7.1 million (12.2%) increase over the FY2007 appropriation of $58.3 million. The House approved and the Senate committee recommended the requested amount. The FY2008 enacted amount was $65.4 million, the full amount requested. According to the budget request submission, the judiciary proposed the following new language under general provisions: Section 406: which gives the judiciary the same delegated authority as the executive branch to contract for space alteration projects not exceeding $100,000 (without having to go through GSA involvement). The judiciary proposed to delete the following provisions: Section 402: which requires the judiciary to notify Congress of appropriations transfers and reprogramming requests (change would remove the judiciary's reporting requirement). Section 404: which requires the judiciary to provide a separate, detailed financial plan for the Judiciary Information Technology fund (change would remove the judiciary's reporting requirement). The House-passed bill approved the extension of a temporary judgeship in the U.S. District Court for Northern District of Ohio in Section 305. It also approved the following provisions (as in previous years): Sec. 301: which permits funding for salaries and expenses for the employment of experts and consultant services as stipulated in law (5 U.S.C. 3109). Sec. 302: which permits up to five percent of any appropriation made for FY2008 to be transferred between judiciary appropriation accounts provided that no appropriation shall be decreased by more than five percent or increased by more than 10 percent by any such transfer except in certain circumstances. It also provides that such transfers shall be treated as reprogramming of funds and shall not be available for obligation or expenditure except in compliance with procedures set forth in sections 605 and 610. Sec. 303: which authorizes not to exceed $11,000 for official reception and representation expenses incurred by the Judicial Conference of the United States. Sec. 304: which requires a financial plan for the judiciary within 90 days of enactment of the act. The Senate committee recommended Sections 301-304 above, and approved the addition of the following provisions: Sec. 305: which provides for a salary adjustment for Justices and judges. Sec. 306: which grants the judicial branch the same tenant alteration authorities as the executive branch. Sec. 307: which clarifies that the U. S. Marshals Service has the authority to provide security services at several designated primary courthouses as part of a pilot program. Sec. 308: which adds Vancouver, Washington as a place of holding court. As enacted, Sections 301 through 304 (as proposed by both the House and the Senate) were included. The following sections were also enacted: Section 305: which authorizes a cost of living adjustment for FY2008 for federal judges (similar to language the Senate proposed). Section 306: which extends the authority to contract for repairs of less than $100,000 to the judiciary for FY2008 (similar to language the Senate proposed). Section 307: which authorizes a pilot program to allow the Administrative Office of the U.S. Courts to reimburse the U. S. Marshals Service for some services currently being performed by the Federal Protective Service (similar to language the Senate proposed). Section 308: which adds Vancouver as an eligible place of holding court for the Western District of Washington (similar to language the Senate proposed). Section 309: which extends the term of temporary judgeships in Kansas and Northern Ohio for one year. The authority for congressional review and approval of the District's budget is derived from the Constitution and the District of Columbia Self-Government and Government Reorganization Act of 1973 (Home Rule Act). The Constitution gives Congress the power to "exercise exclusive Legislation in all Cases whatsoever" pertaining to the District of Columbia. In 1973, Congress granted the city limited home rule authority and empowered citizens of the District to elect a mayor and city council. However, Congress retained the authority to review and approve all District laws, including the District's annual budget. As required by the Home Rule Act, the city council must approve a budget within 50 days after receiving a budget proposal from the mayor. The approved budget must then be transmitted to the President, who forwards it to Congress for its review, modification, and approval. Both the President and Congress may propose financial assistance to the District in the form of special federal payments in support of specific activities or priorities. Table 6 shows the FY2007 enacted amount, the President's FY2008 request, the amounts requested by the House of Representatives and the Senate, and the amounts enacted. The Administration's proposed FY2008 budget included $597.6 million in federal payments to the District of Columbia. The funding request for the courts and criminal justice system (court operations, defender services, offender supervision, and criminal justice coordinating council) totaled $481.7 million, or 80.6%, of the request. The President's budget also included $75.9 million in special federal payments for specific education initiatives, including $35.1 million for college tuition assistance, $13 million for public school enhancements, $13 million for public charter schools, and $14.8 million for the school choice (school voucher) program, which awards grants to eligible students to attend private schools. In addition to recommending $597.6 million in federal payments to the District of Columbia, the President's budget also contained a number of general provisions, including a number of so-called "social riders." Consistent with provisions in previous appropriations acts, the budget included provisions that would have: prohibited the use of federal and District funds to finance or administer a needle exchange program intended to reduce the spread of AIDS and HIV among intravenous drug abusers and their partners; provided abortion services except in instances of rape or incest, or when the health of the mother is threatened; prohibited the city from decriminalizing the use of marijuana for medical purposes; and limited the city's ability to use District funds to lobby for congressional voting representation or statehood. On March 23, 2007, the mayor submitted a proposed budget to the District's city council for consideration and approval. The proposed budget included $597.6 million in special federal payments, which was consistent with the amount included in the President's proposed budget for FY2008. During the first session of the 110 th Congress, the District Delegate to Congress introduced legislation, H.R. 733 , that would eliminate congressional review of the District's budget, granting the city budget autonomy over locally raised revenues. For several years, District officials have complained that delays in congressional review and approval of the city's budget have hampered the city's ability to efficiently plan and manage its resources. The bill, which was reported out of the House Subcommittee on the Federal Workforce, the District of Columbia, and Postal Service on June 21, 2007, was forwarded to the House Committee on Oversight and Government Reform. Though the full Committee held a markup session on August 2, 2007, it postponed a vote to report the measure out of committee. The House-passed FSGG bill included $654.6 million in special federal payments for the District of Columbia. This was $63.6 million more than appropriated in FY2007 and $57 million more than requested by the Administration or the District for FY2008. Specifically, the House version of H.R. 2829 recommended substantially increased funding for District of Columbia court operations, defender services, and offender supervision compared to that appropriated for FY2007 or requested by the Administration (see Table 6 ). In addition, the bill included additional federal funds to support enhancements to the public library system. The Senate Appropriations Committee recommended an appropriation of $613.7 million in special federal payments for the District of Columbia, which is $40.9 million less than approved by the House, but $16.1 more than requested by the Administration or the city. The Committee-passed bill deviated from its House counterpart by recommending $39.1 million less in funding for court operations. The bill, consistent with the FY2007 funding level and the Administration's request, also recommended $43.5 million for defender services, which is $9 million less than the $52.5 million recommended by the House. Like its House counterpart, the Senate measure also included $10 million to support enhancements to the city's public library system. Although placed on the Senate calendar on July 13, 2007, the Senate took no further action on the bill before the end of the first session. The Consolidated Appropriations Act includes $609.9 million in federal funding for the District of Columbia. This is $3.8 million less than recommended by the Senate Appropriations Committee, $44.7 million less than recommended by the House, $12.3 million more than requested by the Administration, and $18.8 million more than appropriated in FY2007. The act includes $223.9 million for court operations, which is $6.6 million more than recommended by the Senate and $32.5 million less than approved by the House. It also provides $10.5 million in funds to be administered by the mayor ($5 million) and the chief financial officer (CFO) ($5.5 million). In addition, the act provides $13 million to fund a new public library initiative ($9 million) and to reimburse the FBI for DNA analysis of evidence associated with the District's cold case backlog ($4 million). These activities were not funded in FY2007, but were included in the Administration's budget request and House and Senate versions of H.R. 2829 . P.L. 110-161 , like the House and Senate versions of H.R. 2829 : eliminates funding for transportation assistance and foster care, both of which were funded in FY2007; and reduces funding for emergency planning and security activities by $5.1 million, from $8.5 million appropriated in FY2007 to $3.4 million for FY2008. The act also reduces funding for grants administered by the city's CFO from the $20 million appropriated in FY2007 to $5.5 million in FY2008. The House version of H.R. 2829 recommended an appropriation of $6.1 million in CFO-administered funds whereas the Senate Appropriations Committee version of the bill did not include funding for the CFO to administer such activities. Instead, the Senate version of H.R. 2829 recommended appropriating $14 million to the Executive Office of the Mayor to fund environmental, education, health, and financial initiatives, including a $5 million earmark for the Anacostia River waterfront initiative. P.L. 110-161 includes $1 million for the Executive Office of the Mayor to support an Anacostia water quality initiative. The act continues funding of the resident tuition support for post-secondary education and K-12 school improvement programs. This is consistent with recommendations included in the House and the Senate versions of H.R. 2829 . These education initiatives are further discussed below. In addition to appropriating $609.9 million in special federal payments to the District, P.L. 110-161 completed congressional review and approval of the District's General Fund budget for FY2008. The act authorizes the District to spend $9.974 billion for operating expenditures and $1.608 billion for capital construction projects, including $150 million for a consolidated forensic laboratory facility and $42.2 million for baseball stadium construction. The District of Columbia Tuition Access Grant (DCTAG) program provides tuition support through grants to institutions of higher education (IHEs) for eligible residents of the District of Columbia, by paying the difference between in-state and out-of-state tuition (up to $10,000) at public IHEs; and up to $2,500 per year for tuition at private non-profit IHEs that are either located in the Washington, DC, metropolitan area, or are Historically Black Colleges and Universities (HBCUs). The DCTAG program is authorized through FY2012; and funding has been provided for the program annually beginning with FY2000. Under P.L. 110-161 , $33.0 million is provided for the DCTAG program to remain available until expended. P.L. 110-161 provides that grants awarded to students under the DCTAG program may be prioritized on the basis of their academic merit, their income and need, and other authorized factors. Each fiscal year since the enactment of the DC School Choice Incentive Act of 2003, under P.L. 108-199 , federal funding has been provided to the District of Columbia for three types of school improvement activities: for the improvement of the District of Columbia Public Schools (DCPS); for the expansion of public charter schools; and for opportunity scholarships (school vouchers) under the D.C. School Choice Incentive Program. For FY2008, $40.8 million is provided for school improvement programs in the District of Columbia. Funding in the amount of $13.0 million is provided to DCPS to support the improvement of public education; $13.0 million is provided to the State Education Office to expand quality public charter schools; and $14.8 million is provided to the Secretary of the U.S. Department of Education for the operation of the D.C. School Choice Incentive program (of which $1.8 million may be used to administer and fund assessments). The D.C. School Choice Incentive program enables children from families with incomes not exceeding 185% of the poverty line to apply to receive opportunity scholarships valued at up to $7,500 to cover the costs of tuition, fees, and transportation expenses associated with attending participating private elementary and secondary schools located in the District of Columbia. Scholarship recipients remain eligible to continue to participate in the program in subsequent years, so long as their family income does not exceed 300% of the poverty level. The D.C. School Choice Incentive program has been funded annually beginning with FY2004, and is authorized through FY2008. P.L. 110-161 includes language that modifies several general provisions included in previous appropriations acts. The act: allows the use of District funds for a needle exchange program aimed at reducing the spread of AIDS and HIV among users of illegal drugs; and prohibits the city from using federal funds to support or defeat legislation before the Congress or any state legislature. The provision allowing the use of District funds to support a needle exchange program is consistent with language included in the House and Senate versions of H.R. 2829 , but is a departure from previous appropriations acts which prohibited the use of both District and federal funds in support of a needle exchange program. In addition, the explanatory statement accompanying the act encourages the Bush Administration to include federal funding to help the city address its HIV/AIDS health crisis. The provisions allowing the use of District, but not federal, funds for lobbying activities is also consistent with language included in the House and Senate versions of H.R. 2829 , but is a departure from language included in previous appropriations statutes which strictly prohibited the city from using both District and federal funds to support lobbying activities aimed at securing congressional voting representation for District residents. P.L. 110-161 includes language that continues the prohibitions against the use of federal and District funds: for abortion services, except in instances where the life or health of the mother was in jeopardy; and to regulate or decriminalize the use of marijuana for medical purposes. The act also continues the $4,000 cap on attorney fees in actions brought under the Individuals with Disabilities Education Act (IDEA). The cap applies to attorneys who represent parties in the actions as well as attorneys representing the District. As signed by the President on September 29, 2007, the continuing resolution for FY2008 ( H.J.Res. 52 , P.L. 110-92 ) included a provision (Section 128) that temporarily released the District's FY2008 General Fund budget, which is financed with local revenues, from further congressional review and approval. Specifically, the District was allowed to spend local funds at a rate consistent with amounts identified in the District's Fiscal Year 2008 Proposed Budget and Financial Plan, which was first submitted to Congress on June 7, 2007. This action was taken in order to allow the city to undertake locally funded activities because Congress had not yet approved the FSGG bill before the end of the city's 2007 fiscal year. The release of the District's General Fund budget was consistent with a legislative proposal ( H.R. 733 ) that would allow the District to forgo congressional review and approval of that portion of its operating and capital budgets financed with local revenues. The city's elected leaders have consistently asserted that Congress has repeatedly delayed passage of the appropriations act for the District well beyond the October 1 start of its fiscal year. City leaders contend that the delay in Congress's approval of the city's budget hinders their ability to manage the District's financial affairs and negatively affects the delivery of public services. In addition to funding for the Department of the Treasury, the Executive Office of the President, the Judiciary, and the District of Columbia, a collection of 20 independent entities are slated to receive funding through this appropriations bill in FY2008. Table 7 lists appropriations as enacted for FY2007, and, for FY2008, it lists the amounts requested by the President, approved by the House, reported by the Senate Appropriations Committee, and enacted, for each of the agencies. The 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 remains vested in the agricultural committees because of the market's historical origins as an adjunct to agricultural trade. In the Senate, FY2008 CFTC appropriations were proposed in H.R. 2829 . In the House, FY2008 CFTC appropriations were proposed in H.R. 3161 , the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act of 2008. In the Consolidated Appropriations Act, 2008, the CFTC was funded in Division A, Agriculture and Related Agencies. The CPSC is an independent federal regulatory agency whose enabling legislation is the Consumer Product Safety Act of 1972. The Commission's primary responsibilities include protecting the public against unreasonable risks of injury associated with consumer products; developing uniform safety standards for consumer products and minimizing conflicting state and local regulations; and promoting research and investigation into the causes and prevention of product-related deaths, illnesses, and injuries. For FY2008, the House passed the Committee on Appropriation's recommendation of $66.8 million, $3.6 million above the Administration's request. Subsequently, the Senate recommended $70 million for CPSC for FY2008. In the end, however, following widespread publicity about unsafe exports from China, particularly dangerously defective toys, the consolidated appropriations bill provides the agency with $80 million. Consumer groups and others continue to express concerns over the CPSC's staffing level, especially in light of recent news stories about unsafe exports (notably including toys) from China. In 1977, three years after the Commission opened its doors, it had a staff of 900. The staffing level has inexorably declined over the past three decades. The budget for FY2007 culminated a two-year reduction of full-time positions (FTEs) from 471 to 420. The Commission's request for FY2008 anticipated a decrease of an additional 19 FTEs. All indications are that the CPSC will substantially increase its staffing level over the next few years. In the House, H.R. 4040 , the Consumer Product Safety Commission Modernization Act, passed unanimously (407-0) in December 2007. That bill provides authorizations of $80 million for FY2009, $90 million for FY2010, and $100 million for FY2011. The EAC provides grant funding to the states to meet the requirements of the Help America Vote Act (HAVA), provides for testing and certification of voting machines, studies election issues, and promulgates voluntary guidelines for voting systems standards and issues voluntary guidance with respect to the requirements in the act. The commission was not given rule-making authority under HAVA, although the law transferred responsibilities for the National Voter Registration Act (NVRA) from the Federal Election Commission to the EAC; these responsibilities include NVRA rule-making authority. The Department of Justice is charged with enforcement responsibility. The President's FY2008 budget request included $15.5 million for the EAC (with $3.25 million for the National Institute of Standards and Technology, NIST), as well as $4.83 million for protection and advocacy programs and $10.89 million for accessibility grants administered by HHS. H.R. 2829 passed the House on June 28, 2007, with the requested amounts for the EAC and NIST as well as $300 million for requirements payments and $950,000 for high school and college programs. The Senate-reported version eliminated the requirements payments while increasing funding for the EAC to $16.5 million, with $1.05 million for school and college programs. Funding for the EAC and election reform programs ultimately was provided by the Consolidated Appropriations Act, 2008, enacted on December 16, 2007 ( P.L. 100-161 ). The act provides $16.53 million for the EAC, of which $3.25 million is for NIST, and $200,000 is for the high school mock election program. It also provides $115 million for requirements payments and $10 million for data collection grants under the Help America Vote College Program. The Federal Communications Commission, created in 1934, is an independent agency charged with regulating interstate and international communications by radio, television, wire, satellite, and cable. The FCC is also charged with promoting the safety of life and property through wire and radio communications. The mandate of the FCC under the Communications Act is to make available to all people of the United States a rapid, efficient, nationwide, and worldwide wire and radio communications service. The FCC performs five major functions to fulfill this charge: spectrum allocation, creating rules to promote fair competition and protect consumers where required by market conditions, authorization of service, enhancement of public safety and homeland security, and enforcement. The FCC obtains the majority of its funding through the collection of regulatory fees pursuant to Title I, Section 9, of the Communications Act of 1934; therefore, its direct appropriation is considerably less than its overall budget. For FY2008, the Consolidated Appropriations Act provides $313 million (a direct appropriation of $1 million and the remainder to be collected through regulatory fees), $21.7 million above FY2007 and the same as the President's budget request. Specifically, the act allows: up to $4,000 for official reception and representation expenses; purchase and hire of motor vehicles; special counsel fees; collection of $312 million in Section 9 fees; the sum appropriated to be reduced as Section 9 fees are collected. The act further: transfers $21,480,000 from the Universal Service Fund to the Office of Inspector General; provides $2,500,000 for the digital television consumer education and outreach initiative to prepare for the digital television transition scheduled for February 2009; prohibits the FCC from changing rules governing the Universal Service Fund regarding single connection or primary line restrictions as proposed by the Senate; and extends the Universal Service Antideficiency Temporary Suspension Act until December 31, 2008. The FDIC's Office of the Inspector General is funded from deposit insurance funds; the OIG has no direct support from federal taxpayers. Before FY1998, the amount was approved by the FDIC Board of Directors; the amount is now directly appropriated (through a transfer) to ensure the independence of the OIG. In FY2007, a budget of $31 million for the OIG was appropriated, and the President requested $27 million for FY2008. The Consolidated Appropriations Act of 2008 provided a budget of $27 million for the OIG, which is a 13% decrease from FY2007. The FEC administers, and enforces civil compliance with, the Federal Election Campaign Act (FECA) through educational outreach, rulemaking, litigation, and advisory opinions. The agency also administers the presidential public financing system. The President's FY2008 budget request included an appropriation of $59.2 million for the FEC, an 8.6% increase above the enacted FY2007 appropriation of $54.5 million. In its FY2008 budget justification document, the FEC emphasized efforts to contain costs by restructuring the agency's internal processes and using technology to improve efficiency. The agency did not request any additional staff despite anticipated "[i]ncreased workloads associated with [2008] Presidential elections." The FEC stated that much of its FY2008 budget request would have been used to cover a $1.6 million rent increase and to fund "mandated pay increases" for employees. The FEC also proposed legislative language that would have allowed the agency to collect fees for educational conferences. The House-passed version of the FSGG bill provided $59.2 million for FY2008—the same amount the agency requested and the House Appropriations Committee recommended. The committee report did not contain instructions for the FEC. Under a unanimous consent agreement regulating floor consideration of the bill, amendments limiting presidential public campaign financing could have been offered. However, the Legislative Information System and Congressional Record show no record of those amendments actually being offered on the floor. In fact, the FEC was the subject of limited discussion during FSGG floor consideration. The version of the bill passed by the House specified minimum and maximum levels of the appropriation to be used for FEC data automation and "reception and representation" expenses. The FEC portion of the FSGG bill reported by the Senate Appropriations Committee was identical to the language passed by the House. This included the same recommendation of $59.2 million in funding and specified minimum and maximum funding levels for data automation and reception and representation expenses. The report accompanying the bill did not contain instructions for the FEC, but directed the Government Accountability Office (GAO) to report to Congress on two campaign finance matters. First, the committee report directed GAO to provide information on "the 10-year trend in the cost of House and Senate campaigns as well as the percentage of those costs that are incurred due to rising broadcast advertising rates." Second, the report directed GAO to "revisit and update" a previous report on public campaign financing in the states. Both issues were the subject of a June 20, 2007, Senate Rules and Administration Committee hearing. The FY2008 consolidated appropriations law provides $59.2 million for the FEC and specifies minimum and maximum funding levels for data automation and reception and representation expenses. As noted above, all those provisions were included in the FSGG appropriations bill passed by the House and reported by the Senate Appropriations Committee. (The full Senate did not consider the FSGG bill.) The explanatory statement accompanying the consolidated bill contains no instructions for the FEC. It also does not address the Senate Appropriations Committee instructions regarding GAO's research on campaign costs and public financing (discussed above). The Federal Trade Commission (Commission or FTC) is an independent agency. It seeks to protect consumers and enhance competition by eliminating unfair or deceptive acts or practices in the marketing of goods and services and by ensuring that consumer markets function competitively. Following the recommendation of the Appropriations Committee, the House approved a total program level of $247.5 million for the FTC for FY2008, an increase of $7.2 million over the Administration's request. More specifically, $139 million is to come from pre-merger filing fees, $20 million from Do-Not-Call fees, and a direct appropriation of $88.5 million. The comparable figures for the Senate-reported version were: a total program level for the agency of $240.2 million (the same as the Administration's request), a figure comprising of $144.6 million from pre-merger filing fees, $19 million from Do-Not-Call fees, and a direct appropriation of $76.6 million. The Consolidated Appropriations Act for FY2008 provides the FTC with a total program level of $243.9 million, with $139 million of that amount to come from pre-merger filing fees, $23 million from Do-Not-Call fees, and $81.9 million as a direct appropriation. Appropriators, in recent years, have moved away from the practice followed at the turn of the century (FY2000 through FY2002) wherein zero ($0) direct appropriations were required, because the entire program level was covered by a combination of fees and prior-year collections. The General Services Administration administers federal civilian procurement policies pertaining to the construction and management of federal buildings, disposal of real and personal property, and management of federal property and records. It is also responsible for managing the funding and facilities for former Presidents and presidential transitions. Typically, only about 1% of GSA's total budget is funded by direct appropriations. As indicated in Table 8 , for FY2008, the President requested $144 million for policy and operations, $47 million for the Office of Inspector General, $3 million for allowances and office staff for former Presidents, and $18 million to be deposited into the Federal Citizen Information Center Fund. The House approved $135 million for GSA policy and operations, $53 million for the Office of Inspector General, $3 million for allowances and office staff for former Presidents, and $16 million to be deposited into the Federal Citizen Information Center Fund. The Senate Appropriations Committee recommended $65 million for government-wide policy and $90 million for operating expenses, $53 million for the Office of Inspector General, $3 million for allowances and office staff for former Presidents, and $18 million to be deposited into the Federal Citizen Information Center Fund. P.L. 110-161 provides $52.9 million for government-wide policy and $85.9 million for operating expenses, $48.4 million for the Office of Inspector General, $2.5 million for allowances and office staff for former Presidents, and $17.3 million to be deposited into the Federal Citizen Information Center Fund. Most GSA spending is financed through the Federal Buildings Fund. Rent assessments from agencies paid into the FBF provide the principal source of its funding. Congress may also provide direct funding into the FBF. Congress directs the GSA as to the allocation or limitation on spending of funds from the FBF in provisions found accompanying GSA's annual appropriations. As indicated in Table 8 , for FY2008, the President requested that an additional amount of $345 million be deposited in the FBF, and that the total limitation for the FBF be set at $8,091 million. The President's budget further requested that $615 million remain available until expended for new construction projects from the FBF, and $804 million remain available until expended for repairs and alterations. The House provided that an additional amount of $88 million be deposited in the FBF, and that the total limitation for the FBF be set at $7,835 million. The House further provided that $525 million remain available until expended for new construction projects from the FBF, and $733 million remain available until expended for repairs and alterations. The Senate Appropriations Committee recommended that an additional amount of $625 million be deposited in the FBF, and that the total limitation for the FBF be set at $8,371 million. The Senate bill further provided that $895 million remain available until expended for new construction projects from the FBF, and $804 million remain available until expended for repairs and alterations. P.L. 110-161 provides for an additional amount of $84 million to be deposited in the FBF, and sets the total limitation for the FBF at $7,830 million. The enacted legislation further provides that $531 million remain available until expended for new construction projects from the FBF—with $225 million of that amount set aside for "emergency" construction projects relating to homeland security initiatives—and that $722.2 million remain available until expended for repairs and alterations. Originally unveiled in advance of the President's proposed budget for FY2002, the E-Gov Fund and its appropriation have been a somewhat contentious matter between the President and Congress. The President's initial $20 million request was cut to $5 million, which was the amount provided for FY2003, as well. Funding thereafter was held at $3 million for FY2004, FY2005, FY2006, and FY2007. Created to support interagency e-gov initiatives approved by the Director of OMB, the fund and the projects it funds have been subject to close scrutiny by, and accountability to, congressional appropriators. The President requested $5 million for FY2008, but the House approved $3 million, as recommended by the House Appropriations Committee. Senate appropriators recommended $5 million, the requested amount. The Consolidated Appropriations Act, 2008, provides $3 million for the E-Gov Fund. The FY2008 budget included information on the portfolios of each of the agencies involved in personnel management functions: the Federal Labor Relations Authority (FLRA), the Merit Systems Protection Board (MSPB), the Office of Personnel Management (OPM), and the Office of Special Counsel (OSC). Table 9 shows appropriations as enacted for FY2007, as requested for FY2008, as passed by the House for FY2008, as reported in the Senate for FY2008, and as enacted in P.L. 110-161 for each of these agencies. The FLRA is an independent federal agency that administers and enforces Title VII of the Civil Service Reform Act of 1978. Title VII, on Federal Service Labor-Management Relations, gives federal employees the right to join or form a union and to bargain collectively over the terms and conditions of employment. Employees also have the right not to join a union. The statute excludes specific agencies (e.g., the Federal Bureau of Investigation and the Central Intelligence Agency) and gives the President the authority to exclude other agencies for reasons of national security. The FLRA consists of a three-member authority, the Office of General Counsel, and the Federal Services Impasses Panel (FSIP). The authority resolves disputes over the composition of bargaining units, charges of unfair labor practices, objections to representation elections, and other matters. The General Counsel's office conducts representation elections, investigates charges of unfair labor practices, and manages the FLRA's regional offices. The FSIP resolves labor negotiation impasses between federal agencies and labor organizations. The President's FY2008 budget proposed an appropriation of $23.7 million for the FLRA, almost $1.7 million below the agency's FY2007 appropriation of $25.4 million. The House recommended an appropriation of $23.6 million, which is $77,000 below the President's request. The amount proposed by the Senate Appropriations Committee is the same as the Administration's request of $23.7 million, and $77,000 more than the amount approved by the House. The amount agreed to by Congress in the Consolidated Appropriations Act was $23.6 million. The amount appropriated for FY2008 is $1.7 million less than the amount enacted for FY2007. The President's budget requested, H.R. 2829 , as passed by the House and reported in the Senate, and P.L. 110-161 provided for an FY2008 appropriation of just over $40 million for the MSPB. The authorization for the agency expires on September 30, 2007. In its budget submission, MSPB projected a 2.4% increase in decisions issued for cases related to retirement, adverse action appeals, and reduction-in-force appeals in FY2008. The House committee report states that the funding to be provided to the agency covers "mandatory pay raises, training, information technology improvements, and increased rent payments." According to the Senate committee report, the trust fund transfer would provide "appropriate funding for MSPB to continue as arbitrator for the additional appeals cases" from the Departments of Defense and Homeland Security. Legislation that would reauthorize the MSPB for three years and includes provisions to enhance the agency's reporting requirements is currently pending in the Senate and the House of Representatives. Senator Daniel Akaka and Representative Danny Davis introduced the Federal Merit System Reauthorization Act of 2007, S. 2057 and H.R. 3551 , on September 17, 2007, and it was referred to the Senate Committee on Homeland Security and Governmental Affairs and the House Committee on Oversight and Government Reform. The President's budget requested, and H.R. 2829 , as passed by the House and reported in the Senate, and P.L. 110-161 all provided an FY2008 appropriation of almost $102 million for salaries and expenses for OPM. This amount includes funding of almost $6 million for the Enterprise Human Resources Integration project, more than $1.3 million for the Human Resources Line of Business project, $340,000 for the E-payroll project, and $170,000 for the E-training program. Among the initiatives that OPM stated that it will undertake for FY2008 are these: demonstration projects on pay-for-performance "to replace the current General Schedule ... with a modern classification, pay, and performance management system that is both results-driven and market-based"; continued development of the "prescription drug audit program, which includes audits of pharmacy benefit managers" by the OPM Inspector General; and legislation to make technical changes in the retirement annuities of individuals with part-time service under the Civil Service Retirement System (CSRS) and to transition employees working in non-foreign areas (e.g., Alaska and Hawaii) from non-foreign cost of living allowances to locality pay. The House committee report noted that an increased amount ($1 million) is authorized to be transferred from trust funds, $26.5 million of which is for retirement systems modernization. The committee directed OPM to provide the committee with quarterly reports on the program's implementation beginning on January 31, 2008. With regard to the Federal Human Capital Survey, the committee report directed OPM to "continue to make agencies' survey data publicly available in a consistent and consolidated format, and in a timely manner." The committee report also urged OPM to work with the authorizing committees "to consider changes in law to bring Federal prevailing rate [blue collar] employees currently working in the Narragansett Bay, Rhode Island Wage Area within the coverage of the Boston, Massachusetts Wage Area" and to report progress made on this issue to Congress within 90 days of the act's enactment. The report noted that white-collar federal employees in Southeastern Massachusetts and Rhode Island are included in the Boston Wage Area and that "[t]here is no reason for different treatment between the two categories of employees." According to the committee report, the additional funding ($500,000) provided to the Office of Inspector General (OIG) at OPM through trust fund transfer was intended "to maintain audit and investigative staff at the current level and avoid deterioration of the OIG's audit capabilities." Several directives were included in the Senate committee report as follow: OPM must report to the committee within 120 days after the act's enactment "on its human resources products and services," including actions taken to address agency concerns about choice and flexibility, and "indicating which products and services OPM has identified as not reasonably available from private sector providers." Within the same time period, OMB must report to the committee "on how the human resources products and services that OPM provides to Federal agencies meet established standards, and on the demonstrable steps OPM has taken to avoid any potential conflicts between [its] role[s] as a human resources IT products and services provider and ... the designated lead agency of the Human Resources Line of Business." OPM must work with and through the Chief Human Capital Officers Council to ensure that the results of the survey on federal dependent care programs are used by agencies to assess their current and future needs with regard to dependent care and to determine ways to communicate with employees about the availability of dependent care programs. Agencies, in reviewing their workplace flexibilities, are to "determine whether opportunities exist to use flexible work options to address any recruitment and retention challenges." The Senate report also addressed two issues included in the House report. With regard to the Narragansett Bay, Rhode Island, wage area, the committee directed the FPRAC to make this wage area "the immediate order of business" as the employees within the wage area "have waited 3 years for the FPRAC to address their concerns." As for retirement systems modernization, the committee report noted the February 2008 date for operations to commence and "encourages OPM to continue to work cooperatively with GAO to minimize potential risks and project delays." The explanatory statement that accompanied the consolidated appropriations act that was enacted as P.L. 110-161 , directs OPM to report to the House and Senate Committees on Appropriations by April 30, 2008, on the wage area criteria being developed by a working group of the FPRAC. Further, the statement directs OPM to submit a report to the House and Senate Committees on Appropriations and GAO by February 20, 2008, on the test results for, the status of efforts to resolve any defects in, and a reliable cost estimate for the retirement modernization system. GAO must provide comments on the OPM report to the appropriations committees. H.R. 2829 , as reported in the Senate, would have provided limitations on administrative expenses of $124.4 million under salaries and expenses and $17.1 million under the OIG which are greater than those requested in the President's budget. These funds would have been for the retirement and insurance programs, including retirement systems modernization, and to "help restore the OIG's budget to previous levels," respectively. With regard to these limitations on administrative expenses, P.L. 110-161 authorizes the transfer of $123.9 million under salaries and expenses and $17.1 million under the OIG. Almost $27 million of the former amount funds the automation of the system for keeping retirement records. The OIG amount supports audits and investigations. The Government Managers Coalition, comprising the Senior Executives Association, the Federal Managers Association, the Professional Managers Association, the Federal Aviation Administration Managers Association, and the National Council of Social Security Management Associations, has suggested that unused sick leave be made creditable service for retirement for federal employees under the Federal Employees Retirement System (FERS). An analysis by the Congressional Research Service and a study by OPM found that employees under FERS are using more sick leave than federal employees covered by the Civil Service Retirement System, under which unused sick leave is creditable service for retirement. Reportedly, legislation on sick leave is expected to be introduced in the second session of the 110 th Congress. The President's budget requested, and H.R. 2829 , as passed by the House and reported in the Senate, provided an FY2008 appropriation of $16.4 million for the OSC. OSC projected a continued increase in the number of prohibited personnel practice cases and disclosure cases received in its budget submission. Noting the investigations recently undertaken by the OSC, the House committee report urged the agency "to carefully evaluate the need for additional appropriations" and formally request from OMB any additional funds necessary through a budget amendment. During House consideration of H.R. 2829 on June 27, 2007, Representative Tom Davis offered an amendment ( H.Amdt. 460 ) to decrease OSC's appropriation by $1 million. The amendment was not agreed to by a 146-279 (Roll No. 587) vote on June 28, 2007. P.L. 110-161 provides an appropriation of $17.5 million to the OSC, $1.1 million more than the House and Senate proposed. The explanatory statement accompanying the Consolidated Appropriations Act states that the additional funding is "to assist OSC with computer forensics in connection with its Special Task Force investigations." The Senate committee report urged the OSC "to work with whistleblower advocacy organizations to promote the highest level of confidence in the Whistleblower Protection Act and the OSC," reiterated the House committee language related to the need for additional appropriations, and specified that the agency's FTE total "should not be below 102 or above 116." According to the report, the staffing should range from 70 to 75 FTEs at headquarters, 6 to 8 FTEs at the Midwest field office, 9 to 11 FTEs at the Dallas field office, 8 to 10 FTEs at the Oakland field office, and 9 to 12 FTEs at the District of Columbia field office. OSC was directed to communicate with the Committee 45 days in advance of any organizational change that would affect these staffing numbers. On October 10, 2007, the legal director of the Government Accountability Project and the executive directors of Public Employees for Environmental Responsibility and the Project on Government Oversight sent letters to the chairman and ranking members of the Senate Committee on Homeland Security and Governmental Affairs and the House Committee on Oversight and Government Reform; the Senate Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia and the House Subcommittee on the Federal Workforce, Postal Service, and the District of Columbia; and the Senate and House Appropriations Subcommittees on Financial Services and General Government, urging them to deny the Special Counsel's request for an additional appropriation of $3 million for FY2008, until an investigation of the Special Counsel being conducted by OPM's inspector general is completed. The OSC requested the additional amount to fund investigations of allegations that the White House conducted political briefings at federal agencies in violation of the Hatch Act. Among the concerns expressed in the letter were that "there is no guarantee that any additional monies provided to OSC would be used for [the] intended purpose" and "OSC simply cannot take on any more responsibilities without further abandoning its primary constituency: government whistleblowers." The Federal Merit System Reauthorization Act of 2007, S. 2057 and H.R. 3551 , is currently pending in the Senate Committee on Homeland Security and Governmental Affairs and House Committee on Oversight and Government Reform. The legislation, introduced by Senator Daniel Akaka and Representative Danny Davis, would reauthorize the OSC for three years and includes provisions to enhance the agency's reporting requirements. The OSC has revised its policies governing requests and appeals under the Freedom of Information Act and access to agency records under the Privacy Act. The custodian of the historically valuable records of the federal government since NARA's establishment in 1934, NARA also prescribes policy and provides both guidance and management assistance concerning the entire life cycle of federal records. It also administers the presidential libraries system; publishes the laws, regulations, and presidential and other documents; and assists the Information Security Oversight Office (ISOO), which manages federal security classification and declassification policy; the Public Interest Declassification Board; and the National Historical Publications and Records Commission (NHPRC), which makes grants nationwide to help nonprofit organizations identify, preserve, and provide access to materials that document American history. As indicated in Table 7 , the President's FY2008 request for NARA was almost $369 million, which was about $37 million more than was appropriated for FY2007. Of this requested amount, almost $313 million was sought for operating expenses, an increase of $34 million over the FY2007 appropriation for this account. For the electronic records archive, $58 million was sought, a $13 million increase over the previous fiscal year allocation; for repairs and restoration, a little less than $9 million was sought, which was slightly below the FY2007 appropriation; and for the NHPRC, no appropriation was requested, which was the President's request for FY2007, although Congress allocated $7 million. NARA's FY2007 budget justification indicated that no funding for the NHPRC grants program was sought in order to focus funding on operations that directly affect management, access, and the preservation of federal records. The House approved the amounts recommended by appropriators for NARA, totaling a little more than $388 million, which was almost $20 million more than the President's request. Of this amount, $315 million was provided for operating expenses, an increase of a little more than $2 over the requested amount; $58 million was allocated for the electronic records archive, which was the same as the requested amount; and $16 million was appropriated for repairs and restoration, which was almost twice the amount requested. While no funds had been requested for the NHPRC grants program, the House approved $10 million as recommended by appropriators, allocating $8 million for grants and $2 for NHPRC operating expenses. The Senate Appropriation Committee recommended $396 million for NARA, about $8 million more than the House-approved allotment and about $27 million more than the amount requested. Of the amount recommended by Senate appropriators, almost $314 million was provided for operating expenses, an increase of about $1 million over the requested amount; $58 million was allocated for the electronic records archive, which was the same as the requested amount, and a little more than $25 million was recommended for repairs and restoration, which was approximately $16 million more than the amount requested. While the President had not requested any funds for the NHPRC, Senate appropriators recommended $10 million. In the Consolidated Appropriations Act, 2008, NARA receives a little over $400 million, which is approximately $31 million more than the President's request, about $12 million more than the House-approved appropriation, and $4 million more than the total amount recommended by Senate appropriators. Of the amount appropriated, $315 million is provided for operating expenses; $58 million is allocated for the electronic records archive; $28.6 million is appropriated for repairs and restoration; and $9.5 million is provided for the NHPRC. The NCUA is an independent federal agency funded entirely by the credit unions that the agency charters, insures, and regulates. Two entities managed by the NCUA are addressed by the Financial Services and General Government bill. One of these, the Development Revolving Loan Fund (CDRLF), makes low-interest loans and technical assistance grants to low-income credit unions. In FY2007, the CDRLF received an appropriation of $941,000, and the President requested $950,000 for FY2008. The Consolidated Appropriations Act provides $975,000 for FY2008. The other entity managed by NCUA, the Central Liquidity Facility (CLF), provides a source of seasonal and emergency liquidity for credit unions. The CLF can finance loans using its assets, and it can also borrow from the Federal Financing Bank. Provisions in the appropriations bill set a borrowing limit for the CLF each fiscal year. Congress also determines the level of CLF operating expenses, which are not funded through appropriations, but by earned income. For FY2007, Congress approved a $1.5 billion limitation on direct loans from the CLF, and the President requested the same amount for FY2008. The Consolidated Appropriations Act of 2008 provides a $1.5 billion limitation for FY2008. The SEC administers and enforces federal securities laws to protect investors from fraud, to ensure that sellers of corporate securities disclose accurate financial information, and to maintain fair and orderly trading markets. The SEC's budget is set through the normal appropriations process, but funds for the agency come from fees on sales of stock, new issues of stocks and bonds, corporate mergers, and other securities market transactions. When the fees are collected, they go to a special offsetting account available to appropriators, not to the Treasury's general fund. The SEC is required to adjust the fee rates periodically in order to make the amount collected approximately equal to the agency's budget. For FY2008, the Administration requested $905.3 million, an increase of 1.4% over FY2007. Of that amount, $875 million was to come from current-year offsetting fee collections, and the remaining $30.3 million from prior-year unobligated balances. In FY2007, the enacted budget authority was $892.6 million, of which $25.0 million was prior-year unobligated balances. There was no direct appropriation from the general fund. The House Appropriations Committee recommended, and the House approved, $908.4 million, $15.9 million (1.8%) above the FY2007 budget, and $3.1 million (0.3%) above the Administration's FY2008 request. Of that amount, $867.0 million would have come from current-year fee collections and $41.4 from prior year balances. The Senate Appropriations Committee approved $905.3 million, with an identical $41.4 million to come from prior year fee collections. The Consolidated Appropriations Act of 2008 provides $906.0 million, $0.7 million, or 0.08% above the Administration's original request. Of that amount, $63.3 million is to come from prior year unobligated balances, and the remainder from current-year collections. There will be no direct appropriation from the general fund. The SSS is an independent federal agency operating with permanent authorization under the Military Selective Service Act (50 U.S.C. App.§451 et seq.). It is not part of the Department of Defense, but its mission is to serve the emergency manpower needs of the military by conscripting personnel when directed by Congress and the President. All males ages 18 through 25 and living in the United States are required to register with the SSS. The induction of men into the military via Selective Service (i.e., the draft) terminated in 1972. In January 1980, President Carter asked Congress to authorize standby draft registration of both men and women. Congress approved funds for male-only registration in June 1980. Since 1972, Congress has not renewed any President's authority to begin inducting (i.e., drafting) anyone into the armed services. Recent efforts to provide the President with induction authority have been rejected. Funding of the Selective Service has remained relatively stable over the last decade. For FY2008, the enacted amount, $22 million, is the same as the House approved, the Senate reported, and the President requested. FY2008 funding is about $3 million less than the FY2007 appropriation. The SBA is an independent federal agency created by the Small Business Act of 1953. Although the agency administers a number of programs intended to assist small firms, arguably its three most important functions are: (1) to guarantee—principally through the agency's Section 7(a) general business loan program—business loans made by banks and other financial institutions; (2) to make long-term, low-interest disaster loans to small businesses, nonprofits, and households that are victims of hurricanes, earthquakes, other physical disasters, and acts of terrorism; and (3) to serve as an advocate for small business within the federal government. The Consolidated Appropriations Act provides a budget of $569 million for the SBA in FY2008. The Senate Appropriations Committee had recommended $568 million in new budget authority compared to the House's approval of $582 million for FY2008. The Senate Committee recommended amount was $4 million below the FY2007 enacted amount and $104 million more than the Administration requested. The Senate Committee had recommended, and the House agreed, to appropriate $2 million for business loan subsidies. The original House-passed bill included $82 million for this purpose; the Administration requested no funds for business loan subsidies. The act includes $344 million for the salaries and expenses account. The Senate Appropriations Committee had recommended $412 million for salaries and expenses, compared to $347 million originally approved by the House, and $310 million requested by the Administration. The Senate Appropriations Committee recommended agreeing with the House-passed bill and the Administration request that there be no new budget authority for the disaster loan program in FY2008. In FY2007, the program received $113 million. According to the act, up to $156 million in unused budget authority that carried over from previous years could be used to operate the program in FY2008. Lending authority stays the same for all loan programs. The U.S. Postal Service generates nearly all of its funding—about $73 billion annually—by charging users of the mail for the costs of the services it provides. However, Congress does provide an annual appropriation to compensate USPS for revenue it forgoes in providing free mailing privileges to the blind and overseas voters. Appropriations for these purposes were authorized by the Revenue Forgone Reform Act of 1993 (RFRA). This act also authorized Congress to reimburse USPS $29 million each year until 2035 for postal services provided at below-cost rates to not-for-profit organizations in the early 1990s. In its FY2008 budget submission, USPS requested a $153.4 million appropriation. Of this amount, $29 million would be for the annual reimbursement under RFRA; $83.5 million would be for revenue forgone; and $40.9 million would be for reconciliation adjustments for underestimated revenue forgone in FY2005 and FY2006. In its FY2008 budget, the Administration proposed a total appropriation of $88.9 million, $20 million less than was enacted for FY2007. Of this, $64.5 million would have been for revenue forgone in FY2008, and $24.4 million would have been for a reconciliation adjustment for underestimated revenue forgone in FY2005. The Administration's FY2008 budget not only recommended less revenue forgone funding than USPS requested, but also would have eliminated the $29 million annual reimbursement authorized by RFRA. Additionally, the Administration's budget would not have permitted any of the $88.9 million appropriation to be obligated until October 1, 2008, which is in FY2009. (Since FY1994, Congress has made the RFRA reimbursement portion of the USPS appropriation available for obligation in the upcoming fiscal year and delayed the availability of the revenue forgone portion of the appropriation to the following fiscal year.) On June 11, 2007, the House Appropriations Committee considered a bill ( H.R. 2829 ; H.Rept. 110-207 ) that recommended a USPS appropriation of $117.9 million. Of this amount, $29 million would have been for the RFRA reimbursement and $88.9 million would have been for revenue forgone. As in previous years, the committee recommended making the RFRA reimbursement available for obligation in the upcoming fiscal year (FY2008) and the revenue forgone payment available in the following fiscal year (FY2009). Before approving the bill, however, the committee approved an amendment offered by the chairman of the committee that struck the $29 million RFRA reimbursement funds. On June 21, the House Appropriations Committee approved a version of the bill that did not include the $29 million RFRA reimbursement payment. In its report on the bill, the committee did not state why it had not approved the $29 million RFRA reimbursement payment. The committee did express its concerns over USPS's possible closure of postal facilities in the Bronx borough of New York City, Pasadena, California, and elsewhere. The committee also expressed its concerns over the quality of mail delivery service in Chicago, Illinois, and directed USPS to report to Congress on USPS efforts to "take into consideration the views of local postal management in the development of appropriate staffing levels to ensure that postal customers receive the quality mail service that they expect and deserve." The Senate Appropriations Committee recommended a postal appropriation of $117.9 million, $29 million more than the $88.9 million recommended by the Administration and approved by the House. Of this amount, $29 million would have been for the RFRA reimbursement and $88.9 million would have been for revenue forgone. As in the past, the committee would have the RFRA reimbursement paid to USPS in the upcoming fiscal year (FY2008) and the revenue forgone payment would have become available to USPS in the following fiscal year (FY2009). The Senate Committee report expressed concern regarding mail delivery delays in Chicago and the consolidation of mail facilities. It directed USPS to not implement consolidation decisions affecting facilities in Sioux City, Iowa, Aberdeen, South Dakota, and Alexandria, Louisiana, until it "implements the recommendations of the GAO and develops a mechanism to evaluate potential and actual impacts on delivery." The Committee also urged USPS to "take into consideration the views of local postal management in the development of appropriate staffing levels to ensure that postal customers receive the quality mail service that they expect and deserve." Finally, the Committee commended USPS on its issuance of a "Forever Stamp," and directed GAO to produce a study of USPS's screening of mail addressed to federal agencies for biological threats. Ultimately, Congress included $29 million for the RFRA reimbursement, appropriating a total of $117.9 million for USPS for FY2008 ( P.L. 110-161 , Title V). A court of record under Article I of the Constitution, the United States Tax Court is now an independent judicial body in the legislative branch and has jurisdiction over various tax matters as set forth in Title 26 of the United States Code . The court is headquartered in Washington, DC, but its judges conduct trials in many cities across the country. The President requested $45.3 million for FY2008, about $2.3 million below the USTC's FY2007 appropriation. The House approved $45.1 million for the USTC for FY2008, and the Senate Appropriations Committee recommended $45.3 million, the same as the President's request. The Consolidated Appropriations Act provides $45.3 million for FY2008. The Financial Services and General Government appropriations language includes general provisions which apply either government-wide or to specific agencies or programs. There are also be general provisions at the end of an individual title within the appropriations act which relate only to agencies and accounts within that specific title. The Administration's proposed language for government-wide general provisions was included in the FY2008 Budget, Appendix. Most of the provisions continue language that has appeared under the General Provisions title for several years. For various reasons, Congress has determined that reiterating the language is preferable to making the provisions permanent. Presented below are some of the government-wide general provisions that were included in P.L. 109-115 , the Transportation, Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, and Independent Agencies Appropriations Bill for FY2006, but that are not included in the FY2008 budget proposal. (The section numbers refer to the provisions as they appeared in P.L. 109-115 . H.R. 5576 , the FY2007 Transportation, Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, and Independent Agencies Appropriations Bill, as passed by the House and reported in the Senate, was not enacted.) Inclusion of the provisions in H.R. 2829 , as passed by the House and reported in the Senate, and in P.L. 110-161 is noted. Section 809, which prohibits payment to political appointees who are filling positions for which they have been nominated, but not confirmed. Included as Section 709 of the bill as passed by the House and reported in the Senate, and of P.L. 110-161 . Section 819, which prohibits the obligation or expenditure of appropriated funds for employee training that (1) does not meet identified needs for knowledge, skills, and abilities bearing directly upon the performance of official duties; (2) contains elements likely to induce high levels of emotional response or psychological stress in some participants; (3) does not require prior employee notification of the content and methods to be used in the training and written end of course evaluation; (4) contains any methods or content associated with religious or quasi-religious belief systems or "new age" belief systems; or (5) is offensive to, or designed to change, participants' personal values or lifestyle outside the workplace. Included as Section 718 of the bill as passed by the House and reported in the Senate, and of P.L. 110-161 . Section 820, which prohibits the use of appropriated funds to implement or enforce employee non-disclosure agreements if they do not contain whistleblower protection clauses. Included as Section 719 of the bill as passed by the House and reported in the Senate, and of P.L. 110-161 . Section 823, which requires that the Committees on Appropriations approve the release of any "non-public" information, such as mailing or telephone lists, to any person or any organization outside the federal government. Included as Section 722 of the bill as passed by the House and reported in the Senate, and of P.L. 110-161 . Section 834, which states that Congress recognizes the United States Anti-Doping Agency as the official anti-doping agency for Olympic, Pan American, and Paralympic sports in the United States. Included as Section 733 of the bill as passed by the House and reported in the Senate, and of P.L. 110-161 . Section 836, which prohibits the use of appropriated funds to implement or enforce restrictions or limitations on the Coast Guard Congressional Fellowship Program or to implement OPM's proposed regulations limiting the detail of executive branch employees to the legislative branch. Included as Section 735 of the bill as passed by the House and reported in the Senate, and of P.L. 110-161 . Section 837, which would have required agencies to report to Congress on the amount of the acquisitions made from entities that manufacture the articles, materials, or supplies outside the United States. This provision is not included in the bill as passed by the House or reported in the Senate, or as enacted in P.L. 110-161 . Section 839, which requires appropriate executive department and agency heads either to transfer funds to, or reimburse, the Federal Aviation Administration to ensure the uninterrupted, continuous operation of the Midway Atoll airfield. This provision is not included in the bill as passed by the House, but is included as Section 737 of the bill as reported in the Senate, and is included as Section 738 of P.L. 110-161 . Section 840, which would have provided certain requirements for conducting a public-private competition for the performance of an activity that is not inherently governmental for executive agencies with less than 100 full-time employees. This provision is not included in the bill as passed by the House or reported in the Senate, or as enacted in P.L. 110-161 . Section 842, which prohibits the use of funds to convert an activity or function of an executive agency to contractor performance if more than 10 federal employees perform the activity, unless the analysis reveals that savings would exceed 10 percent of the most efficient organization's personnel-related costs for performance of the activity or function by federal employees, or $10 million, whichever is lesser. Included as Section 738 of the bill as passed by the House and Section 739 of the bill as reported in the Senate, and as enacted in P.L. 110-161 . Section 845, which precludes contravention of the Privacy Act. Included as Section 741 of the bill as passed by the House and Section 742 of the bill as reported in the Senate, and as enacted in P.L. 110-161 . The law also includes a provision on reviews by agency Inspectors General of privacy and data protection policies and procedures. The FY2008 budget proposed a new Section 834 to provide a 3.0% pay (annual and locality pay combined) adjustment for federal civilian employees. Section 739 of H.R. 2829 as passed by the House, and Section 740 of the bill as reported in the Senate, and as enacted in P.L. 110-161 , provides a 3.5% pay adjustment for federal civilian employees, including employees in the Department of Homeland Security and employees in the Department of Defense (DOD) who are represented by a labor organization. DOD employees who are eligible to be represented by a labor organization, but are not so represented, will receive the pay adjustment unless pay for their positions is adjusted under 5 U.S.C. §9902. Since the inception of locality pay in 1994, pay areas with the largest pay gaps receive the largest locality pay increases. Applying that principle, and under Executive Order 13454 issued by President Bush on January 4, 2008, federal white-collar employees received net (annual and locality) pay adjustments of 4.49% in the Washington, DC pay area and 2.99% in the "Rest of the United States" pay area in January 2008. A new provision, included as Section 743 of the bill as passed by the House, and as Section 744 of P.L. 110-161 (but not included in the bill as reported in the Senate), requires the Office of Management and Budget to submit a report on budget information relating to activities to restore the health of the Great Lakes ecosystem. Another new provision, included as Section 746 of the bill as reported in the Senate, and as enacted in P.L. 110-161 (but not included in the bill as passed by the House), requires the home pages of departments and agencies to provide a direct link to their respective Inspectors General (IG), and requires the IG websites to post any public report or audit and to include a direct link through which employees can anonymously report waste, fraud, and abuse. P.L. 110-161 also includes a new provision at Section 747 that provides that none of the funds available under the act or any other act can be used to conduct a public-private competition or a direct conversion under OMB Circular A-76, or any successor directive, related to the Human Resources Lines of Business (LOB) initiative until a reporting requirement is met. Funds cannot be used until 60 days after the Director of OMB submits a report to the Senate and House Committees on Appropriations on the use of public-private competitions and direct conversions as part of the Human Resources LOB. The law describes the information to be included in the report and requires that a copy of the report be submitted to GAO. Section 901 of the House-passed bill also would have prohibited the use of funds to implement Executive Order 13422 related to the authority of the President over executive agency rulemaking. During markup of the bill by the Senate Appropriations Committee, an amendment, offered by Senator Richard Durbin and agreed to by voice vote, struck this provision from the Senate version of the bill. The provisions is not included in P.L. 110-161 . Although the Bush Administration coined the term "competitive sourcing" in 2001, public-private competition began in 1966, with the publication of Office of Management and Budget (OMB) Circular A-76. Circular A-76 provides policy and guidance for conducting competitions involving government employees and contractors. For many years, OMB continued to be the exclusive source of guidance on public-private competitions. The late 1990s witnessed a notable change, with the advent of competitive sourcing legislation, and, in particular, the passage of bills containing competitive sourcing provisions. Section 739(a) of the Consolidated Appropriations Act, 2008, ( P.L. 110-161 ) prohibits the use of funds for converting an agency activity involving 11 or more federal employees to contractor performance unless certain conditions are met. Public-private competitions that meet this size criterion will have to include a staffing plan known as a most efficient organization (MEO); show that the cost of contractor performance would result in a savings of at least $10 million or 10% of the MEO's personnel costs, whichever amount is lesser; and not provide a contractor with an advantage by permitting the company to provide health and retirement benefits to the employees performing the government activity that are less than what federal employees receive. The first two conditions appear designed to address two distinctions between standard competitions and streamlined competitions. Under Circular A-76, agencies are required to develop an MEO and apply the conversion differential (that is, $10 million or 10% of the MEO's personnel costs) for standard competitions. (An agency is required to use a standard competition when a public-private competition involves more than 65 full-time equivalents (FTEs). ) In streamlined competitions, an agency may develop an MEO but is not required to do so, and the conversion differential is not calculated. (An agency may use a streamlined or a standard competition when a public-private competition involves 65 or fewer FTEs.) The third condition may be seen as an effort to ensure that a contractor does not gain a cost advantage in competitions by paying less for benefits than the government does, thus lowering the cost of his or her proposal. Alternatively, others may see this condition as a restriction on the ability of a contractor to prepare a competitive proposal. Certain organizations and procurement activities, such as the Department of Defense and depot maintenance contracts, are exempt from Section 739(a). Although Circular A-76 does not appear to prohibit conducting a public-private competition for work that is being performed by a contractor, some of the language in the circular seems to emphasize holding competitions for work being performed by federal employees. For example, the circular's policy statement says, in part: "The longstanding policy of the federal government has been to rely on the private sector for needed commercial services.... Identify all activities performed by government personnel as either commercial or inherently governmental.... Perform inherently governmental activities with government personnel.... Use a streamlined or standard competition to determine if government personnel should perform a commercial activity." Section 739(b) notes that the circular does not prevent holding competitions for working being performed by contractors, and it also requires that Circular A-76 include procedures and policies for these types of competitions. Section 739(c) allows a protest to be filed for any competition (that is, streamlined as well as standard) conducted under Circular A-76, and for any decision made without benefit of an A-76 competition to convert an agency function from employee performance to contractor performance. This section also permits an individual selected by a majority of the affected employees to represent the employees in a protest involving an A-76 competition or a decision to outsource work without a competition. The ATO retains the authority to file a protest on behalf of the employees. Section 739(c) permits the ATO or the individual selected by the employees to represent them to intervene in a civil action brought before the U.S. Court of Federal Claims or a U.S. district court by an interested party from the private sector. Additionally, this section permits protests and civil actions that challenge the selection of a provider (that is, government employees or a contractor) at the conclusion of a competition. Currently, an ATO is not required to file a protest: he or she "shall file a protest in connection with ... [a] public-private competition unless the [agency tender] official determines that there is no reasonable basis for the protest." Some have been concerned that agency employees' interests may not be adequately represented since an ATO determines unilaterally whether there is a basis for a protest. Hence, supporters of this view might argue that another individual, such as a union representative, would be a better choice for representing the affected employees. In response, the private sector might argue that allowing the ATO to file a protest is sufficient protection for agency employees. Additionally, contractors might note that their employees cannot band together and select someone to represent them in a protest. The final substantive provision in this section prohibits the use of funds made available by this act for certain purposes. That is, none of the funds appropriated by this act can be used by OMB for directing or requiring an agency to take any action related to a public-private competition, or a direct conversion of a government activity from one sector to another. Similarly, none of the funds can be used by another agency to take an action that was directed or required by OMB. This section applies to FY2008 and succeeding fiscal years. Since the early 1960s, U.S. policy toward Communist Cuba has consisted largely of efforts to isolate the island nation through comprehensive economic sanctions, including prohibitions on U.S. financial transactions—the Cuban Assets Control Regulations (CACR)—that are administered by the Treasury Department's Office of Foreign Assets Control (OFAC). Restrictions on travel have been a key and often contentious component of U.S. efforts to isolate the Cuban government. The regulations do not ban travel itself, but place restrictions on any financial transactions related to travel to Cuba. Pursuant to the CACR, certain categories of travelers may travel to Cuba under a general license, which means that there is no need to obtain special permission from OFAC. In addition, a variety of travelers may be eligible to apply for specific licenses, which are reviewed and granted by OFAC on a case by case basis. This includes travelers engaging in family visits; educational, religious or humanitarian activities; or activities related to the marketing, sale, delivery or servicing of authorized exports to Cuba. Some U.S. commercial agricultural exports to Cuba have been allowed since 2001 under the terms of the Trade Sanctions Reform and Export Enhancement Act of 2000 or TSRA, but with numerous restrictions and licensing requirements. Exporters are denied access to U.S. private commercial financing or credit, and all transactions must be conducted in cash in advance or with financing from third countries. U.S. exports to Cuba since 2001 have been valued at over $1.9 billion, the overwhelming majority in agricultural products. U.S. exports to Cuba rose from $146 million in 2002 to a high of $404 million in 2004, and then declined to $369 million in 2005 and $340 million in 2006. In the first 11 months of 2007, U.S. exports amounted to $377 million, the majority in agricultural products. In February 2005, the Administration tightened sanctions against Cuba by further restricting how U.S. agricultural exporters may be paid for their sales. OFAC amended the CACR to clarify that the term "payment of cash in advance" for U.S. agricultural sales to Cuba means that the payment is to be received prior to the shipment of the goods. This differs from the practice of being paid before the actual delivery of the goods, a practice that had been utilized by most U.S. agricultural exporters to Cuba since such sales were legalized in late 2001. U.S. agricultural exporters and some Members of Congress strongly objected on the grounds that the action constituted a new sanction that violated the intent of TSRA, and could jeopardize millions of dollars in U.S. agricultural sales to Cuba. OFAC Director Robert Werner maintained that the clarification "conforms to the common understanding of the term in international trade." Since 2000, either one or both houses have approved provisions in the annual Treasury Department appropriations bill that would ease U.S. economic sanctions on Cuba (especially on travel and on U.S. agricultural exports) but none of these provisions have ever been enacted. The Administration regularly threatened to veto legislation if it included provision weakening sanctions on Cuba. In 2007, both the House-passed and Senate Appropriations Committee-reported versions of the FY2008 Financial Services and General Government appropriations bill, H.R. 2829 , contained a provision that would have prevented Treasury Department funds from being used to implement the February 2005 regulation that requires the payment of cash in advance prior to the shipment of U.S. agricultural goods to Cuba. The House adopted the provision, contained in Section 903 of the bill, during June 28, 2007 floor consideration when it approved H.Amdt. 467 (Moran, Kansas) by voice vote. In the Senate version, the provision was included in Section 619 of the bill. The Senate version also contained a provision, in Section 620, that would have authorized travel to Cuba under a general license for the marketing and sale of agricultural and medical goods. The Administration's statement of policy on the bill maintained that the President would veto the measure if it contained a provision weakening current restrictions against Cuba. Ultimately, Congress dropped these provisions easing Cuba sanctions in the Consolidated Appropriations Act for FY2008 ( P.L. 110-161 ). | FY2008 appropriations for Financial Services and General Government (FSGG) agencies were originally proposed in H.R. 2829. The bill included funding for the Department of the Treasury, the Executive Office of the President (EOP), the judiciary, the District of Columbia, and 20 independent agencies. Among the independent agencies funded by the bill are the General Services Administration (GSA), the Office of Personnel Management (OPM), the Small Business Administration (SBA), and the United States Postal Service (USPS). On June 28, 2007, the House approved $43.8 billion for H.R. 2829, a $3.1 billion increase over FY2007 enacted funding and $101 million above the President's FY2008 request. Discretionary spending in the House bill totaled $21.4 billion, a decrease of $245 million from the President's request, but $1.9 billion more than was enacted in FY2007. The Senate appropriations FSGG subcommittee marked up its version of the bill July 10, and the full committee reported it July 12. The Senate bill recommended $44.2 billion in appropriations, a $3.4 billion increase over FY2007 enacted funding and $414 million above the President's FY2008 request. Discretionary spending in the Senate bill totaled $21.8 billion, approximately $20 million above the President's request and $2.3 billion more than was enacted in FY2007. The Senate took no further action on H.R. 2829. The agencies included in the FSGG appropriations bill were funded from the start of the 2007 fiscal year until December 31, 2007, by a series of continuing resolutions. Under the continuing resolutions, FSGG agencies were generally funded at FY2007 rates, although the District of Columbia had special funding provisions. FSGG appropriations were ultimately included in a consolidated appropriations bill, H.R. 2764, which was approved by the Senate, as amended, on December 18, and passed by the House on December 19. President Bush signed H.R. 2764, the Consolidated Appropriations Act, 2008 (P.L. 110-161), on December 26, 2007. The act provides a total of $43.3 billion for FSGG agencies, $2.6 billion more than enacted in FY2007, but $421 million less than requested by the President. Compared with H.R. 2829, the act provides $583 million less than the amount approved by the House, and $829 million less than the amount approved by the Senate. Discretionary spending in the act totals $20.6 billion, which is $1.1 billion more than enacted in FY2007, but $1.1 billion less than the amount requested by the President. Compared with H.R. 2829, discretionary funding in the act is $1.1 billion below the amount approved by the Senate, and $833 million less than the amount approved by the House. Emergency appropriations totaling $1.21 billion were also provided to FSGG agencies through P.L. 110-185. |
The 112 th Congress is in the midst of considering an omnibus farm bill that will establish the direction of agricultural policy for the next several years. Many provisions of the current farm bill (the Food, Conservation, and Energy Act of 2008, P.L. 110-246 ) expire this year. The Senate Agriculture Committee approved its version of the 2012 omnibus farm bill on April 26, 2012 (Agriculture Reform, Food and Jobs Act of 2012), and officially filed the measure, S. 3240 , on May 24, 2012. After the bill was filed, more than 300 amendments were proposed for consideration on the Senate floor. By mid-June, an agreement was reached to limit the debate to 77 of the proposed amendments, of which 45 were adopted between June 19 and June 21. The full Senate approved S. 3240 , as amended, by a vote of 64-35 on June 21. The House Agriculture Committee completed markup of its version of the farm bill ( H.R. 6083 , the Federal Agriculture Reform and Risk Management Act of 2012) on July 11, 2012, and approved the amended measure by a 35-11 vote. Nearly 100 amendments were offered for committee consideration, of which nearly half were adopted by the committee. The House bill was officially filed and reported by the committee on September 13, 2012. Within their 12 titles, the five-year House and Senate farm bills would reshape the structure of farm commodity support, expand crop insurance coverage, consolidate conservation programs, revise the Supplemental Nutrition Assistance Program (formerly food stamps), and extend authority to appropriate funds for many U.S. Department of Agriculture (USDA) discretionary programs through FY2017. Following are summaries of the major similarities and differences within each of the 12 titles of the respective versions of the House Agriculture Committee-approved and Senate-passed 2012 farm bills. The summaries are followed by a comprehensive title-by-title comparison of all of the House and Senate provisions with each other and with current law or policy. The Congressional Budget Office (CBO) projects that the programs of the 2008 farm bill, if they were to continue, would cost nearly $1 trillion over the next 10 years. Compared to this "baseline," the Senate-passed farm bill, S. 3240 , would reduce spending by $23.1 billion (2.3%); and the House Agriculture Committee-reported bill, H.R. 6083 , would reduce it by $35.1 billion (-3.5%). The $23 billion 10-year reduction (or "score") in the Senate bill is consistent with a joint House-Senate Agriculture Committee proposal to the Joint Select Committee on Deficit Reduction in fall 2011. The $35 billion 10-year reduction in the House bill is consistent with reconciliation instructions in the House budget resolution for FY2013. The net reduction in each bill is composed of some titles receiving more funding than in the past, while other titles provide offsets for deficit reduction. Figure 1 illustrates the budgetary impacts of changes to each title in each bill, and the following table contains the data in tabular form. More background and detail on the budget available to write the farm bill, the CBO scores of each bill, and other budgetary issues is available in CRS Report R42484, Budget Issues Shaping a 2012 Farm Bill . Under both the Senate-passed ( S. 3240 ) and House Agriculture Committee-reported ( H.R. 6083 ) farm bills, farm support for traditional program crops is restructured by eliminating direct payments, the existing counter-cyclical price program, and the Average Crop Revenue Election (ACRE) program. Authority is continued for marketing assistance loans, which provide additional low-price protection at "loan rates" specified in current law (with an adjustment made to the cotton loan rate). Direct payments account for most of current commodity spending and are made to producers and landowners based on historical production of corn, wheat, soybeans, cotton, rice, peanuts, and other "covered" crops. Some of the 10-year, $50 billion in savings associated with the proposed elimination of direct payments would be used to offset the cost of revising farm programs and enhancing crop insurance in Title XI. Both bills provide programs for covered crops, except cotton, which would have its own program (see " Farm Bill Title XI, Crop Insurance "). Both bills borrow conceptually from current programs, revising (and renaming) them to enhance price or revenue protection for producers. The House bill is similar to the current mix of farm programs in that it retains producer choice between a counter-cyclical price program (renamed Price Loss Coverage or PLC) and a revenue program (renamed Revenue Loss Coverage or RLC). For PLC, the price guarantees ("reference prices") that determine payment levels are increased relative to parameters in the current program to better protect producers in a market downturn. For RLC, the guarantee is based on historical revenue at the county level, so losses are more likely to be covered than under the current ACRE, which calculates the guarantee at the state level. In contrast to the House bill, the Senate bill provides for only a revised revenue program called Agriculture Risk Coverage (ARC). It offers a slightly higher guarantee than in the House bill, plus an option for farmers to select coverage at either the county or individual farm level. Five disaster programs were established in the 2008 farm bill for weather-induced losses in FY2008-FY2011. Both S. 3240 and H.R. 6083 reauthorize four programs covering livestock and tree assistance for FY2012-FY2017. The crop disaster program from the 2008 farm bill (i.e., Supplemental Revenue Assistance, or SURE) is not reauthorized in either bill, but elements of it are folded into the new ARC in the Senate bill by allowing producers to protect against farm-level revenue losses (not included in House bill). S. 3240 also provides disaster benefits to tree fruit producers who suffered crop losses in 2012. Farm commodity programs have certain limits that cap payments (currently $105,000 per person) and set eligibility based on adjusted gross income (AGI, currently $500,000 per person for nonfarm income and $750,000 for farm income). The two bills diverge from current law and each other, with S. 3240 reducing the farm program payment limit to $50,000 per person for ARC and adding a $75,000 limit on loan deficiency payments (LDPs). The program payment limit under the H.R. 6083 is $125,000 for PLC and RLC, with no limit on LDPs. The Senate bill changes the threshold to be considered actively engaged and to qualify for payments, by effectively requiring personal labor in the farming operation. Both bills also tighten limits on AGI, with a combined AGI limit of $750,000 in S. 3240 and $950,000 in H.R. 6083 . For dairy policy, both bills contain similar, significant changes, including elimination of the dairy product price support program, the Milk Income Loss Contract (MILC) program, and export subsidies. These are replaced by a new program, which makes payments to participating dairy producers when the national margin (average farm price of milk minus average feed costs) falls below $4.00 per hundredweight (cwt.), with coverage at higher margins available for purchase. Another provision makes participating producers subject to a separate program, which reduces incentives to produce milk when margins are low. Federal milk marketing orders have permanent statutory authority and continue intact. However, S. 3240 (but not H.R. 6083 ) includes two provisions that require more frequent reporting of dairy market information and studies on potential changes to the federal milk marketing order system. The sugar program is left unchanged in both bills, with an exception in the Senate bill that advances the date (to February 1 from April 1) that USDA can increase the import quota. The current agricultural conservation portfolio includes over 20 conservation programs. The conservation titles of both the Senate-passed ( S. 3240 ) and House Agriculture Committee-reported ( H.R. 6083 ) farm bills reduce and consolidate the number of conservation programs while also reducing mandatory funding more than $6 billion over the 10-year baseline. Many of the larger existing conservation programs, such as the Conservation Reserve Program (CRP), the Environmental Quality Incentives Program (EQIP), and the Conservation Stewardship Program (CSP), are reauthorized by both bills with smaller and similar conservation programs "rolled" into them. In response to reduced demand and as a budget saving measure, the largest conservation program, CRP, is reauthorized with a reduced acreage enrollment cap using a step-down approach from the current 32 million acres to 25 million by FY2017 under both bills. CRP also is amended to include the enrollment of grassland acres similar to the Grasslands Reserve Program (GRP), which is repealed. These grassland acres are limited to 1.5 million acres in S. 3240 and 2 million acres in H.R. 6083 . EQIP, a program that assists producers with conservation measures on land in production, is reauthorized by both bills with a 5% funding carve-out for wildlife habitat practices (similar to the Wildlife Habitat Incentives Program, WHIP, which is repealed). The Senate-passed bill reduces EQIP a total of almost $1 billion over 10 years, while the House committee bill offers no reduction from the current $1.75 billion annually. CSP, another working land program, is reauthorized at a reduced enrollment level under both bills: 10.348 million acres annually under S. 3240 and 9 million acres annually under H.R. 6083 , down from 12.769 million acres annually under current law. Both bills create two new conservation programs—the Agricultural Conservation Easement Program (ACEP) and the Regional Conservation Partnership Program (RCPP)—out of several of the remaining programs. Conservation easement programs, including the Wetlands Reserve Program (WRP), Farmland Protection Program (FPP), and GRP, are repealed and consolidated to create ACEP. ACEP retains most of the program provisions in the current easement programs by establishing two types of easements: wetlands easements (similar to WRP) that protect and restore wetlands, and agricultural land easements (similar to FPP and GRP) that prevent non-agricultural uses on productive farm or grassland. The Agricultural Water Enhancement Program (AWEP), Chesapeake Bay Watershed program, Cooperative Conservation Partnership Initiative (CCPI), and Great Lakes basin program are repealed by both bills and consolidated into the new RCPP. RCPP uses partnership agreements with state and local governments, Indian tribes, farmer cooperatives, and other conservation organizations to leverage federal funding and further conservation on a regional or watershed scale. The Senate-passed bill adds the federally funded portion of crop insurance premiums to the list of program benefits that could be lost if a producer is found to produce an agricultural commodity on highly erodible land without an approved conservation plan or qualifying exemption, or converts a wetland to crop production. This prerequisite, referred to as conservation compliance, has existed since the 1985 farm bill and currently affects most USDA farm program benefits, but has excluded crop insurance since 1996. The House committee bill offers no comparable provision. The trade title of the farm bill deals with statutes concerning U.S. international food aid and agricultural export market development programs. Both S. 3240 and H.R. 6083 reauthorize all of the international food aid programs, including the largest, Food for Peace Title II (emergency and nonemergency food aid). Both bills contain amendments to current food aid law that place greater emphasis on improving the quality of food aid products (i.e., enhancing their nutritional quality). The Senate bill places new restrictions on the practice of monetization or selling U.S. food aid commodities in recipient countries to raise cash to finance development projects. In this regard, S. 3240 requires implementing partners such as U.S. private voluntary organizations or cooperatives to recover 70% of the U.S. commodity procurement and shipping costs. The Senate bill repeals the specified dollar amounts for nonemergency food aid required in current law (the "safe box"). In place of the safe box S. 3240 provides that nonemergency food aid be not less than 20% nor more than 30% of funds made available to carry out the program, subject to the requirement that a minimum of $275 million be provided for nonemergency food aid. The House bill places no limits on the practice of monetization, other than new reporting requirements, and fixes the amount of "safe box" nonemergency assistance at $400 million annually. Both bills reauthorize funding for the Commodity Credit Corporation (CCC) Export Credit Guarantee program and various agricultural export market promotion programs. S. 3240 reduces the value of U.S. agricultural exports that can benefit from export credit guarantees from $5.5 billion to $4.5 billion annually. The House bill retains the $5.5 billion level of guarantees. Both bills authorize CCC funding of $200 million annually for the Market Access Program (MAP), which finances promotional activities for both generic and branded U.S. agricultural products. MAP had been targeted in a number of deficit reduction proposals for elimination. Authorized CCC funding for the Foreign Market Development Program (FMDP), a generic commodity promotion program, continues in both bills at $34.5 billion annually through F2017. H.R. 6083 authorizes the Secretary of Agriculture to establish the position of Under Secretary of Agriculture for Foreign Agricultural Services, while S. 3240 calls for a study of the trade functions of USDA, noting that in implementing the study, the Secretary may include a recommendation for the establishment of an Under Secretary for Trade and Foreign Agriculture. Title IV of both S. 3240 and H.R. 6083 largely maintains the nutrition program policies and discretionary and mandatory funding that are contained in the Food and Nutrition Act of 2008 and other nutrition program authorizing statutes. Of the changes made, many are the same in the two bills, but the bills also differ in a number of ways, most notably in recognized cost savings associated with the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps). CBO estimates total 10-year budget savings of $4.0 billion in the Senate bill and $16.1 billion in the House bill. SNAP provisions in both bills include changes to the requirements for retailers who apply for authorization to accept SNAP and changes to some of the rules that govern participants' and retailers' redemption of SNAP benefits. Both bills provide additional mandatory funding for reducing SNAP trafficking (the sale of SNAP benefits for cash or ineligible goods), although the Senate provides a larger amount. In terms of eligibility for SNAP and the calculation of monthly benefit amounts, both bills identically change how a household's receipt of Low-Income Home Energy Assistance Program (LIHEAP) benefits affects the household's SNAP benefit calculation. However, the House bill also restricts categorical eligibility, repeals state performance bonuses, and clarifies the consideration of medical marijuana expenses. The House bill also makes changes to the nutrition assistance provided to the Northern Mariana Islands and Puerto Rico. Both bills increase Community Food Projects grants (the Senate by $5 million and the House by $10 million); the House bill also carves out $5 million of these grants for projects that incentivize low-income households to purchase fruits and vegetables. Both bills increase mandatory funding for the Emergency Food Assistance Program (TEFAP), the Senate by $174 million over 10 years, and the House Committee by $270 million (according to CBO). Both bills would limit eligibility for the Commodity Supplemental Food Program (CSFP) to low-income elderly participants, phasing out eligibility for low-income pregnant and post-partum women, infants, and children. The Senate adds discretionary authority for a Healthy Food Financing Initiative, a financing mechanism to sustain and create food retail opportunities in communities that lack access to healthy food; and provides $100 million (over five years) in mandatory funding for Hunger-Free Communities Incentive Grants, which funds programs that provide incentives for SNAP participants' purchase of fruits and vegetables; neither of these programs are included in the House committee's bill. Within the child nutrition programs, the Senate bill includes authorization and funding to continue a whole grain pilot program and to begin a pulse crops pilot program, whereas the House bill does not include these pilots and eliminates the "fresh" requirement in the Fresh Fruit and Vegetable Program. Both bills include additional authorizations for farm-to-school efforts. The Consolidated Farm and Rural Development Act (also known as the ConAct) is the permanent statute that authorizes USDA agricultural credit and rural development programs. USDA serves as a lender of last resort by providing direct and guaranteed loans to farmers and ranchers who are denied direct credit by commercial lenders but have the wherewithal to repay the loan. Both the Senate and House bills make relatively small policy changes to USDA's credit programs. Both bills give USDA discretion to recognize (1) alternative legal entities to qualify for farm loans and (2) alternatives to meet a three-year farming experience requirement; and both bills increase the maximum size of down-payment loans. The Senate farm bill also updates and modernizes the ConAct's statutory language and organizes the various programs into separate subtitles (new Subtitle A is farm loans; Subtitle B is rural development; Subtitle C is general provisions). Generally, most of the revised ConAct provisions are substantially the same, but are renumbered and reorganized. The Senate bill also extends the number of years that farmers can remain eligible for direct farm operating loans, and eliminates term limits on guaranteed operating loans. The House bill's credit title does not restructure the ConAct nor change any term limits provisions. However, the House bill does create a new microloan program, increases the percentage of a conservation loan that can be guaranteed, and adds another lending priority for beginning farmers, among other changes. Other non-USDA credit programs—such as the Farm Credit Act, which establishes the Farm Credit System and Farmer Mac—could be part of the farm bill, but neither the House bill nor the Senate addresses these programs. Like Title V, discussed above, Title VI of S. 3240 is a restructuring of the ConAct, which provides permanent authority for USDA to carry out its portfolio of rural development programs. Title VI of H.R. 6083 makes funding authorization amendments to many existing rural development programs (at levels mostly lower than those of the Senate bill), but generally offers no new provisions, nor does it significantly modify current programs authorized under the ConAct and the Rural Electrification Act. The House bill does include a new provision directing the Secretary of Agriculture to begin collecting data on the economic effects of the projects that USDA Rural Development funds, and directs the Secretary to develop simplified applications for funding. The Senate bill consolidates various rural water and wastewater assistance programs and the Community Facilities loan and grant program into a new Rural Community Program category, and establishes criteria for which rural communities will receive priority in making loan and grant awards. The restructuring of the ConAct also eliminates several business programs, but consolidates many of their objectives into a broad program of Business and Cooperative Development grants. Separately, S. 3240 provides a total of $115 million in mandatory rural development funding, including funds for the Value-Added Producer Grant Program ($12.5 million annually for FY2014-FY2017) and the Rural Microentrepreneur Assistance Program ($3.75 million annually for FY2014-FY2017), and $50 million in mandatory spending for pending rural development loans and grants. The House bill contains no mandatory spending authorization. S. 3240 retains the definition of "rural" and "rural area" for purposes of program eligibility and makes it the basis for all rural development programs. The definition of "rural area" for electric and telephone programs has been eliminated, and becomes the same as for other rural programs. The bill retains the 2008 farm bill provision permitting communities that might otherwise be ineligible for USDA Rural Development funding to petition USDA to designate their communities as "rural in character," thereby making them eligible for program support. S. 3240 also eliminates the existing statutory definition of "rural" and "rural areas" for water and waste water programs and community facilities, but permits areas currently deemed as rural to remain eligible for these programs, unless USDA determines that they are no longer "rural in character." Also included in both the House and Senate bills is reauthorization of funding for programs under the Rural Electrification Act of 1936, including the Access to Broadband Telecommunications Services in Rural Areas Program and the Distance Learning and Telemedicine Program. The Senate bill also establishes a new grant program for the Access to Broadband Telecommunications Services in Rural Areas Program in addition to its current loan guarantee program. The Delta Regional Authority and the Northern Great Plains Regional Authority are reauthorized by both bills, but the Senate bill makes various technical changes to the organizational structure and operation of the two authorities. USDA is authorized under various laws to conduct agricultural research at the federal level, and provides support for cooperative research, extension, and post-secondary agricultural education programs in the states. Both bills reauthorize funding for these activities for FY2013-FY2017, subject to annual appropriations, and amend authority so that only competitive grants can be awarded under certain programs. In both bills, mandatory funding is increased for the Specialty Crop Research Initiative ($416 million over 10 years) and the Organic Agricultural Research and Extension Initiative ($80 million over 10 years). Also, mandatory funding is continued for the Beginning Farmer and Rancher Development Program in both the Senate bill ($85 million) and House bill ($50 million). New in S. 3240 is mandatory funding of $100 million to establish the Foundation for Food and Agriculture Research, a nonprofit corporation designed to supplement USDA's basic and applied research activities. It will solicit and accept private donations to award grants for collaborative public/private partnerships with scientists at USDA and in academia, nonprofits, and the private sector. General forestry legislation is within the jurisdiction of the Agriculture Committees, and past farm bills have included provisions addressing forestry assistance, especially on private lands. Both the Senate-passed and House Agriculture Committee-reported farm bills generally repeal, reauthorize, and modify existing programs and provisions under two main authorities: the Cooperative Forestry Assistance Act (CFAA), as amended, and the Healthy Forests Restoration Act of 2003 (HFRA), as amended. Most federal forestry programs are permanently authorized, and thus do not require reauthorization in the farm bill. The Senate bill, however, amends several forestry assistance programs by replacing their permanent authority to receive annual appropriations of such sums as necessary with a set level of appropriations through FY2017. The House bill also limits permanent authority for some programs, but in fewer instances than the Senate bill. Both bills repeal programs that have expired or have never received appropriations. Other provisions in both bills include reauthorizing stewardship contracting, requiring revised strategic plans for forest inventory and analysis, and adding alternatives for addressing insect infestations and disease. An energy title first appeared in the 2002 farm bill, and was both extended and expanded by the 2008 farm bill. USDA renewable energy programs have been used to incentivize research, development, and adoption of renewable energy projects, including solar, wind, and anaerobic digesters. The primary focus of USDA renewable energy programs has been to promote U.S. biofuels production and use. Cornstarch-based ethanol dominates the U.S. biofuels industry. However, the 2008 farm bill attempted to refocus U.S. biofuels policy initiatives in favor of non-corn feedstocks; the most critical program to this end is the Biomass Crop Assistance Program (BCAP), which assists farmers in developing nontraditional crops for use as feedstocks for the eventual production of cellulosic ethanol. All of the major Title IX energy programs expire at the end of FY2012 and lack baseline funding going forward. Both the Senate-passed bill ( S. 3240 ) and the House Agriculture Committee-reported measure ( H.R. 6083 ) extend most of the renewable energy provisions of Title IX, with the exception of the Repowering Assistance Program, the Rural Energy Self-Sufficiency Initiative, and the Renewable Fertilizer Study, which are repealed by both bills. In addition, S. 3240 repeals the Forest Biomass for Energy Program, while the House bill repeals the Biofuels Infrastructure Study. The primary difference between the House and Senate bills is in the source of funding. The Senate bill contains $800 million in new mandatory funding and authorizes $1.140 billion in appropriations for the various Title IX programs over the FY2013-FY2017 period. In contrast, H.R. 6083 contains no mandatory funding for Title IX programs, while authorizing $1.355 billion subject to appropriations. In addition, the House bill prevents USDA from spending Rural Energy for America (REAP) program funds on retail blender pumps and eliminates all support for the collection, harvest, storage, and transportation (CHST) component of BCAP, severely limiting its potential effectiveness as an incentive to produce cellulosic feedstocks. The horticulture titles of both S. 3240 and H.R. 6083 reauthorize many of the existing farm bill provisions supporting farming operations in the specialty crop and certified organic sectors. CBO estimates a total increase in mandatory spending of $360 million (FY2013-FY2017) for Title X in the Senate bill and $428 million in the House bill. Many of the Title X provisions fall into the categories of marketing and promotion; organic certification; data and information collection; pest and disease control; food safety and quality standards; and local foods. The House bill also includes several provisions that are not in the Senate bill that would provide exemptions from certain regulatory requirements under some laws, including the Federal Insecticide, Fungicide, and Rodenticide Act, the Clean Water Act, and the Endangered Species Act, among other modifications. Provisions affecting the specialty crop and certified organic sectors are not limited to Title X, but are contained within several other titles of the farm bill. These include programs in the research, nutrition, and trade titles, among others. Both the House and Senate bills reauthorize (and in some cases provide for increased funding for) several key programs benefitting specialty crop producers, including the Specialty Crop Block Grant Program, plant pest and disease programs, USDA's Market News for specialty crops, the Specialty Crop Research Initiative (SCRI), and also the Fresh Fruit and Vegetable Program (Snack Program) and Section 32 purchases for fruits and vegetables under the nutrition title. Both bills also reauthorize most programs benefitting certified organic agriculture producers, including continued support for USDA's National Organic Program (NOP) and development of crop insurance mechanisms for organic producers, Organic Production and Market Data Initiatives (ODI), and research programs such as the Organic Agriculture Research and Extension Initiative (OREI) and the Organic Transitions Program (ORG) under the Integrated Research, Education, and Extension Competitive Grants Program. One exception is that the House bill would repeal the National Organic Certification Cost Share Program (NOCCSP), while the Senate would maintain that program. Programs in other farm bill titles benefitting specialty crop and certified organic producers also include the Value-Added Producer Grant Program, Technical Assistance for Specialty Crops (TASC), the Market Access Program (MAP), and most conservation programs (including assistance specifically for organic producers), among other programs, within the crop insurance, credit, and miscellaneous titles. Title X and other titles in both the House and Senate bills also include provisions that would expand opportunities for local food systems and also beginning farmers and ranchers. For example, both bills reauthorize and expand the scope and overall funding for USDA's farmers' market program, which would be renamed the Farmers' Market and Local Food Promotion Program. Other provisions supporting local food producers are within the horticulture, nutrition, rural development, and research titles, among others. Both bills increase funding for crop insurance relative to baseline levels by making several changes to the existing federal crop insurance program, which is permanently authorized by the Federal Crop Insurance Act. The federal crop insurance program makes available subsidized crop insurance to producers who purchase a policy to protect against individual farm losses in yield, crop revenue, or whole farm revenue. An amendment to S. 3240 adopted during floor debate reduces crop insurance premium subsidies by 15 percentage points for producers with average adjusted gross income greater than $750,000. With cotton not covered by the farm revenue programs established in Title I of both bills, a new crop insurance policy called Stacked Income Protection Plan (STAX) is made available in both bills for cotton producers. Producers could purchase this policy alone or in addition to their individual crop insurance policy, and the indemnity from STAX would pay all or part of the deductible under the individual policy. STAX sets a revenue guarantee based on expected county revenue. For other crops, a similar type of policy called Supplemental Coverage Option (SCO), based on expected county yields or revenue, is made available by both bills as an additional policy. The farmer subsidy as a share of the policy premium is set at 80% for STAX and 70% for SCO. Additional crop insurance changes in both bills are designed to expand or improve crop insurance for other commodities, including specialty crops. Provisions in both bills revise the value of crop insurance for all organic crops to reflect prices of organic (not conventional) crops. The bills require USDA to conduct more research on whole farm revenue insurance with higher coverage levels than currently available. Studies are also required on insuring (1) specialty crop producers for food safety and contamination-related losses, (2) swine producers for a catastrophic disease event, (3) producers of catfish against reduction in the margin between the market prices and production costs, (4) commercial poultry production against business disruptions caused by integrator bankruptcy, and (5) poultry producers for a catastrophic event (House bill only). A provision in S. 3240 makes payments available to producers who purchase private-sector index weather insurance, which insures against specific weather events and not actual loss. A peanut revenue insurance product also is mandated. For conservation purposes, a "sod saver" provision in Title XI of S. 3240 reduces crop insurance subsidies and noninsured crop disaster assistance for the first four years of planting on native sod acreage. The same provision in the House bill would apply only to the Prairie Pothole National Priority Area (i.e., portions of Iowa, Minnesota, Montana, North Dakota, and South Dakota). In the Senate bill only, crop insurance premium subsidies are available only if producers are in compliance with wetland conservation requirements (goes into effect immediately) and conservation requirements for highly erodible land (within five years). Title XII of S. 3240 and H.R. 6083 includes provisions that cover three areas: socially disadvantaged and limited-resource producers; livestock; and other miscellaneous. Both bills extend authority through FY2017 for the Office of Small Farms and Beginning Farmers and Ranchers, which was established in the 2008 farm bill to ensure that minorities and limited-resource producers have access to all USDA programs. They also add military veteran farmers and ranchers as a qualifying group. In addition, the bills establish a military veterans agricultural liaison within USDA to advocate for and to provide information to veterans. Both bills reauthorize funding for the USDA Office of Advocacy and Outreach, which assists socially disadvantaged and limited-resource producers, and both establish an Office of Tribal Relations to coordinate USDA activities with Native American tribes. Both S. 3240 and H.R. 6083 make available higher coverage levels under the Noninsured Crop Assistance Programs, prohibit attendance at animal-fighting events, and include grants to promote the U.S. maple syrup industry and for technological training for farm workers. Within its livestock provisions, Title XII of S. 3240 renews the trichinae certification and aquatic animal health programs that were established in the 2008 farm bill; establishes a grant program for research on brucellosis, bovine tuberculosis, and other priority animal diseases; sets up a grant program to study the eradication of feral swine; and establishes a competitive grant program to improve the sheep industry. Title XII of H.R. 6083 includes identical provisions for the trichinae certification and aquatic animal health programs, but does not contain the grant provisions for the animal disease initiative, the sheep industry, and feral swine eradication that are in S. 3240 . H.R. 6083 includes a provision to repeal regulations on livestock and poultry practices that USDA finalized on February 7, 2012. Within 90 days of enactment, USDA is required to repeal regulations on the definitions of additional capital investments and suspension of delivery of birds, and on applicability of live poultry and the 90-day notification regulation for suspension of delivery of birds. The House bill also requires that USDA submit to Congress reports on how to comply with the World Trade Organization's ruling on country-of-origin labeling and how to meet the needs of small and very small meat and poultry growers and processors. H.R. 6083 reauthorizes funding for the National Sheep Industry Improvement Center, subject to appropriations. These provisions are not included in S. 3240 . Other miscellaneous provisions in Title XII of H.R. 6083 , but not in S. 3240 , are the High Plains Water Study; prohibitions on closing Farm Service Agency offices with high workloads; flood protection for the Missouri River basin; and a prohibition that states may not establish production standards that would prevent interstate sales of agricultural goods. Provisions in S. 3240 that are not in H.R. 6083 include clarifications of conditions for releasing data gathered by USDA to state or local government agencies; an increase in the population threshold for the definition of "rural" and "rural areas"; an increase in administrative expenses for three regional development commissions that were established by the 2008 farm bill; and a provision to remove Canada geese from National Park Service lands near airports to diminish flight safety risks. In addition, S. 3240 repeals the 2008 farm bill provision that made catfish an amenable species subject to inspection by USDA and animal welfare provisions that exempt household pets from some exhibition regulations. Two provisions included in Title XII of S. 3240 that are unrelated to food and agriculture policy are a prohibition on federal funding for presidential nominating conventions and a requirement for three reports on sequestration under the Budget Control Act of 2011 ( P.L. 112-25 ). | Congress periodically establishes agricultural and food policy in an omnibus farm bill. The 112th Congress faces reauthorization of the current five-year farm bill (the Food, Conservation, and Energy Act of 2008, P.L. 110-246) because many of its provisions expire in 2012. The 2008 farm bill contained 15 titles covering farm commodity support, horticulture, livestock, conservation, nutrition assistance, international trade and food aid, agricultural research, farm credit, rural development, bioenergy, and forestry, among others. The Senate approved its version of the 2012 omnibus farm bill (S. 3240, the Agriculture Reform, Food, and Jobs Act of 2012) by a vote of 64-35 on June 21, 2012. Subsequently, the House Agriculture Committee conducted markup of its own version of the farm bill (H.R. 6083, the Federal Agriculture Reform and Risk Management Act of 2012) on July 11, 2012, and approved the amended bill by a vote of 35-11. Floor action on the House farm bill is pending. Within the 12 titles of S. 3240 and H.R. 6083, both farm bills would reshape the structure of farm commodity support, expand crop insurance coverage, consolidate conservation programs, revise the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps), and extend authority to appropriate funds for many U.S. Department of Agriculture (USDA) discretionary programs through FY2017. Among the major differences in the two farm bills is how each would restructure the farm safety net. Both farm bills borrow conceptually from current programs, by revising (and renaming) them to enhance price or revenue protection for producers. The House farm bill is similar to the current mix of farm programs in that it retains producer choice between a counter-cyclical price program and a revenue enhancement program, while the Senate farm bill provides for a revised revenue program with a slightly higher guarantee than in the House farm bill. The Congressional Budget Office (CBO) projects that the programs of the 2008 farm bill, if they were to continue, would cost nearly $1 trillion over the next 10 years. Compared to this "baseline," the Senate-passed farm bill would reduce spending by $23.1 billion and the House Agriculture Committee-reported farm bill would reduce it by $35.1 billion, both over the same 10-year horizon. Explaining much of the $12 billion difference in estimated savings between the two farm bills are provisions in the nutrition title of the House bill that would affect program eligibility for SNAP. This report contains a detailed summary of the major similarities and differences between the House and Senate 2012 farm bills and also provides a side-by-side comparison of every provision in the two farm bills and how these provisions relate to current federal law or policy. |
On December 8, 2006, the House passed legislation (212-184) to grant Vietnam permanent normal trade relations (PNTR) status as part of a more comprehensive trade bill ( H.R. 6406 ). Pursuant to H.Res. 1100 , the bill was then coupled with a tax-extension bill ( H.R. 6111 ) and sent to the Senate. The Senate passed the combined bills (79-9) on December 8. On December 20, 2006, President Bush signed the bill into law ( P.L. 109-432 ) and, per the law, proclaimed PNTR for Vietnam on December 29, 2006. The legislation also codified a provision of the U.S.-Vietnam bilateral agreement on Vietnam's accession to the World Trade Organization (WTO) authorizing the reimposition of quotas on imports of textiles or wearing apparel, if Vietnam subsidizes those industries in violation of WTO rules. On November 7, 2006, Vietnam completed the multilateral component of its WTO membership bid when the WTO General Council approved Vietnam's accession package, the core of which is a combination of all the bilateral agreements that Vietnam negotiated. On November 28, 2006, Vietnam's National Assembly ratified the deal. This move puts Vietnam on track to join the WTO on January 11, 2007. The United States was a major player in Vietnam's accession process. On May 31, 2006, U.S. and Vietnamese negotiators signed an agreement on the conditions for Vietnam's accession (entry) into the World Trade Organization (WTO). The agreement was just one in a number of steps that Vietnam had to take to complete its quest to join the multilateral trade body. However, the agreement with the United States was the last and, seemingly, the most difficult of the bilateral agreements that Vietnam had to negotiate with twenty-eight WTO members (including the European Union (EU) counting as one but representing twenty-five countries). The U.S. Congress has had no direct role in Vietnam's accession to the WTO. Congressional approval of the bilateral agreement was not required for it to go into effect. The agreement itself does not establish any new obligations on the part of the United States, only on the part of Vietnam. However, Vietnam's accession to the WTO will require the United States and Vietnam to adhere to WTO rules in their bilateral trade relations, including not imposing unilateral measures, such as quotas on textile imports, that have not been sanctioned by the WTO. On the other hand, the Congress had an indirect role to play. As has been the case with U.S. trade relations with most of the other communist and former communist states, U.S. trade relations with Vietnam had been governed by Title IV of the Trade Act of 1974, as amended, which includes the so-called Jackson-Vanik amendment (section 402). Title IV prohibits the President from granting those countries most-favored-nation (MFN), called normal trade relations (NTR) in U.S. law, unless the country has met certain conditions. However, the WTO requires its members to extend unconditional MFN (permanent NTR (PNTR)) in order to receive the benefits of WTO membership in their bilateral trade relations. In order for the President to gain the authority to grant Vietnam unconditional MFN/ PNTR status, Congress needed to enact legislation removing Vietnam from Title IV coverage. During the congressional debate on PNTR Members raised issues regarding the conditions for Vietnam's entry into the WTO and other issues pertaining to the U.S.-Vietnam economic relationship; in particular, the impact of increased imports from Vietnam on the U.S. textile and apparel industry. Members also raised issues pertaining to other aspects of the overall U.S.-Vietnam relationship, such as human rights in Vietnam. Accession to the WTO is important to Vietnam. It affords Vietnam the protection of the multilateral system of rules in its trade relations with other WTO members, including the United States. Vietnam will also participate in the Doha Development Agenda (DDA) round of negotiations to expand the coverage of the WTO. (Those negotiations have been suspended since July 2006.) PNTR from the United States provides more predictability to Vietnam's growing trade relations with the United States and sheds a legacy of the cold war. For the United States, PNTR is another in a series of steps the United States has taken in trade and foreign policy to normalize relations with Vietnam and place distance between current relations and the Vietnam War. It also places the United States on par with Vietnam's other major trading partners, all of whom have granted Vietnam unconditional MFN status. Vietnam's membership in the WTO requires it to conduct trade with the United States under a system of multilateral accepted rules. Vietnam's trading practices can be subject to challenges by the United States and other WTO members under the accepted dispute settlement mechanism. This report provides a brief overview of the U.S.-Vietnam economic relationship, an examination of the WTO accession process and Vietnam's status, an overview of the Jackson-Vanik amendment and PNTR, and an analysis of the issues that were raised during congressional consideration of PNTR for Vietnam. This report will not be updated. U.S.-Vietnam diplomatic and economic relations remained essentially frozen for more than a decade after communist North Vietnam's victory over U.S.-backed South Vietnam in 1975. Relations took major steps forward in the mid-1990s, particularly in 1995, when the two sides re-established formal diplomatic relations. Since then, the normalization process has accelerated and bilateral ties have expanded, particularly on the economic side of the relationship. The most important step toward normalization since 1995 was the signing of a sweeping bilateral trade agreement (BTA), which was approved by Congress and signed by President Bush in 2001 ( P.L. 107-052 ) Under the BTA, the United States and Vietnam extended mutual MFN (NTR) to one another, that went into effect on December 10, 2001. In return, Hanoi agreed to a range of trade liberalization measures and market-oriented reforms. The climate in trade relations between Hanoi and Washington has sobered considerably since the heady days after the BTA was signed, in part because of difficult bilateral negotiations over the terms of Vietnam's accession to the World Trade Organization (WTO) and anti-dumping duties the United States has leveled against imports of Vietnamese shrimp and catfish. In general, since the BTA was signed in 2001, U.S. trade officials have praised Vietnam's implementation of the agreement. As discussed below, in retrospect, Vietnam's contentious and prolonged debate over whether to sign the BTA was watershed event that helped break the logjam that for years had stalled economic policymaking. The decision to sign the BTA appears to have fashioned a new consensus in favor of a new economic reformist push. In short order after signing the BTA, the government enacted a series of measures, including passing a new Enterprise Law, passing constitutional amendment giving legal status to the private sector, reducing red tape, creating unprecedented transparency rules for prior publication of new rules and regulations, and, for the first time, giving party members the green light to engage in private business. Adhering to the BTA's implementation deadlines and achieving the government's goal of joining the WTO have helped galvanize the Vietnamese bureaucracy toward enacting many of these and other steps. Some U.S. industry officials have expressed concern that the government has not met deadlines to implement in law and/or in practice some of concessions, particularly in the services sector. Many of these critics, however, tend to accept the argument that the slippages often are due more to weak capacity than to protectionist intentions, and in 2005 Vietnam passed more than 20 laws and regulations that belatedly address some of these concerns. The belief that Hanoi generally is attempting to comply with its BTA obligations may explain why the Bush Administration appears not to have criticized harshly Vietnam in areas where implementation has been delayed or incomplete, with the exception of intellectual property rights (see below). From 2001 to 2005, bilateral trade has more than quintupled from $1.4 billion to over $7.6 billion (see Table 1 ). Almost all of the increase in trade since the BTA went into effect has been from increased U.S. imports of mainly apparel products from Vietnam, which rose from just over $1 billion in 2001 to over $6.5 billion four years later. The United States is now Vietnam's largest export market, and according to one study , U.S. firms constitute the single-largest source of foreign direct investment (FDI) in Vietnam. U.S. FDI has increased by an average of 27 percent a year from 2002 through 2004, compared to just around 3 percent a year from 1996 to 2001. Vietnam ranks 38 th as a source of U.S. imports and 58 th as a U.S. export market. In comparison to imports from Vietnam, growth in U.S. exports to Vietnam has been modest, and since 2003 they have been concentrated mainly in aircraft. Indeed, U.S. exports to Vietnam have fallen since 2003, largely because shipments of aircraft and aircraft parts have decreased. Imports of clothing from Vietnam have been a major issue for U.S. apparel manufacturers before, during, and after the negotiations over Vietnam's WTO accession. Nearly half of the increase in U.S.-Vietnam trade since 2001 has come from a sharp rise in clothing imports from Vietnam, which totaled $2.7 billion in 2005. This contrasts with less than $50 million in 2000 and 2001. By dollar value, apparel (excluding footwear) now represents about 40% of total U.S. imports from Vietnam, which accounted for 4.3% of total U.S. clothing imports in 2005, compared with 0.1% in 2001 (before the 2001 BTA went into effect) and 1.4% in 2002. Increases in U.S. imports of Vietnamese apparel continued well into 2006. Since 2001, Vietnam's apparel exports to the United States have increased more rapidly than U.S. clothing imports from China. The latter have grown faster after import quotas on textiles and apparel for WTO members expired on January 1, 2005; the continued rise in Vietnamese exports of apparel, however, suggests continuing competitiveness of Vietnamese-produced clothing. Although the dollar amount of its clothing exports to the United States is far less than that of China, Vietnam is the sixth largest exporter of apparel to the United States at about the same order of magnitude of such exporters as India, Indonesia, and Bangladesh, whose clothing exports to the United States also have been rising rapidly. Mexico's apparel exports to the United States, almost equal to those of China in 2001, actually have decreased since then; and apparel exports to the United States by Hong Kong, Honduras, the Dominican Republic, and the Philippines also have fallen or risen slowly (see Appendix A ). The growth in U.S. imports of Vietnamese apparel from 2001 to 2002 and in subsequent years has been fairly widespread among product groups, but with outer garments (rather than undergarments and T-shirts, for example) accounting for much of the totals. Thus, trousers, coats, jackets, and other lightweight outer garments accounted for more than half of Vietnamese exports of clothing to the United States in 2005 (see Appendix B ). In contrast to textile and apparel trade with a number of other countries, the United States imports very small quantities of non-apparel textile end-products from Vietnam. Also, U.S. apparel exports to Vietnam are relatively minimal—equal to less than 1% of imports of apparel from Vietnam in 2004 and 2005 on a dollar basis. The post-2001 surge in clothing imports from Vietnam followed the granting by the United States of conditional normal trade relations (NTR) status to Vietnam in December 2001 as per the July 2001 BTA. Such status greatly reduced U.S. tariffs on most imports from Vietnam and led to the very large increase in exports of apparel to the United States. Many Members of Congress had urged the Administration to negotiate a special bilateral textile agreement to address this threat. An April 2003 agreement between the United States and Vietnam maintains quotas on 38 categories of Vietnam's clothing exports with the quota-levels increasing annually. Beginning in 2002, the Bush Administration has annually placed Vietnam on its "Special 301 watch list" for allegedly poor protection of intellectual property rights, particularly in the areas of music recordings and trademark protection. The BTA required Vietnam to make its IPR regime WTO-consistent by the end of 2003. The United States Trade Representative's 2006 report on foreign trade barriers states that Vietnam has made "considerable progress" in establishing the legal framework for IPR protection, singling out the passage of a new intellectual property law in November 2005. Despite these efforts, the government's enforcement of IPR protection "remains extremely weak," according to the USTR report, which cites industry estimates that piracy rates for software, music, and videos run over 90 percent. The International Intellectual Property Alliance (IIPA) estimated U.S. trade losses from Vietnam piracy at $42.8 million in 2005. As the U.S.-Vietnam normalization process has proceeded, the United States has eliminated most of the Cold War-era restrictions on U.S. aid to Vietnam, and U.S. assistance has increased markedly since around $1 million was provided when assistance was resumed in 1991. U.S. assistance reached an estimated $60 million in FY2005, about three times the level in FY2000. By far the largest component of the current U.S. bilateral aid program is health-related assistance—particularly spending on HIV/AIDS treatment and prevention—which amounted to nearly $40 million in FY2005. Vietnam is a "focus country" eligible to receive increased funding to combat HIV-AIDS under the President's Emergency Plan for AIDS Relief (PEPFAR). In recent years, some Members of Congress have attempted to link increases in non-humanitarian aid to progress in Vietnam's human rights record. (See the "Human Rights" section below.) "Normal trade relations" (NTR), or "most-favored-nation" (MFN), trade status is used to denote nondiscriminatory treatment of a trading partner compared to that of other countries. In practice, duties on the imports from a country that has been granted NTR status are set at lower rates than those from countries that do not receive such treatment. Thus, imports from a non-NTR country can be at a large price disadvantage compared with imports from NTR-status countries. Section 401 of Title IV of the Trade Act of 1974 requires the President to continue to deny nondiscriminatory status to any country that was not receiving such treatment at the time of the law's enactment on January 3, 1975, but established a procedure (the Jackson-Vanik amendment) to restore MFN status. In effect this meant all communist countries, including Vietnam, except Poland and Yugoslavia. Section 402 of Title IV, the so-called Jackson-Vanik amendment, denies the countries eligibility for NTR status as well as access to U.S. government financial facilities, such as the Export-Import Bank and the Overseas Private Investment Corporation (OPIC), as long as the country denies its citizens the right of freedom of emigration. These restrictions can be removed if the President determines that the country is in full compliance with the freedom-of-emigration conditions set out under the Jackson-Vanik amendment. For a country to maintain that status, the President must reconfirm his determination of full compliance in semiannual reports (due by June 30 and December 31) to Congress. His determination can be overturned by the enactment of a joint resolution of disapproval concerning the December 31 st report. The Jackson-Vanik amendment also permits the President to waive full compliance with the freedom-of-emigration requirements if he determines that such a waiver would promote the objectives of the amendment, that is, encourage freedom of emigration. This waiver authority is subject to annual renewal by the President and to possible congressional disapproval via a joint resolution. Before a country can receive NTR treatment under either the presidential determination of full compliance or the presidential waiver, it must have concluded a bilateral agreement that provides for, among other things, reciprocal extension of NTR or MFN treatment. The agreement and a presidential proclamation extending NTR status cannot go into effect unless a joint resolution approving the agreement is enacted. That legislation is to be given fast-track consideration as per provisions of Title IV of the Trade Act of 1974, as amended. President Clinton first granted Vietnam a waiver of the Jackson-Vanik requirements in 1998. That waiver has been upheld since that time. From 1998 to 2002, resolutions disapproving the waivers failed in the House. Disapproval resolutions were not introduced in 2003, 2004, or 2005. The presidential waiver gave Vietnam access to Export-Import Bank credits and OPIC programs, but Vietnam was ineligible to receive NTR status until the United States and Vietnam entered into a bilateral agreement per the requirements under Title IV. In July 2000, the two countries signed a bilateral trade agreement (BTA). The agreement went into effect after the Congress and Vietnam's National Assembly approved it in 2001. The President signed it into law ( P.L. 107-052 ) on October 16, 2001. On December 10, 2001, conditional NTR for Vietnam went into effect. Of the countries that have been covered by the Jackson-Vanik amendment only Cuba and North Korea are not accorded U.S. NTR status at all. Besides Vietnam, Belarus and Turkmenistan are granted conditional NTR status under the President's waiver authority. Azerbaijan, Kazakhstan, Moldova, Russia, Tajikistan, and Uzbekistan are granted conditional NTR under the full compliance provision of the Jackson-Vanik amendment. All other communist and former communist countries have been granted PNTR. Ukraine was granted PNTR on March 23, 2006. President Bush proclaimed PNTR for Vietnam on December 29, 2006. PNTR for Vietnam does not have any direct impact on U.S.-Vietnam trade relations. Because Vietnam had conditional NTR, its imports had already been receiving non-discriminatory treatment; and therefore, U.S. importers of Vietnamese products were charged the lower, concessional (MFN) tariff rates. PNTR does not affect Vietnam's status as a "nonmarket economy" as regards to U.S. antidumping laws. Vietnam had sought but failed to get U.S. removal of the "non-market economy" designation as part of the agreement on WTO accession. For Vietnam and for U.S. businesses that want to conduct business with and in Vietnam, PNTR provides a sense of predictability. No longer is Vietnam's trade status with the United States be subject to annual reviews and possible termination. In addition to the practical commercial effects, PNTR has politically symbolic implications. It places U.S. relations on a higher plane. The Jackson-Vanik requirements are viewed by many of the countries that are subject to them as an outdated legacy of the Cold War when U.S. foreign policy was designed to limit Soviet influence, and trade policy was subservient to those foreign policy objectives. U.S. policy now is to expand relations with many of the those countries, and reflects the changing climate in U.S. relations with former Cold War adversaries. Vietnam applied to join the WTO on January 1, 1995. Vietnam is scheduled to officially join the WTO on January 11, 2007. The following sections provide an overview of the process that Vietnam went through in order to accede (join). The WTO's membership of 149 countries and customs areas spans all levels of economic development, from the least developed to the most highly developed economies. The WTO came into existence in January 1995 as a part of the agreements reached by the signatories to the General Agreement on Tariffs and Trade (GATT). The WTO's primary purpose is to administer the roughly 60 agreements and separate commitments made by its members as part of the GATT (for trade in goods), the General Agreement on Trade in Services (GATS—for trade in services), and the agreement on trade-related aspects of intellectual property rights (TRIPS). The membership in the GATT/WTO has grown exponentially. The GATT was originally founded in 1947 by 23 countries, and the WTO now has 149 members, accounting for around 90% of world trade. Among the most recent entrants are China and Taiwan, which joined on December 11, 2001, and January 1, 2002, respectively, Armenia, which joined on February 5, 2003, the Former Yugoslav Republic of Macedonia, which joined on April 4, 2003, Cambodia and Nepal which joined in 2004. The most recent entrant is Saudi Arabia, which joined on December 11, 2005. Vietnam will join on January 11, 2007. Ukraine is also near completion of its accession process. Membership in the WTO commits its members to fundamental principles in trade with other members, including: Most-favored nation (MFN) treatment : The imports of goods and services originating from one member country will be treated no less favorably than imports of goods and services from any other member country. MFN is to be unconditional. In practical terms, this means that in most cases a country cannot apply a higher import tariff to a good from one member country than it applies to like goods from any other member country. National treatment : Imports of goods and services are treated no less favorably than like goods and services produced domestically. In practical terms this means that governments cannot discriminate against imports in the application of laws and regulations, such as regulations to protect consumer safety or the environment. Transparency: Government laws and regulations that affect foreign trade and investment are to be published and available for anyone to see. Procedures to implement the laws and regulations are to be open. Lowering Trade Barriers Through Negotiations: Since the GATT's creation, its members have conducted eight rounds of negotiations to lower trade barriers. At first these negotiations focused on lowering tariffs. Over time, the rounds have broadened GATT/WTO coverage to include nontariff barriers, such as discriminatory government procurement practices, discriminatory standards, and trade-distorting government subsidies. The last completed round, the Uruguay Round (1986-1994), resulted in the most ambitious expansion of rules to cover, for the first time, trade in agricultural products and services and government policies and practices pertaining to intellectual property rights protection and foreign investment regulations that affect trade. The current round, the Doha Development Agenda (DDA), was launched in November 2001. Reliance on tariffs: In order to promote predictability and openness in commerce, the WTO requires member countries to use tariffs and avoid using quotas or other nontariff measures when restricting imports for legitimate purposes, such as on injurious imports. Dispute settlement: As part of its function to administer the rules established under the agreements, the WTO provides a mechanism for the settlement of disputes between members where the dispute involves alleged violations of WTO agreements. Moreover, each member's trade regime is reviewed by the WTO Secretariat from time-to-time to ensure that it conforms to WTO rules. The collapse of the Soviet Union and its East European bloc and the movement of many developing countries toward liberal trade policies have spurred interest in joining the WTO. Article XII of the agreement that established the WTO sets out the requirements and procedures for countries to "accede": "Any state or customs territory having full autonomy in the conduct of its trade policies is eligible to accede to the WTO on terms agreed between it and WTO members." The accession process begins with a letter from the applicant to the WTO requesting membership. The WTO General Council, the governing body of the WTO when the Ministerial Conference is not meeting, forms a multilateral Working Party (WP) to consider the application. Membership on the WP is open to any interested member-country. More than sixty member countries, including the United States, are part of the WP for Vietnam's accession. The applicant submits a memorandum to the multilateral WP that describes in detail its current trade regime. The applicant and the WP then negotiate to determine what legislative and structural changes the applicant must make to meet WTO requirements and to establish the terms and conditions for entry of the applicant into the WTO. The WP's findings are then included in a "Report of the Working Party" and form the basis for drawing up the "Protocol of Accession." While it negotiates with the WP, the applicant must also conduct bilateral negotiations with each interested WTO member. During these negotiations the WTO member indicates what concessions and commitments on trade in goods and services it wants the applicant to make in order to gain entry, and the applicant indicates what concessions and commitments it is willing to make until the two agree and set down the terms. The terms of the bilateral agreements are combined into one document which will apply on an MFN basis to all WTO members once the applicant has joined the WTO. The accession package is conveyed to the General Council or Ministerial Conference for approval. Article XII does not establish a deadline for the process. The length of the process depends on a number of factors: how many legislative and structural changes an applicant must make in its trade regime in order to meet the demands of the WP; how quickly its national and sub-national legislatures can make those changes; and the demands on the applicant made by members in bilateral negotiations and the willingness of the applicant to accept those demands. The Vietnamese National Assembly has passed, or is committed to pass, laws in response to demands from WTO members. Because WTO accession is a political process as well as a legal process, its success depends on the political will of all sides—the WTO member countries and the applicant country. A formal vote is taken in the WTO that requires a 2/3 majority for accession, although in practice the WTO has sought to gain a consensus on each application. The process can take a long time: China's application took over 15 years. Vietnam's bilateral agreement with the United States is not a free trade agreement, such as NAFTA or CAFTA. It establishes conditions for Vietnam's entry into the WTO but imposes no new conditions on the United States. For that reason it does not require congressional approval as with FTAs. Vietnam's agreement with the United States was the last of the 28 bilateral agreements. Following is a summary of its contents. The most controversial issue, at least for the U.S. textile and apparel industry, is what reforms would Vietnam make regarding government subsidies for its textile and apparel industry, and what protections would the U.S. industry be given against surges in U.S. textile and apparel imports from Vietnam. The U.S.-Vietnam bilateral WTO accession agreement commits Vietnam to remove all WTO-prohibited trade government export subsidies for its textile and apparel industry by the time of accession. The agreement includes an enforcement mechanism that is in effect for the first 12 months after Vietnam's accession. Under this mechanism, if the United States or any other WTO member has reason to believe that Vietnam has not fulfilled this commitment, it could seek consultations with Vietnam. If the consultations do not resolve the issue, then the United States (or other WTO member) could seek the authority of a third party in the form of a neutral WTO arbitrator who would then determine whether Vietnam is in compliance. If the arbitrator determines that Vietnam is not in compliance, then the United States would be authorized to re-impose those quotas on textile and wearing apparel imports from Vietnam before Vietnam entered the WTO. Those quotas could be in force up to 12 months. If the arbitrator does not render a decision within 120 days of the filing of the complaint, then the United States would automatically be authorized to impose the quotas. Among other concessions regarding manufactured goods , according to the Office of the USTR, Vietnam will: accede to the WTO's Information Technology Agreement (ITA) upon accession, thus eliminating tariffs on information technology products, such as computers, cell phones, and modems; reduce tariffs on 80% of chemical products as required by the WTO Chemical Harmonization Agreement; eliminate tariffs or aircraft and engines within seven years of its WTO accession; lift the ban on large motorcycles (e.g. Harley Davidson models) and reduce tariffs on SUVs and on autoparts; eliminate tariffs on 91% of medical equipment products within five years of accession and eliminate tariffs on 96% of imports of scientific equipment within three years of accession; bind tariffs for about 90% of the tariff lines pertaining to agriculture and construction equipment at 5% or less and on all wood products at an average of 4%; lift restrictions on imports of commercially available goods that include encryption technology; reduce export duties on ferrous and other scrap metals by up to 51% of current duty levels within five to seven years of its accession; and require state-owned and controlled enterprises to a make purchases, that are not for government use, on commercial terms. Regarding trade in agriculture products, Vietnam has committed to: reduce tariffs on about 3/4 of U.S. agricultural products (including beef, pork, dairy, fruits, nuts, processed foods, soybean products, cotton and hides and skins, and grains) to rates of 15% or lower from an average applied rate of 27%; adhere to the WTO agreement on sanitary and phytosanitary measures, meaning that its measures will have to be science-based upon accession; recognize the U.S. food safety inspection regimes for beef, poultry, and pork as equivalent to is own, thus eliminating the need for duplicative inspections; and permit imports of bone-in beef and beef offal after the signing of the agreement (even before accession to the WTO). The bilateral agreement also includes commitments in services trade under which Vietnam has agreed to: allow foreign banks, as of April 1, 2007, to establish 100%-owned subsidiaries in Vietnam; permit foreign securities firms to establish joint ventures with up to 49% foreign ownership as of the date of accession and 100% foreign-owned subsidiaries five years after accession, and allow foreign securities firms to have branches in Vietnam for some securities activities; grant national (non-discriminatory) treatment to foreign financial firms in all financial services subsectors; allow upon accession foreign-owned insurance companies to operate 100% foreign-owned subsidiaries and permit, five years after accession, foreign insurance companies to open direct branches that sell non-life insurance; eliminate all restrictions on foreign insurance company sales of any line of insurance product one year after accession; extend national treatment to foreign insurance companies operating in Vietnam; and open its markets to foreign providers of telecommunications, energy, express delivery, transportation, business, distribution, environmental, and hotel and restaurant services. During the bilateral negotiations, the two sides discussed Vietnam's restrictions on imports of printed media products, including Bibles. It is unclear whether the bilateral accession agreement deals with this issue and/or whether the issue will be discussed by the Working Party. The bilateral agreement with the United States was only one of 28 bilateral accession agreements that Vietnam signed. The conditions that Vietnam has agreed to under all the bilateral agreements apply to Vietnam's trade with all other WTO members, including the United States. The provisions of the bilateral agreements were combined to become part of the protocol of accession for Vietnam. In addition to the bilateral agreements, Vietnam had to complete the negotiations with the 63-member WTO working party. Intellectual property rights protection was a concern of the United States and some other working party members. Vietnam recently passed a new IPR law and the working party members are waiting to see the regulations on how the law will be implemented. A number of contentious issues arose during these negotiations. For example, Vietnam had insisted that it be granted a period of time within which its obligations under the WTO Agreement on Subsidies and Countervailing Measures (ASCM) are phased in rather than imposed immediately upon accession. Vietnam argued that as a developing country it was entitled to this special and differential treatment. The working party members resisted this demand. Working party members also raised issue with the Vietnam government's policy of discriminating against companies in Vietnam that have foreign-ownership and domestically-owned enterprises in extending importing rights. Vietnam allows locally-owned firms to import products that are part of their product line and does not require them to obtain an import license. Foreign-owned firms can only import goods that are used as inputs in final production or that would be used in establishing an enterprise. Under the 2001 U.S.-Vietnam bilateral trade agreement (BTA), Vietnam granted U.S.-owned firms special trading rights not accorded to other foreign-owned firms. However, as a WTO member, Vietnam can no longer discriminate among WTO members nor between foreign and domestically-owned firms. Some working party members also raised the issue of Vietnam's ban on certain types of printed matter that contain "culturally reactionary and superstitious material." They are concerned that the restriction might be used to prevent imports of Bibles. Vietnam's accession will likely mean changes in how the two countries conduct their trade relations. The two countries are now bound by WTO rules. In practice this will mean, for example, that the United States will not be able to impose unilateral restrictions on imports from Vietnam, such as quotas on apparel imports, unless they have been sanctioned by the WTO. In addition, the two countries will be able to use the dispute settlement body to challenge one another's the trade practices, if they suspect those practices violate WTO rules. For example, Vietnam might challenge U.S. antidumping measures against Vietnamese imports or the U.S. might challenge Vietnam's trade-distorting subsidies. Vietnam's accession to the WTO arguably has been the focal point for the general improvement and deepening of U.S.-Vietnam relations that has occurred over the past three to five years. This trend was symbolized in June 2005, when President Bush hosted Vietnamese Prime Minister Phan Van Khai at the White House—the first trip to the United States by a Vietnamese head of state—and the two spoke of their desire to move bilateral relations to "a higher plane." President Bush also publicly backed Vietnam's bid to join the WTO. A variety of economic, strategic, and historical factors have motivated the two countries to improve relations and obtain Vietnam's membership in the WTO. Economically, PNTR and WTO accession for Vietnam obviously has much less significance for the United States than it does for Vietnam given the small share in U.S. trade (0.3%) that Vietnam occupies. Nevertheless, the twin issues can be considered as steps in fulfilling broader U.S. trade and foreign policy objectives. In the trade area, PNTR status for Vietnam is consistent with the policy of the Bush Administration and the Clinton Administration before it to normalize trade relations with former adversaries, most prominently China but also Cambodia, Laos, and the former communist states in Eastern Europe and the former Soviet Union. Vietnam's accession to the WTO could help the United States manage its trading relationship with Vietnam in that Vietnam would be obligated to WTO rules thus providing some discipline in the relationship. In addition, the United States has been strengthening trade ties with East Asian countries with a free trade agreement with Singapore and free trade agreement negotiations with Thailand, South Korea, and Malaysia. The United States is also undertaking an initiative to strengthen economic ties with the members of the Association of Southeast Asian Nations (ASEAN), of which Vietnam is a member, as a counterweight to the growing influence of China. As for Vietnam's intrinsic economic importance to the United States, it represents to certain U.S. export sectors a potentially large (80 million people) developing market. For most of the past twenty years, since doi moi (renovation) economic reforms were launched in 1986, Vietnam has been one of the world's fastest-growing economies, generally averaging around 7%-8% real annual gross domestic product (GDP) growth. Additionally, Vietnam's relatively low wages and highly educated population appeal to some U.S. multinational corporations that see Vietnam as an important site for foreign direct investment (FDI), often as a way to avoid an over-reliance upon factories and suppliers in China. Nike, for instance, has an extensive presence in Vietnam. Vietnam is thought by some to be an attractive export and investment opportunity in a variety of sectors, including computer hardware and services, telecommunications equipment and services, and energy-related machinery and services. In addition to fulfilling some commercial objectives, U.S. PNTR and support for Vietnam's WTO accession Vietnam are seen by many as tools to meet certain foreign policy objectives. For example, they can serve important tools for the United States to expand cooperation with a country that has an ambivalent relationship with China. While the United States is not actively promoting the development of multiparty democracy in Vietnam, WTO membership is believed by many to be a important means to promote increased pluralism, accountability, and adherence to the "rule of law" in Vietnam's political system. PNTR also has symbolic significance as milestone in a series of steps to normalize relations with Vietnam and to place greater distance from the legacy of the Vietnam war that this and previous administrations have undertaken. Finally, in the near term, President Bush attended the Asia Pacific Economic Cooperation (APEC) summit in Hanoi in November 2006. For Vietnam, it is believed that joining the WTO will have significant economic effects, despite the fact that Vietnam already enjoys NTR status with its major trading partners, including the United States. An important example is Vietnamese clothing industry, which is expected to experience a significant boost in exports when Vietnam joins the WTO. In 2005, the apparel industry's contribution to Vietnam's total exports was about 15%. WTO entry is expected to give a boost to inward FDI, by further entrenching and expanding not only Vietnam's integration into the global economy but also its own domestic economic reforms. U.S. companies have been major investors in Vietnam. Since 1988, U.S.-related FDI has been over $2.5 billion. From 2002-2004, U.S. companies invested more in Vietnam than firms from any other country. Additionally, joining the WTO fits Vietnam's broader economic strategy. Since the late 1980s, Vietnam has become increasingly dependent upon foreign trade in general, and in particular with the United States, which is now Vietnam's largest export market. (See Table 2 and Table 3 ) In the 1990s and early 2000s, as Vietnam deepened its integration into the global economy and as global trade rules expanded, Vietnam was forced to commit to an "open market industrialization" strategy. By entering into a bilateral trade agreement (BTA) with the United States (a condition for obtaining conditional NTR from the United States), by pushing to join the WTO, and by participating in the ASEAN Free Trade Area (AFTA), Vietnam is attempting to achieve its goal of becoming an industrialized country by 2020 in effect without the benefits of protectionism and subsidization that the East Asian tigers employed in an earlier era. A major presumed motivation for continued economic reforms is finding employment for the over 1 million new entrants to the labor force every year. Indeed, job creation is perhaps is the key to the vibrancy of the ruling Vietnamese Communist Party (VCP), as economic growth increasingly becomes its main source of legitimacy. Entry into the WTO appears to have broad support in leadership circles in Vietnam, despite the economic hardship that is expected to come to Vietnamese state-owned enterprises and private firms facing reduced state subsidies and increased competition from abroad. Hanoi's decision to sign the BTA in 2000 appears to have been a cathartic moment for domestic debates about economic policy. Prior to the signing of the BTA, the reformist momentum was widely observed to have dissipated, in large measure due to perhaps the worst infighting and political deadlock Vietnam had experienced since reunification. The deadlock can be simplified as disagreements between reformers and conservatives over how far to continue the economic reforms and concomitant integration into the international community. Many conservatives feared that economic rationalization would increase unemployment, in particular by forcing the government to curtail subsidies to state-owned enterprises. Conservatives also felt that economic reform would affect Vietnam's sovereignty and undermine the "socialist foundations" of the country's economic and political systems and thereby erode the VCP's monopoly on power. Vietnam's consensus-based decision-making style, combined with the absence of any paramount leader, only exacerbated the effect of these divisions. These arguments were brought to a head during the debate over whether to sign the BTA with the United States, a decision that took more than a year after an agreement in principle had been reached. The BTA broke the policymaking logjam a new political consensus emerged in favor of reform that new leaders endorsed at VCP's 9 th Party Congress in 2001. In short order after signing the BTA, the government enacted a series of measures, including passing a new Enterprise Law to give a boost to privately-owned businesses, passing a constitutional amendment giving legal status to the private sector, reducing red tape, creating unprecedented transparency rules for prior publication of new rules and regulations, and for the first time giving party members the green light to engage in private business. In sum, many observers agree that for the foreseeable future, Vietnam has embraced deeper integration into the global economy as the key to the country's economic policy. As the debate over PNTR for Vietnam and discussion of Vietnam's accession to the WTO proceeded, a number of issues were raised. Because PNTR and WTO accession are ostensibly about trade, some of the debate centered on trade-related issues. Probably the most controversial issue was Vietnam's exports of wearing apparel. But the debate also touched on non-trade, non-economic issues. The accession agreement contains no restrictions on Vietnamese clothing exports to the United States, but Vietnam agreed to terminate all funding under a major textile subsidy program upon the date of formal U.S. and Vietnam government approval. Textile and apparel quotas now applied to Vietnam will be removed upon accession; Vietnam has agreed to eliminate all of its WTO-prohibited textile/apparel subsidy programs by the date of accession; and textile and apparel quotas can be re-imposed for one year if Vietnam does not eliminate textile and apparel subsidy programs. U.S. textile groups had pushed for either the extension of current import quotas on Vietnam's textile and apparel exports not subject to WTO disciplines, or the creation of a safeguard mechanism similar to the one included in China's accession agreement. Among the major elements of that agreement were (a) the United States (and other WTO members) retain the right to impose safeguard measures specifically applying to textiles and apparel through the end of 2008, allowing continuation of some quotas in cases where a surge in Chinese exports cause or threaten to cause market disruption to domestic producers, and (b) China will significantly lower its tariffs on a wide range of textile and apparel products, and not impose new nontariff barriers. The industry wanted the accession agreement to allow restraints to be imposed in the future in the event of a surge of imports of apparel from Vietnam, but with streamlined procedures that would promote quicker action. That safeguard would be lifted once Vietnam eliminated its export subsidies. U.S. officials reportedly have insisted that such an issue must be addressed in the multilateral working party negotiations, without making a specific commitment to do so, according to informed sources. Under the industry's proposal the restrictions would stay in place until Vietnam eliminates its export subsidy programs. It is unlikely, however, that future increases in Vietnamese exports of clothing to the United States would be as rapid as they have been recently. Because Vietnam has not been a WTO member, many observers believe that the expiration of import quotas on textile and apparel products for WTO members on January 1, 2005, put Vietnam's apparel industry at a disadvantage versus its competitors that have been operating under a quota-free regimen since that date. The U.S. textile and apparel industry is not satisfied and strongly opposes the bilateral agreement because, according to industry representatives, it will allow imports of subsidized Vietnamese textiles and apparel into the United States and unfairly compete with U.S. producers. Auggie Tantillo, the president of the American Manufacturing Trade Action Coalition said: The U.S. textile industry explicitly told the Administration that it would not support any agreement with Vietnam that did not include adequate safeguards because Vietnam has a non-market communist economy with a heavily subsidized state-owned textile industry just like China. There are no adequate safeguards in this deal. In its present form, we are left with no choice but to urge Congress to oppose this flawed agreement. USTR officials, when asked why the agreement does not include a safeguard mechanism similar to one included in the agreement with China, have responded that while textile and apparel imports from Vietnam are increasing, Vietnam is a much smaller producer and exporter of those products than is China and would not pose the competitive threat that China does. In addition, the officials stated that once Vietnam has entered the WTO, the United States would have available the dispute settle mechanism with which to resolve issues with Vietnam. Senator Elizabeth Dole (NC) and Senator Lindsey Graham (SC) placed temporary holds on S. 3495 that would allow Vietnam to receive PNTR. The Senators had concerns about the potential impact of Vietnamese imports on the U.S. textile industry. They lifted their holds on September 29, 2006, after the Bush Administration agreed to establish a mechanism to monitor imports of textiles from Vietnam and have the Commerce Department self-initiate antidumping investigations when warranted. In contrast to the criticism by U.S. apparel manufacturers, U.S. retailers and apparel importers supported the negotiations and approved of the accession agreement, seeing it as an opener to lower-priced merchandise, an enforcer of a more level playing field, and a reducer of uncertainty. Thus, both the United States Association of Importers of Textiles and Apparel and the National Retail Federation issued press releases praising the agreement. However, these and other groups of retailers have raised concerns regarding the Bush Administration's initiative to monitor apparel imports from Vietnam and self-initiate antidumping investigations. In an October 11 letter to Commerce Secretary Carlos Gutierrez and USTR Susan Schwab, the groups implied that they are prepared to withdraw their support if their concerns are not addressed. Relatedly, in early November, Senators Dianne Feinstein (CA) and Gordon Smith (OR) reportedly sent a letter to U.S. Trade Representative Susan Schwab and Commerce Secretary Carlos Gutierrez raising their concerns about the Administration's move and asking for a response to the letter before the Senate votes on the PNTR bill. According to one source, retailers and importers wanted a commitment in writing that when considering whether to self-initiate an anti-dumping investigation, the Commerce Department only will consider the impact of Vietnamese imports on makers of apparel, and not makers of apparel inputs, and that the U.S. only will look at like and comparable products. In recent years, Congress has devoted considerable attention to Vietnam's human rights record Vietnam is a one-party, authoritarian state ruled by the Vietnamese Communist Party (VCP). Since at least the late 1990s, the VCP appears to have followed a strategy of generally relaxing most restrictions on most forms of personal and religious expression while selectively repressing individuals and organizations that it deems a threat to the party's monopoly on political power. Vietnamese living in the country's urban areas generally enjoy wide and expanding latitude to exercise their civil, economic, and religious liberties. In contrast, conditions are more restrictive in more rural areas, particularly in the country's Central Highlands and northwestern regions. The government has cracked down harshly on anti-government protests by various ethnic minority groups, most prominently the Montagnards in the country's Central Highlands, where clashes between protestors and government security forces have flared periodically since 2001. Both areas are populated by ethnic minority groups, among which are many who belong to non-registered Protestant denominations. Many observers have pointed to evidence of improvements in the general human rights situation in Vietnam in 2005 and 2006, even as conditions remain difficult for certain individuals, groups, and in certain regions. In the Central Highlands, there are signs that the level of government repression has diminished since April 2004, when thousands of protesting Montagnard tribal groups reportedly clashed violently with police and local authorities. The State Department's 2005 report on human rights in Vietnam, released in March 2006, describes the Vietnamese government's human rights record "unsatisfactory," an improvement over past reports, which had used the term "poor." Also, as part of the regular U.S.-Vietnam human rights dialogue, Vietnam in 2006 has released a number of prominent dissidents the Bush Administration had identified as "prisoners of concern." Vietnam also reportedly told the United States in October that it would repeal its administrative decree allowing detention without trial, a longstanding U.S. goal. On the other hand, some Members of Congress have called attention to individual human rights cases involving Vietnamese-Americans detained during trips to Vietnam. The arrest of one Floridian, Thong Nguyen Foshee, was raised by Secretary of State Condoleezza Rice with her Vietnamese counterparts and reportedly has led Florida Senator Mel Martinez to place a "hold" on the Senate version of the PNTR bill ( S. 3495 ). Foshee and several other individuals, including two other Vietnamese Americans, were arrested in September 2005 while visiting family members in Vietnam on charges of plotting violence against the Vietnamese government. After U.S. concerns were raised, Vietnamese authorities announced that Foshee and the six other individuals would be brought to trial, ending their indefinite detention. On November 10, Foshee and the others were tried, found guilty, and sentenced to 15 months in prison, with credit given for their time in detention before the trial. This put the seven defendants in a position to be released in December 2006. On November 12, however, Foshee's daughter reported that Vietnamese authorities had released and deported her mother for "humanitarian reasons." The following day, Martinez lifted his hold. The other six defendants apparently remain imprisoned. Although the freedom to worship generally exists in Vietnam, the government strictly regulates and monitors the activities of religious organizations , and periodically has increased restrictions on certain ones. Vietnamese law requires religious groups to join one of the officially-recognized religious organizations or denominations. According to many reports, the government uses this process to monitor and restrict the operations of religious organizations. Additionally, many groups either refuse to join one of the official religious orders or are denied permission to do so, meaning that these groups' activities technically are illegal. In 2004, the State Department designated Vietnam for the first time a "country of particular concern" (CPC)—or a "severe violator of religious freedom"—principally because of reports of worsening harassment of certain groups of ethnic minority Protestants and Buddhists. To the surprise of many, the Vietnamese government responded by negotiating with the Bush Administration and adopting some internal changes. After months of talks, in the spring of 2005, the United States and Vietnam reached a controversial agreement on religious freedom, in which Hanoi agreed to take steps that were designed to improve conditions for people of faith, particularly in the Central Highlands. The agreement, which has not been released publicly, enabled Vietnam to avoid punitive consequences, such as sanctions, associated with its CPC designation. The agreement has been faulted by human rights groups on a number of grounds, including the charge that religious persecution continues in the Central Highlands. Vietnam was redesignated a CPC in the 2005 Religious Freedom Report. On November 13, 2006, the State Department announced that because of "many positive steps" taken by the Vietnamese government since 2004, the country was no longer a "severe violator of religious freedom" and had been removed from the CPC list. The announcement, which came two days before President Bush was due to depart to Hanoi for the APEC summit, cited a dramatic decline in forced renunciations of faith, the release of religious prisoners, an expansion of freedom to organize by many religious groups, and the issuance of new laws, regulations, and stepped up enforcement mechanisms. Some human rights group, including the U.S. Committee on International Religious Freedom, disputed the factual basis of the decision and criticized the move as premature. Some Members of Congress have attempted to link U.S. aid to the human rights situation in Vietnam. The most prominent example, the Vietnam Human Rights Act ( H.R. 3190 in the 109 th Congress), proposes capping existing non-humanitarian U.S. assistance programs to the Vietnamese government at FY2005 levels if the President does not certify that Vietnam is making "substantial progress" in human rights, including religious freedom. Vietnam and the United States gradually have been expanding their political and security ties, though these have lagged far behind the economic aspect of the relationship. In the past four years, Vietnam's leadership appears to have decided to expand their country's political and security ties to the United States. During Vietnamese Prime Minister Phan Van Khai's visit to the United States in June 2005, he and President Bush spoke of their desire to move bilateral relations to "a higher plane," Bush backed Vietnam's bid to enter the WTO, and pledged to visit Vietnam when it hosts the 2006 Asia Pacific Economic Cooperation (APEC) summit. The two countries also signed an International Military Education Training (IMET) agreement and announced an agreement to resume U.S. adoptions of Vietnamese children, which Hanoi halted in 2002. Protesters, including many Vietnamese-Americans, appeared at every stop on Khai's trip. Since the late 1990s, U.S. officials have expressed an interest in expanding security and military ties. Vietnam generally was cool to the idea, reportedly for two reasons: certain Vietnamese officials were wary of antagonizing China and some in the Vietnamese Ministry of Defense were concerned about outside scrutiny of its officers for human rights abuses. Over the past two years, however, Hanoi has become more responsive to U.S. entreaties, as symbolized by the signing of an IMET agreement in 2005, under which two Vietnamese officers will attend in 2006 a U.S. air force language school in Texas for English classes. In June 2006, Secretary of Defense Donald Rumsfeld visited Vietnam and reportedly agreed with his Vietnamese counterpart to increase military-to-military cooperation and exchanges. According to Rumsfeld, the two sides discussed additional medical exchanges, an expansion of U.S. de-mining programs, and additional English language training for troops taking part in international peacekeeping missions. According to one report, the Vietnamese inquired about acquiring certain U.S. military equipment and spare parts. Opposition to granting PNTR to Vietnam may also come from individuals and groups who argue that Vietnam has not done enough to account for U.S. Prisoners of War/Missing in Action (POW/MIA) from the Vietnam War. This argument has diminished markedly since the mid-1990s, when the United States and Vietnam began devoting increased resources to POW/MIA research and analysis. By 1998 a substantial permanent staff in Vietnam was deeply involved in frequent searches of aircraft crash sites and discussions with local Vietnamese witnesses throughout the country. The Vietnamese authorities also have allowed U.S. analysts access to numerous POW/MIA-related archives and records. The U.S. Defense Department has reciprocated by allowing Vietnamese officials access to U.S. records and maps to assist their search for Vietnamese MIAs. The increased efforts have led to substantial understanding about the fate of several hundred of the over 2,000 Americans still unaccounted for in Indochina. On September 21, 1998, U.S. Ambassador to Vietnam Peterson told the media that "it is very, very, very unlikely that you would expect to see any live Americans discovered in Vietnam, Cambodia, or Laos." Official U.S. policy, however, does not remove a name from the rolls of those unaccounted for unless remains are identified. During Secretary of Defense Rumsfeld's June 2006 trip to Vietnam, the two countries discussed expanding their cooperation on recovering remains, including the possibility of using more advanced technology to locate, recover, and identify remains located under water. On June 13, 2006, companion bills— S. 3495 (Baucus) and H.R. 5602 (Ramstad)—authorizing permanent normal trade relations (PNTR) for Vietnam were introduced in the Senate and the House. On November 13, 2006, under suspension of the rules, the House voted 228-161 (Roll no. 519) in favor of H.R. 5602 but short of the two-thirds vote necessary for passage. On December 7, 2006, Rep. Bill Thomas introduced H.R. 6406 that combined Vietnam PNTR authorization with other trade measures, including: reauthorization of the Generalized System of Preferences (GSP) program; reauthorization of the Andean Trade Preferences (ATPA) program; reauthorization of textile-related provisions of the African Growth and Opportunities Act (AGOA); authorization of trade preferences for Haiti, and a temporary suspension of duties on 500 products. On December 8, 2006, the House passed H.R. 6406 (212-184). Pursuant to H.Res. 1100 , the bill was then coupled with a tax-extension bill ( H.R. 6111 ) and sent to the Senate. On December 9 (legislative day December 8) the Senate passed the combined bills (79-9). On December 20, 2006, President Bush signed the bill into law ( P.L. 109-432 ) and, per the law, on December 29, 2006, proclaimed PNTR for Vietnam. In the meantime, on November 7, 2006, Vietnam completed the multilateral component of its WTO membership bid when the WTO General Council approved Vietnam's accession package, the core of which is a combination of all the bilateral agreements that Vietnam negotiated. On November 28, 2006, Vietnam's National Assembly ratified the deal. Vietnam is scheduled to officially join the WTO on January 11, 2007. Appendix A. U.S. Imports of Apparel, Top 10 Countries of Origin (millions of dollars) Appendix B. U.S. Imports from Vietnam of Selected Apparel Items (millions of dollars, except where indicated) | On December 8, 2006, the House passed legislation (212-184) to grant Vietnam permanent normal trade relations (PNTR) status as part of a more comprehensive trade bill (H.R. 6406). Pursuant to H.Res. 1100, the bill was then coupled with a tax-extension bill (H.R. 6111) and sent to the Senate. The Senate passed the combined bills on December 8 (79-9). On December 20, 2006, President Bush signed the bill into law (P.L. 109-432) and, per the law, proclaimed PNTR for Vietnam on December 29, 2006. Congress considered PNTR in the context of Vietnam's accession to the World Trade Organization (WTO), which Vietnam joined in January 2007. Although Congress had no direct role in Vietnam's accession to the WTO, congressional approval was necessary for the President to extend PNTR to Vietnam. The WTO requires its members to extend unconditional most-favored-nation status (MFN), called PNTR in the United States, in order to receive the full benefits of WTO membership in their bilateral trade relations. Until PNTR was granted, the United States had extended conditional NTR treatment to Vietnam under Title IV of the Trade Act of 1974, as amended, which includes the so-called Jackson-Vanik amendment (section 402). Title IV prohibits the President from granting certain countries permanent NTR unless the country has met certain conditions. Vietnam's entry into the WTO does not establish any new obligations on the part of the United States, only on the part of Vietnam. However, Vietnam's WTO accession requires the United States and Vietnam to adhere to WTO rules in their bilateral trade relations, including not imposing unilateral measures, such as quotas on textile imports, that have not been sanctioned by the WTO. Accession to the WTO affords Vietnam the protection of the multilateral system of rules in its trade relations with other WTO members, including the United States. It could help the United States in that Vietnam would be obligated to apply WTO rules in its trade. PNTR status from the United States provides Vietnam more predictability its growing trade relations with the United States and sheds a legacy of the cold war. For the United States, PNTR is another in a series of steps the United States has taken in trade and foreign policy to normalize relations with Vietnam and place distance between current relations and the Vietnam War. During the congressional debate on PNTR, Members raised issues regarding the conditions for Vietnam's entry into the WTO, other issues pertaining to the U.S.-Vietnam economic relationship, and other aspects of the overall U.S.-Vietnam relationship. |
T he alarming rise in drug overdose deaths involving opioids over the past two decades has prompted the federal government to examine the causes of the public health crisis, identify possible solutions to counteract the problem, and take actions to address the crisis. The primary federal law governing the manufacture, distribution, and use of prescription and illicit opioids is the Controlled Substances Act (CSA or the act), which is administered and enforced by the Drug Enforcement Administration (DEA) in the U.S. Department of Justice. The CSA provides the legal regime through which the federal government (1) regulates and facilitates the lawful production, possession, and distribution of controlled substances, including opioids; (2) prevents diversion of these substances from legitimate purposes; and (3) penalizes unauthorized activities involving controlled substances. The regulatory framework under the CSA relies primarily on a registration system: the act requires persons who handle controlled substances (such as drug manufacturers, wholesale distributors, exporters, importers, health care professionals, hospitals, pharmacies, and scientific researchers) to register with the DEA and comply with the terms and conditions of the registration. Through this registration mechanism, the CSA creates a "closed system" of distribution in which distribution may lawfully occur among registered handlers of controlled substances, referred to under the act as "registrants." To monitor the amount of particularly dangerous drugs that enters this distribution system, the CSA requires the DEA to establish a quota system that restricts the total amount of certain controlled substances that may be annually produced or manufactured. In order to minimize theft and diversion and to help the DEA monitor the flow of controlled substances in the United States, the CSA and its implementing regulations subject registrants to strict requirements regarding recordkeeping, maintaining the security of their controlled substance inventories, and reporting certain information to the DEA. The "closed system" of distribution, along with registrant compliance with the CSA's regulatory requirements, helps to ensure that a particular controlled substance is always accounted for by a DEA-registered entity, from its creation until it is dispensed to a patient or is destroyed. Note that patients are not required to register with the DEA because the controlled substances in their possession "are no longer part of the closed system of distribution and are no longer subject to DEA's system of corresponding accountability." A registrant's failure to meet its obligations under the CSA can result in a controlled substance being diverted from legitimate channels. For example, "[d]istributors that blindly sell pharmaceutical controlled substances to rogue pharmacies, and practitioners who issue prescriptions without a legitimate medical purpose are diverting." Such diversion can contribute to drug abuse and addiction, which, in turn, increase the number of overdose deaths and emergency room visits, two defining features of the current opioid epidemic. In addition, some users who abuse prescription opioids may also start using cheaper and potentially easier to obtain illicit opioids such as heroin, which provide similar euphoric effects. The CSA provides civil and criminal penalties for any unlawful manufacture, distribution, importation, exportation, or possession of controlled substances. Such violations may include (1) "regulatory" offenses committed by registrants who do not adhere to their responsibilities under the CSA, thereby increasing the risk of diversion, and (2) illicit trafficking or possession crimes that occur outside the "closed system" of authorized controlled substance distribution that primarily involve nonregistrants. This report first provides a brief overview of the opioid epidemic and then describes in greater detail the current federal legal regime governing opioids and other controlled substances under the CSA and its implementing regulations. After that, the report examines DEA actions taken that are specifically targeted at addressing opioid abuse and describes recently enacted laws amending the CSA that impact the opioid regulatory system, including the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act ( P.L. 115-271 ), enacted by the 115 th Congress. The report concludes by discussing other legislative options that the 116 th Congress could consider to amend the CSA further to address the opioid epidemic. The Centers for Disease Control and Prevention (CDC) has declared that the nation "is in the midst of an opioid overdose epidemic," citing statistics that show the number of overdose deaths involving opioids (including prescription opioids and illegal opioids such as heroin and nonpharmaceutical fentanyl) has more than quadrupled since 1999, and on average 115 Americans now die each day from an opioid overdose. Former Attorney General Jeff Sessions referred to the opioid epidemic as "the deadliest drug crisis in American history," and President Trump in October 2017 directed the Secretary of Health and Human Services to declare the crisis a national public health emergency. The CSA defines the term "opioid" to mean "any drug or other substance having an addiction-forming or addiction-sustaining liability similar to morphine or being capable of conversion into a drug having such addiction-forming or addiction-sustaining liability." Opioids can include prescription pain relief drugs such as hydrocodone, oxycodone, codeine, morphine, and fentanyl, as well as illegal drugs such as heroin and nonpharmaceutical (illicitly produced) fentanyl. While doctors may prescribe U.S. Food and Drug Administration (FDA)-approved opioids to patients to alleviate their pain, particularly following surgery or injury or for serious health conditions such as cancer, some individuals may choose to abuse opioids for nonmedical reasons (such as to experience feelings of relaxation or to get "high") or by taking them in a higher dosage or through different means than prescribed by their doctor (such as by snorting or injecting the substance into a vein). The CDC has estimated that more than 40% of all opioid overdose deaths in the United States in 2016 involved an FDA-approved prescription opioid. How the opioid epidemic occurred, and who is responsible for fueling it, are complicated questions, though reports have suggested that many parties are likely involved to some extent, including pharmaceutical manufacturers and distributors, doctors, health insurance companies, rogue pharmacies, and drug dealers and addicts. The National Institute on Drug Abuse has described the origins of the opioid overdose crisis as follows: In the late 1990s, pharmaceutical companies reassured the medical community that patients would not become addicted to prescription opioid pain relievers, and healthcare providers began to prescribe them at greater rates. This subsequently led to widespread diversion and misuse of these medications before it became clear that these medications could indeed be highly addictive. The President's Commission on Combating Drug Addiction and the Opioid Crisis also cited excessive prescribing of opioids since 1999 as a significant contributor to the proliferation of opioids. The commission identified several other factors that have influenced the current opioid crisis, including large scale production and distribution of addictive opioids, widespread availability of illicit heroin and fentanyl, unethical physician prescribing practices and rogue pharmacies that fill those illegitimate prescriptions, and a lack of education for medical professionals and patients in prescribing and using opioids, respectively. This section provides a general overview of the CSA's closed system of distribution that regulates opioids and other types of controlled substances, including the schedules in which the substances are placed and the regulatory requirements and obligations that registrants must satisfy, such as (1) registering with the DEA, (2) keeping accurate and complete records of controlled substance inventories and transactions, (3) implementing security measures to safeguard controlled substances from theft or diversion, (4) reporting certain information to the DEA (including suspicious controlled substance orders), (5) meeting production quotas, and (6) prescribing controlled substances only for legitimate medical purposes. The CSA places various plants, drugs, and chemicals (such as narcotics, stimulants, depressants, hallucinogens, and anabolic steroids) into one of five schedules based on the substance's medical use, potential for abuse, and safety or dependence liability. Opioids are types of narcotic drugs. To restrict access to chemicals used in the illicit manufacture of certain controlled substances, the CSA also regulates specified "listed chemicals." Furthermore, the CSA regulates controlled substance "analogues," which are substances that are not controlled but have chemical structures substantially similar to those of controlled substances found in Schedule I or II. The order of the five schedules in which controlled substances are categorized reflects substances that are progressively less dangerous and addictive. Schedule I contains substances, such as the hallucinogen lysergic acid diethylamide (LSD) and the illicit opioid heroin, that have "a high potential for abuse" with "no currently accepted medical use in treatment in the United States" and that cannot safely be dispensed under a prescription. Schedule I substances may be used only for bona fide, federal government-approved research studies. In contrast, schedules II, III, IV, and V include substances that have recognized medical uses, such as prescription opioids like oxycodone, codeine, and morphine, and may be manufactured, distributed, prescribed, dispensed, and possessed in accordance with the CSA. The CSA provides an administrative mechanism for substances to be controlled (added to a schedule); decontrolled (removed from the scheduling framework altogether); and rescheduled or transferred from one schedule to another. Federal rulemaking proceedings to add, delete, or change the schedule of a drug or substance may be initiated by the DEA, the U.S. Department of Health and Human Services (HHS), or by petition by any interested person. The DEA Administrator must request from HHS a scientific and medical evaluation and recommendation as to whether the drug or substance should be controlled or removed from control. The DEA Administrator then must evaluate all of the relevant data and make a final determination as to whether the drug or substance should be controlled or removed entirely from control. In making such determination, the DEA Administrator is required to consider statutory factors such as the drug's actual or relative potential for abuse; scientific evidence of its pharmacological effect; the current state of scientific knowledge regarding the drug or substance; the risk to the public health from the drug; and whether the substance is an immediate precursor of a substance already controlled under the act. After the DEA Administrator makes this determination, he must make specific findings concerning the drug or substance that dictate the schedule in which the drug or substance will be placed. For example, in 2009, the DEA requested from HHS an evaluation and recommendation concerning whether to reschedule hydrocodone combination products (HCPs) such as Vicodin® from Schedule III to Schedule II. After evaluating the scientific and medical evidence showing, among other things, significant diversion of HCPs and the health and safety risks created by people who abuse HCPs, HHS then recommended to DEA that HCPs should be reclassified to the more restrictive Schedule II, In 2014, DEA published a final rule that administratively reschedules HCPs from Schedule III to Schedule II, thereby subjecting anyone who manufactures, distributes, or dispenses HCPs to the more stringent regulatory requirements (and administrative, civil, and criminal sanctions) that are applicable to Schedule II controlled substances. Congress may also change the scheduling status of a drug or substance at any time through enactment of legislation. For example, Congress passed the Synthetic Drug Abuse Prevention Act of 2012 that permanently added two synthetic cathinones (central nervous system stimulants) to Schedule I of the CSA, along with cannabimimetic substances (commonly referred to as synthetic marijuana). The CSA authorizes the DEA Administrator to place a drug or substance that is not currently controlled, on a temporary basis, into Schedule I when he finds such scheduling "necessary to avoid an imminent hazard to the public safety." The DEA Administrator may not issue a temporary scheduling order until 30 days after he notifies both the public and the HHS Secretary of his intent to issue the temporary scheduling order and of his justification for issuing the order. Furthermore, the DEA Administrator must consider the HHS Secretary's comments regarding the temporary order. A drug or substance may be temporarily scheduled for two years and possibly longer—up to an additional year—if formal scheduling procedures have been initiated. As discussed below in the report, DEA has exercised its emergency scheduling authority eight times to control seventeen substances structurally related to the opioid fentanyl by placing them temporarily in Schedule I. Treaty obligations may require the DEA Administrator to control or reschedule a substance if existing controls under federal law are less stringent than those required by a treaty. The United States is a party to three United Nations drug control treaties that impose certain international obligations relating to the manufacture, distribution, use, and possession of controlled substances, including the Single Convention on Narcotic Drugs of 1961, which was designed to establish effective control over international and domestic traffic in narcotics, coca leaf, cocaine, and marijuana. The United States is also party to the Convention on Psychotropic Substances of 1971, which was designed to establish similar control over stimulants, depressants, and hallucinogens. Finally, the United States is a party to the 1988 Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, which requires parties, among other things, to control precursor chemicals used in the illicit manufacture of drugs and to take measures to combat money laundering crimes related to drug trafficking. The CSA requires any person who seeks to manufacture, distribute, dispense, or conduct research involving any controlled substance (such as drug manufacturers, wholesale distributors, physicians, hospitals, pharmacies, and scientific researchers) to obtain a registration from the DEA, unless they are exempt. Registrations specify the extent to which the DEA has authorized registrants to manufacture, possess, distribute, or dispense controlled substances. The DEA currently regulates more than 1.73 million registrants. The CSA authorizes the DEA Administrator to charge reasonable fees relating to the registration and control of the manufacturing, distribution, and dispensing of controlled substances under the act. The CSA directs the DEA Administrator to register an applicant if the Administrator determines that, among other things, it would be consistent with the "public interest" to do so. The CSA provides several criteria that the DEA Administrator must consider in assessing whether registering an applicant is consistent with the "public interest." The criteria differ depending on the substance involved and whether the applicant is a manufacturer, distributor, or practitioner, but include general factors such as those relating to public health and safety and compliance with state and local laws. Manufacturers and distributors of controlled substances must obtain a registration from the DEA annually, and those who dispense controlled substances must obtain registrations that may not be issued for less than one year or more than three years. The registration of an individual terminates when the person dies, ceases legal existence, or discontinues business or professional practice. A registration cannot be transferred to someone else unless the Administrator provides his express, written consent for such a transfer to occur. In some instances, applicants must apply for several separate registrations in order to comply with the CSA. For example, separate registrations are generally required for each principal place of business or professional practice where controlled substances are manufactured, distributed, imported, exported, or dispensed. For example, a physician who is regularly engaged in dispensing controlled substances at one location must register to dispense controlled substances at other locations if he chooses to dispense controlled substances at these other locations. The CSA allows for exceptions and also exempts certain individuals from some or all of its regulatory requirements. For example, individuals exempted from registration requirements include, among others, officers or employees of the DEA, officers of the U.S. Customs Service, offers or employees of the FDA, and any other federal officers who are authorized to possess, import, or export controlled substances in the course of their official duties. Officers or employees of any state, or political subdivision of a state, who are engaged in enforcement of state or local laws relating to controlled substances, are also exempt from registering with the DEA. A person who has lawfully obtained, and who possesses, a controlled substance for his own legitimate medical use (a patient) is also not required to register. In addition, only those actually engaged in activities relating to manufacturing, distributing, and dispensing controlled substances are required to obtain registration, but related or affiliated persons who are not engaged in such activities are not required to register. For example, a stockholder or parent corporation of a corporation that manufactures controlled substances is not required to obtain registration, nor are employees of a registered manufacturer, distributor, or dispenser. The DEA Administrator may, by regulation, waive the registration requirement for certain manufacturers, distributors, or dispensers, if he finds it consistent with the public health and safety. The CSA imposes specific obligations on registrants in an effort to reduce the potential diversion of controlled substances out of legitimate distribution channels. In particular, the CSA imposes legal duties relating to (1) recordkeeping by registrants, (2) measures ensuring the secure storage of controlled substances handled by registrants, (3) reporting certain information to the DEA, (4) prescribing and dispensing controlled substance medications by registered doctors and pharmacists, and (5) the quantity of controlled substance that may be produced by manufacturers. All registrants are required by the CSA to maintain complete and accurate inventories and records of all regulated transactions involving controlled substances and listed chemicals. For example, a registrant must make a complete and accurate record of each substance manufactured, received, sold, delivered, or otherwise disposed of by the registrant. Furthermore, inventories must be available for inspection by the DEA for at least two years. The CSA declares that it is unlawful for any person to "refuse or negligently fail to make, keep, or furnish any record, report, notification, declaration, order or order form, statement, invoice, or information required" by the CSA. It is also unlawful for any person knowingly or intentionally "to furnish false or fraudulent material information in, or omit any material information from, any application, report, record, or other document required to be made, kept, or filed" under the CSA. In certain circumstances, the CSA recordkeeping provisions do not apply. For example, the provisions do not apply to the prescribing or administering of a controlled substance listed in Schedules II-V by practitioners acting in the lawful course of their professional practice unless such substance is prescribed or administered in the course of maintenance or detoxification treatment of an individual. As discussed below, this has implications for the drugs typically used in the treatment of opioid addiction, two of which are controlled substances, while the other is not. For the purposes of ensuring the secure storage and distribution of controlled substances and listed chemicals, all applicants for DEA registration and registrants must generally "provide effective controls and procedures to guard against theft and diversion of controlled substances." DEA regulations also detail specific security requirements for different types of applicants and registrants. For example, nonpractitioners (i.e., manufacturers, distributors, and narcotic treatment programs) are required to store Schedule I and II substances in electronically monitored safes, steel cabinets, or vaults that meet or exceed certain specifications. Licensed practitioners must store controlled substances in a "securely locked, substantially constructed cabinet" and must notify the DEA of the theft or significant loss of any controlled substances within one business day of discovering such loss or theft. Furthermore, all practitioners are prohibited from hiring employees who have been convicted of a drug-related felony or who have had a DEA registration denied or revoked. DEA regulations recommend that nonpractitioners carefully screen individuals before hiring them as employees, to ensure that job applicants do not have convictions for crimes or have not engaged in unauthorized use of controlled substances. The CSA requires manufacturers, distributors, and pharmacies to report periodically to the DEA every sale, delivery, disposal, or dispensing of any controlled substance. Registered pharmacies that are authorized to dispense controlled substances by means of the internet must also report to the DEA Administrator the type and total quantity of each controlled substance that the pharmacy has dispensed each month via the internet. In addition, the CSA requires manufacturers, distributors, and dispensers of controlled substances (1) to design and operate a system (that is compliant with applicable federal and state privacy laws) that will alert the registrant of suspicious orders of controlled substances, and (2) upon discovering a suspicious order or series of orders, to inform the DEA Administrator and the Special Agent in Charge of the DEA Field Division Office. The CSA defines "suspicious orders" as those that may include, but are not limited to, orders of unusual size, orders deviating substantially from a normal pattern, and orders of unusual frequency. Manufacturers and distributors of Schedule I and II drugs must file reports with the DEA through the Automated Reports and Consolidated Orders System (ARCOS), which is an automated drug reporting system that allows the agency to "monitor[] the flow of DEA controlled substances from their point of manufacture through commercial distribution channels to point of sale or distribution at the dispensing/retail level.... " Certain narcotics listed in Schedules III and IV are also covered by the ARCOS reporting requirements. According to the DEA, U.S. attorneys and DEA investigators may use ARCOS controlled substances transaction information "to strengthen criminal cases in the courts." The CSA includes a production quota system that requires the DEA to establish the total amount of each basic class of Schedule I and II controlled substances and certain listed chemicals that may be manufactured in a given calendar year, in order "to provide for the estimated medical, scientific, research, and industrial needs of the United States, for lawful export requirements, and for the establishment and maintenance of reserve stocks." The DEA establishes this quota, referred to as the aggregate production quota (APQ), for approximately 200 Schedule I and II controlled substances. The DEA assigns individual production quotas to controlled substance manufacturers that prevent the APQ from being exceeded. The CSA allows a registrant to apply for an increase in his individual manufacturing quota if it is necessary "to meet his estimated disposal, inventory, and other requirements during the remainder of that year." By regulation, the DEA Administrator must consider the following factors in making his APQ determinations: (1) the total disposal of the controlled substance during the current year and two preceding years; (2) trends in the national rate of new disposal of the controlled substance; (3) total inventories (actual or estimated) of "the class and all substances manufactured from the class [of controlled substances listed in Schedule I or II];" (4) projected demand for a particular controlled substance; (5) the extent of any diversion of the controlled substance in the class; (6) relevant information obtained from the Department of Health and Human Services and from the states; and (7) other relevant factors affecting the use of controlled substances including changes in the currently accepted medical use of a controlled substance, the economic and physical availability of the raw materials necessary to produce a controlled substance, and recent unforeseen emergencies (i.e., natural disasters). A registrant may not manufacture a Schedule I or II controlled substance or a specified listed chemical that is (1) not expressly authorized by his registration and by the individual quota assigned to him by the DEA, or (2) in excess of that quota. The CSA provides specific requirements that practitioners and pharmacists must observe when prescribing and dispensing controlled substances in Schedules II-V to patients for legitimate medical purposes. As noted, controlled substances classified as Schedule I drugs are deemed to have no accepted medical purpose in the United States, and thus they may only be used for research, and may not be prescribed or dispensed to patients. DEA regulations hold both the prescribing practitioner and the pharmacist who fills the prescription responsible for ensuring that the controlled substance is properly prescribed and dispensed. A DEA manual prepared for pharmacists to help them understand their obligations under the CSA explains that A pharmacist is required to exercise sound professional judgment when making a determination about the legitimacy of a controlled substance prescription. Such a determination is made before the prescription is dispensed. The law does not require a pharmacist to dispense a prescription of doubtful, questionable, or suspicious origin. To the contrary, the pharmacist who deliberately ignores a questionable prescription when there is reason to believe it was not issued for a legitimate medical purpose may be prosecuted along with the issuing practitioner, for knowingly and intentionally distributing controlled substances. Under the CSA, only licensed medical practitioners are authorized to prescribe controlled substances listed in Schedules II-V to patients. A prescription for a controlled substance must be "issued for a legitimate medical purpose by an individual practitioner acting in the usual course of his professional practice." A pharmacist may not dispense to a patient a Schedule II controlled substance without a written prescription from a practitioner, except in certain cases where the practitioner administers the controlled substance directly to the patient. However, in the case of an "emergency situation," a practitioner may orally authorize a pharmacist to fill a prescription for a Schedule II controlled substance. Controlled substances in Schedules III-V may be dispensed by a pharmacy pursuant to either a written or oral prescription, including a facsimile of a written prescription. These substances may also be administered or dispensed directly by the practitioner in the course of his professional practice without a prescription. Practitioners are permitted to sign and transmit electronic prescriptions for controlled substances, assuming that the electronic prescription complies with detailed requirements set forth in the applicable federal regulations. Pharmacists may partially fill a prescription for Schedule II substances under certain circumstances, such as pursuant to a request by the patient or the practitioner who wrote the prescription. Pharmacists are prohibited from refilling prescriptions for Schedule II substances. A pharmacist may fill or refill prescriptions for controlled substances in Schedules III and IV, however, up to five times within six months after the date on which the prescription was issued, unless the prescribing practitioner authorizes a renewal of the prescription. A pharmacy may process electronic prescriptions for controlled substances if the pharmacy uses a computer application that complies with several requirements specified in the applicable federal regulations. A controlled substance that is a prescription drug may not be delivered, distributed, or dispensed by means of the internet without a "valid prescription," which the CSA defines as a prescription that is issued for a legitimate medical purpose in the usual course of professional practice by a practitioner who has conducted at least one medical evaluation of the patient in the physical presence of the practitioner. The CSA contains a variety of criminal sanctions for illicit possession, manufacture, and distribution of controlled substances that occurs outside the closed system of distribution. For example, the CSA outlaws "simple possession" of a controlled substance (referring to a person knowingly or intentionally possessing a controlled substance) "unless such substance was obtained directly, or pursuant to" a valid prescription issued by a medical practitioner, "or except as otherwise authorized by" the CSA. The CSA also prohibits any person from knowingly or intentionally acquiring or obtaining possession of a controlled substance by misrepresentation, fraud, forgery, deception, or subterfuge. It is unlawful for any person knowingly or intentionally to "traffic" in controlled substances; illegal drug trafficking generally refers to distributing or dispensing, or to possessing with intent to distribute or dispense, a controlled substance, unless the particular activity is authorized by law. The CSA's criminal penalties for trafficking in controlled substances vary depending on whether the individual is a first-time offender or a repeat offender, the type of substance involved, and the quantity of the type of substance involved. For example, a federal drug trafficking offense committed by a first-time offender involving a Schedule II substance such as codeine is punishable by a term of imprisonment of up to 20 years and a fine of up to $1,000,000. For a second offense, the fine increases to $2,000,000 and the maximum imprisonment term increases to 30 years. The focus of this report, however, is on the CSA penalty provisions specifically applicable to persons registered with the DEA. The CSA sets forth certain "regulatory" offenses involving listed chemicals, failure to comply with CSA requirements and obligations that registrants must satisfy as a condition of registration, and other prohibited acts by registrants who manufacture, distribute and dispense controlled substances. For example, a registrant authorized to distribute or dispense any controlled substance is prohibited from distributing, dispensing, or manufacturing controlled substances in a manner that is not authorized by his particular registration. As noted above, registrants may not refuse or negligently fail to maintain accurate records of controlled substances, and may not refuse to furnish such records when required to do so by law enforcement officials (such as the requirement that registrants report to the DEA any "suspicious orders of controlled substances)." It is unlawful for registrants to prohibit law enforcement officials from entering their premises for inspections authorized by the CSA. Similarly, practitioners and pharmacists may not dispense or distribute a controlled substance drug in violation of the CSA's statutory prescription requirements. The CSA also proscribes certain acts committed by a registrant related to the manufacture and distribution of controlled substances and listed chemicals. Registrants may not knowingly or intentionally (1) distribute Schedule I and II substances without a valid order form; (2) use an invalid registration number during the course of handling or acquiring controlled substances; (3) furnish false or fraudulent material information in a record or report required by the act; or (4) present false or fraudulent identification when receiving a listed chemical. Registrants who violate the aforementioned provisions may be subject to injunctive or declarative actions filed by the Attorney General in federal district court in addition to the general penalties described in the next paragraph. Manufacturers may also not produce Schedule I or II controlled substances or specified listed chemicals that are not expressly authorized by their registration or in excess of the individual production quotas assigned to them by the DEA. Registrants who fail to adhere to the CSA's regulatory requirements or who engage in certain prohibited acts may face administrative consequences, civil and criminal fines, and even the possibility of imprisonment. The CSA provides that violations of its regulatory requirements generally do not constitute a crime and that "imposition of a civil penalty ... shall not give rise to any disability or legal disadvantage based on conviction for a criminal offense," unless the violation was committed knowingly , in which case the CSA authorizes imprisonment of up to one or two years. In addition to federal oversight of controlled substances and registrants who handle them, Congress has permitted state governments to regulate the use of controlled substances under their own state controlled substances acts. The U.S. Supreme Court has stated that the CSA "manifests no intent to regulate the practice of medicine generally" and has observed that its "structure and operation ... presume and rely upon a functioning medical profession regulated under the States' police powers" that may be used "to protect the health, safety and welfare of their citizens." For example, all states have prescription drug monitoring programs (PDMPs) that maintain statewide electronic databases of prescription controlled substances dispensed to patients within their jurisdictions; such information may be used by those working in law enforcement, professional licensing bodies, and health care to identify patterns of prescribing, dispensing, or receiving controlled substances that could indicate abuse or diversion. States may also subject certain controlled substance medications to stricter regulation than the CSA requires. For example, the states of Oregon and Mississippi have passed laws that require anyone to obtain a prescription for drugs containing pseudoephedrine (a nasal decongestant commonly found in over-the-counter cold, allergy, and sinus medications), which is an important ingredient in producing illicit methamphetamine, whereas the substance is regulated as a listed chemical under the CSA that does not require a prescription to dispense. The operation of several provisions of the CSA depends on state laws and state regulatory bodies. For example, if a physician wants to obtain a DEA registration to dispense controlled substance medications, he must first be "authorized to dispense ... controlled substances under the laws of the State in which he practices." In addition, the DEA Administrator must be satisfied that issuing the applicant a registration would be "[]consistent with the public interest," a determination that requires the DEA Administrator to consider several statutory factors, including the "recommendation of the appropriate State licensing board or professional disciplinary authority"; the applicant's previous convictions for federal or state controlled substances offenses; and the applicant's "[c]ompliance with applicable State, Federal, or local laws relating to controlled substances." Despite the latitude that Congress has given to states to regulate controlled substances, however, the CSA nevertheless generally preempts, or overrides, state laws regarding controlled substances when "there is a positive conflict between" a CSA provision and "that State law so that the two cannot consistently stand together." The DEA's Office of Diversion Control is responsible for preventing, detecting, and investigating violations of the CSA involving controlled pharmaceuticals while also "ensuring an adequate and uninterrupted supply for legitimate medical, commercial, and scientific needs." The Office of Diversion Control also manages the regulation of registrants, promulgates regulations concerning the handling of controlled substances, and establishes controlled substance production quotas. The Assistant Attorney General for the DOJ's Criminal Division conducts, handles, or supervises all criminal and civil litigation to enforce the CSA. Several federal courts have held that the CSA does not contain an express or implied cause of action provision under which private parties or state, local, or tribal governments may sue registrants for noncompliance with their CSA obligations, noting instead that the CSA expressly authorizes only the Attorney General and the U.S. Department of Justice to enforce federal controlled substances laws. The DEA can conduct a variety of investigations to monitor and ensure registrant compliance with the CSA and its implementing regulations. As mentioned earlier, registrants may not prevent law enforcement officials from entering their premises for any inspections authorized by the CSA. The three types of investigations that the DEA may undertake can be classified as regulatory, complaint, and criminal. Regulatory investigations can include scheduled inspections of registrants, usually every two, three, or five years, although such inspections generally are directed at manufacturers, wholesale distributors, and importers/exporters rather than physicians and pharmacies (who receive such oversight from state regulators). The DEA may initiate complaint investigations after it has received a tip about potential diversion by the registrant or if the DEA has identified any unusual drug transactions involving the registrant. Finally, the DEA may conduct criminal investigations regarding potential criminal activities involving diversion of controlled substances. Criminal investigations can be directed at either registrants or nonregistrants, such as an individual suspected of stealing drugs from a pharmacy or one who is trafficking in unlawfully obtained controlled substances. Following an investigation of a registrant that reveals violations of the CSA and its implementing regulations, the DEA can take certain enforcement actions, as discussed in the following section. The DEA has discretion to initiate enforcement actions to seek a variety of administrative, civil, and criminal penalties against a registrant who is not in compliance with the CSA, depending on the severity of the offense and taking into consideration factors such as whether the registrant has previously violated a CSA regulatory requirement. This section focuses on the administrative actions that the DEA may take against a registrant or an applicant for registration. A noncompliant registrant could face several types of corrective actions. For example, the DEA can issue a warning letter referred to as a Letter of Admonition (LOA) to a registrant suspected of conduct inconsistent with his obligations under the CSA and its implementing regulations. The DEA can also hold an Informal Hearing (IH) concerning the registrant; either administrative action "provide[s] registrants an opportunity to recognize and acknowledge their infractions, and immediately correct them." The DEA Administrator has the authority to deny, revoke, or suspend registrations under certain circumstances. However, before the DEA Administrator can take such an action, the agency must generally provide the applicant or registrant with notice and an opportunity to demonstrate why the registration should not be denied, revoked, or suspended. This notice is referred to as an Order to Show Cause or OTSC. Such an order provides the basis for the proposed denial, revocation, or suspension (including an identification of the laws or regulations that the applicant or registrant is alleged to have violated) and also notifies the applicant or registrant of the opportunity to submit to the DEA a corrective action plan (CAP). The OTSC instructs the applicant or registrant to appear at a hearing before a DEA Administrative Law Judge (ALJ) that must be conducted in accordance with the Administrative Procedure Act (APA). If the registrant submits a CAP, the DEA Administrator is required to determine "whether denial, revocation, or suspension proceedings should be discontinued." After examining the evidence and arguments submitted by the parties, the ALJ is required to submit a report to the DEA Administrator that explains his recommended ruling, findings of fact, conclusions of law, and decision regarding the proposed denial, revocation, or suspension. "As soon as practicable after" receiving the ALJ's record and report, the DEA Administrator is required to publish in the Federal Register a final order in the proceeding that adopts, modifies, or rejects the ALJ's recommended decision. The CSA also provides that if the DEA Administrator suspends or revokes an existing registration, all controlled substances owned or possessed by the registrant may "be placed under seal ... until the time for taking an appeal has elapsed or until all appeals have been concluded.... " Once a revocation order becomes final (meaning all judicial appeals have been exhausted), these controlled substances "shall be forfeited to the United States" and "[a]ll right, title, and interest in such controlled substances ... shall vest in the United States.... " Simultaneously with the institution of administrative proceedings to revoke or suspend a registration (or at any time after the DEA Administrator issues an OTSC notifying the registrant that the DEA is taking action to revoke or suspend a registration), the DEA Administrator may exercise emergency power to suspend immediately any existing registration for a limited time period in order to avoid "an imminent danger to the public health or safety." This agency action is often referred to as an "immediate suspension order" (ISO), and does not require the DEA to provide the registrant with prior notice or a formal hearing. The CSA specifies that the suspension "shall continue in effect until the conclusion of [the] proceedings [to revoke or suspend the registration on a final basis], including judicial review thereof, unless sooner withdrawn by the Attorney General or dissolved by a court of competent jurisdiction." Prior to the enactment into law of the Ensuring Patient Access and Effective Drug Enforcement Act (EPAEDEA) of 2016, the CSA did not expressly define the phrase "imminent danger to the public health or safety," and, as a result, courts held that the DEA Administrator possessed "significant discretion" to determine when the continued registration of a registrant constituted such a threat. As an example of the latitude that courts afforded the DEA Administrator's imminent danger finding, a federal district court permitted the DEA to rely on pharmacy controlled substances sales data from 2008 to support an ISO issued in early 2012. The EPAEDEA amended the CSA to provide, for the first time, a statutory definition of the phrase "imminent danger to the public health or safety," which limits the DEA Administrator's discretion to issue an ISO and creates new evidentiary requirements that he must satisfy before issuing such an order. Under the EPAEDEA, the DEA's authority to issue an ISO depends on the agency's ability to prove two things: (1) "an immediate threat that death, serious bodily harm, or abuse of a controlled substance will occur" due to the failure of the registrant to comply with the CSA's requirements, including those obligating the registrant "to maintain effective controls against diversion," and (2) the probability that such a threat will occur without an immediate suspension of a registration, which the statute requires to be a "substantial likelihood." Some have suggested that the legislative changes made by the EPAEDEA considerably weaken the power of the DEA to issue an ISO against a distributor or manufacturer, although others have argued that the addition of a statutory definition of "imminent danger to the public health or safety" was necessary in order to prevent "a completely subjective determination made solely by the DEA" that "summarily eliminate[s] the registrant's ability to handle controlled substances before any due process hearing." In response to the ISO, a registrant could seek immediate judicial review of the ISO in federal court, arguing that the DEA acted arbitrarily and capriciously in violation of the APA. However, a registrant faces a difficult burden in convincing a court to enjoin the DEA's enforcement of the ISO pending resolution of the revocation or suspension proceedings. In order to obtain such preliminary injunctive relief, a registrant "must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." The CSA provides that a reviewing court must use a "substantial evidence" standard in considering the DEA's findings of facts with respect to an ISO, though a court applies the APA's arbitrary and capricious standard of review when considering the DEA's reason for deciding to adopt, modify, or reject the ALJ's recommendation concerning an ISO. A federal appellate court has explained its review of the DEA's issuance of an ISO under the APA as follows: "To uphold DEA's decision, ... we must satisfy ourselves that the agency examined the relevant data and articulated a satisfactory explanation for its action including a rational connection between the facts found and the choice made." A registrant served with an ISO could also request "an expedited administrative hearing" before an ALJ on the merits of the revocation or suspension at a time before that indicated in the OTSC. DEA regulations specify that the DEA Administrator "shall" grant the request for an earlier hearing and "fix a date for such hearing as early as reasonably possible." This section describes selected DEA actions intended to help alleviate the opioid crisis. As discussed earlier in this report, the CSA provides the DEA with a variety of criminal, civil, and administrative tools to hold manufacturers, distributors, pharmacies, and physicians accountable for actions that violate the CSA's regulatory requirements. The DEA has used these authorities in connection with the opioid crisis. For example, in February and March 2018, the DEA "surged its enforcement and administrative resources" to target prescribers and pharmacies suspected of diverting large amounts of opioid drugs, resulting in 147 revoked registrations and 28 arrests. In addition, in July 2017, CVS Pharmacy Inc. agreed to a $5 million settlement payment as well as an administrative compliance plan with the DEA, to resolve the federal government's allegations that nine of its pharmacies in the Eastern District of California had failed to keep and maintain accurate records of its controlled substances, in violation of the CSA's recordkeeping requirements. In early 2016, CVS also paid $8 million to the United States to settle allegations that certain CVS pharmacies in Maryland had dispensed controlled substances, including the opioids oxycodone, fentanyl, and hydrocodone, in violation of the CSA by failing to comply with their duty to ensure that the prescriptions were issued for legitimate medical purposes. In 2013, Walgreens agreed to pay $80 million in civil penalties to resolve DEA administrative actions and civil penalty investigations concerning "an unprecedented number of record-keeping and dispensing violations" occurring at six Walgreens pharmacies and a Walgreens drug distribution center in Florida that allegedly resulted in oxycodone and other prescription opioids to be diverted. As part of this settlement, Walgreens agreed to several terms and conditions, including ending its practice of "compensat[ing] its pharmacists based on the volume of prescriptions filled." The DEA has also focused its attention on wholesale distributors of prescription opioids, which ship the drugs from drug manufacturers to pharmacies, and their compliance with the CSA's recordkeeping and reporting requirements. Several DEA investigations into these wholesale distributers resulted in civil penalty settlements. In January 2017, one of the largest U.S. drug distributors, McKesson Corporation, agreed to pay a $150 million civil payment to resolve DEA allegations that it had, in violation of CSA regulatory requirements, "failed to design and implement an effective system to detect and report 'suspicious orders' for controlled substances distributed to its independent and small chain pharmacy customers." The federal government alleged that "[f]rom 2008 until 2013, McKesson supplied various U.S. pharmacies an increasing amount of oxycodone and hydrocodone pills, frequently misused products that are part of the current opioid epidemic." In addition to the monetary penalty, the settlement requires McKesson to (1) suspend for several years sales of controlled substances from a number of its distribution centers, (2) agree to certain "enhanced compliance obligations" that include periodic auditing and staffing and organization improvements; and (3) accept the oversight of an independent monitor to assess the company's adherence with the compliance terms. Another major pharmaceutical drug distributor, Cardinal Health, Inc., agreed in December 2016 to pay $44 million to the federal government to settle allegations that it had failed to notify the DEA when it filled unusually large and frequent orders for controlled substances requested by pharmacies located in Maryland, Florida, and New York, and that it had failed to maintain effective controls against diversion. The settlement agreement between Cardinal Health and the federal government included an admission by the company that "from January 1, 2009 to May 14, 2012, it failed to report suspicious orders to the DEA as required by the CSA." In 2014, the DEA took an administrative action to revoke the registration of Masters Pharmaceuticals, Inc. (Masters), a bulk supplier of prescription medications to many U.S. pharmacies, after concluding that the company had not satisfied its legal obligation to monitor and report to the DEA suspicious orders for controlled substances. Masters had previously entered into a settlement agreement with the DEA in 2009 in which Masters agreed to pay $500,000 and implement a compliance system to detect suspicious orders of controlled substances and prevent the substances from being diverted into illegal channels. However, in the years following the settlement, the DEA grew to suspect that Masters's employees were not detecting and reporting to the DEA suspicious orders of oxycodone products. In 2013, the DEA issued an Order to Show Cause why Masters's registration should not be revoked, in light of allegations that Masters had ignored its duty to report suspicious orders after its computer system had flagged controlled substance orders that were unusual in size, frequency, or pattern. The DEA Administrator concluded that Masters's repeated violations of the suspicious orders reporting requirement warranted revocation of its registration to distribute controlled substances. Masters challenged the DEA's revocation decision in federal court, arguing among other things that the DEA's factual conclusions were not supported by the record. In June 2017, the U.S. Court of Appeals for the D.C. Circuit denied Masters's petition for review, seeking to overturn the DEA's final order, after the court found "no prejudicial error in DEA's decision." In addition to these actions against distributors, the DEA has also investigated opioid manufacturers for their failure to report suspicious orders of controlled substances that occurred downstream in the drug supply chain. In July 2017, the DEA confirmed it had reached a $35 million civil penalty settlement with Mallinckrodt LLC, a drug manufacturer that is one of the largest makers of the highly addictive generic pain reliever oxycodone. This settlement resolved allegations that the company committed several violations of the CSA from 2008 until 2011 by supplying to drug distributors that, in turn, supplied pharmacies and pain clinics, "an increasingly excessive quantity of oxycodone pills without notifying DEA of these suspicious orders." The DEA described this settlement as "groundbreaking" in part because it is the first time the DEA has been able to hold a drug manufacturer responsible for detecting and reporting suspicious orders relating to downstream sales between its distributor customers and the distributors' customers (pharmacies). This settlement agreement also apparently contains the first public statement of the DEA's position that "controlled substance manufacturers need to go beyond 'know your customer' to use otherwise available company data to 'know your customer's customer' to protect these potentially dangerous pharmaceuticals from getting into the wrong hands." Under the settlement, Mallinckrodt agreed to analyze data it collects involving "chargebacks," which are reimbursements the company offers to their drug distributor customers based on the distributor's discounted sale of its drugs to pharmacies and pain clinics, in order to monitor and report to the DEA any suspicious orders of oxycodone placed by the distributor's customers. Commentators have argued that the legal basis of the DEA imposing an obligation on a drug manufacturer to "know your customer's customer," and its ability to hold the company "responsible for what happens to its drugs once the distributors send them to their customers," may be uncertain. Moreover, one observer has characterized the DEA's action as "creat[ing] ... a new requirement by announcing it in a press release" and has argued instead that such a change needs to be made in accordance with notice and comment rulemaking requirements under the APA. As of the date of this report, the DEA's position that manufacturers "need to go beyond 'know your customer'" practices has not been challenged in court. Fentanyl is a powerful synthetic opioid analgesic that mimics the effects of morphine and heroin, but is 50 to 100 times more potent. Pharmaceutically produced fentanyl is a Schedule II prescription drug that may be used by patients to manage severe pain after surgery, for example, and can be administered via injection, in lozenges, or transdermal patch. Most fentanyl overdoses do not involve prescription fentanyl, but rather nonpharmaceutical fentanyl that is illicitly produced in clandestine laboratories located abroad, in particular in Mexico and China. A recent investigation by a Senate subcommittee revealed that "many Americans are purchasing fentanyl and other illicit opioids online and having them shipped here through the international mail system." Such illicit fentanyl can be mixed with other opioids such as heroin to increase its effects, and can be sold as a powder or as tablets that are "intended to mimic the appearance of prescription opioid medications such as oxycodone or hydrocodone. According to the 2018 National Drug Threat Assessment published in October 2018 by the DEA, fentanyl "is a major contributor to the continuing epidemic of drug overdose deaths" in the United States and "[s]ynthetic opioids are now involved in more deaths than any other illicit drug." In July 2018, then-Attorney General Sessions announced the formation of "Operation Synthetic Opioid Surge," an initiative in which the Justice Department will be focusing its prosecutorial priorities on "every readily provable case involving the distribution of fentanyl, fentanyl analogues, and other synthetic opioids, regardless of drug quantity," within 10 areas of the nation that are experiencing some of the highest drug overdose death rates. However, making the problem more difficult for the federal government in stopping illicit fentanyl traffickers are "[o]verseas chemical manufacturers, aided by illicit domestic distributors, [who] currently attempt to evade regulatory controls by creating structural variants of fentanyl that are not directly listed under" the CSA. The DEA has stated that fentanyl-related compound "[m]anufacturers and distributors will continue to stay one step ahead of any state or federal drug-specific banning or control action by introducing and repackaging new products that are not listed as such in any of the controlled substance schedules." Since 2015, DEA has exercised its emergency scheduling authority eight times to control 17 substances structurally related to fentanyl by placing them temporarily in Schedule I. In February 2018, the DEA issued a broader temporary scheduling order that attempts to schedule all fentanyl-related substances that are not otherwise controlled in any schedule, by creating a definition of a new class of substances that is structurally related to fentanyl by virtue of one or more specified modifications to the substance's formulation. It remains to be seen whether the DEA's attempt to schedule proactively an entire class of illicit fentanyl substances simultaneously, including substances that have not yet been introduced into the U.S. market by drug traffickers, will be subject to a legal challenge under the APA, claiming the DEA's action to be inconsistent with its emergency scheduling authority under the CSA. As discussed previously in this report, the DEA limits the quantity of Schedule I and II controlled substances (referred to as aggregate production quotas, or APQs) that may be produced in a given calendar year. According to the Acting Assistant Administrator of the DEA's Diversion Control Division, "since 2014, DEA has observed a decline in prescriptions written for certain Schedule II opioids," including oxycodone, hydrocodone, fentanyl, and morphine. In November 2017, the DEA responded to the decreased demand for these drugs when it released the 2018 APQs, which reduce by nearly 20% (compared to the 2017 levels) the amount of prescription opioids that can be manufactured in 2018. According to a DEA spokesperson, this decrease in APQs "can be attributed to combined local, state, and federal activities and interventions, including creating new partnerships, enforcing current regulations, and dissemination of provider education and guidance documents.... " Several organizations representing hospitals, anesthesiologists, and pharmacists have raised their concerns to the DEA that the new APQs could exacerbate the problem they are experiencing with "critical shortages" of injectable opioid medications, including morphine, fentanyl, and hydromorphone, which are used to treat the pain needs of patients undergoing interventional procedures (such as colonoscopy or cardiac catheterization) and surgeries. These organizations suggest that the DEA "temporarily reallocate or revise APQ to allow other manufacturers to supply product until the shortages resolve," and also note that their request is "specific to these injectable medications and does not extend to other dosage forms or opioid products." In August 2018, the DEA released proposed APQs for 2019 that would require further reductions in the quantity of Schedule II opioids that may be manufactured in the United States in 2019. The proposed 2019 APQ for Schedule I and II controlled substances "decreases manufacturing quotas for the most six frequently misused opioids for 2019 by an average ten percent as compared to the 2018 amount," including oxycodone, hydrocodone, oxymorphone, hydromorphone, morphine, and fentanyl. Existing legal authorities supplied DEA with the tools for the agency's efforts to combat opioid abuse as described in the previous section. In recent years, Congress has also taken action to address perceived deficiencies in the federal regulatory regime governing opioids. To date, the most comprehensive legislative response to the overprescribing and abuse of opioids is the Substance Use–Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act ( P.L. 115-271 ) (the SUPPORT for Patients and Communities Act, or the SUPPORT Act) that President Trump signed into law on October 24, 2018. Title III, subtitle B of the SUPPORT Act contains provisions that amend the CSA in various ways to address the opioid epidemic, as described in the following sections. Young adults and teenagers who seek to abuse prescription opioids may find access to expired or unwanted controlled substance medication from their parents' medicine cabinets or even the trash. One approach to addressing the prescription opioid abuse problem is to reduce the availability of such drugs by having patients properly dispose of their unwanted opioid medications that have accumulated in their homes. For example, patients may want to get rid of their expired or unused drugs by returning them to pharmacies or giving them to their prescribing physicians. Yet, when Congress originally drafted the CSA, "it did not account for circumstances in which controlled substances were lawfully dispensed to and possessed by an ultimate user but not fully used." To make it easier and more convenient for patients to dispose of unwanted controlled substances, including opioid medications, Congress enacted the Secure and Responsible Drug Disposal Act of 2010 (Disposal Act). The Disposal Act amended the CSA to allow a patient to deliver controlled substances to an entity that is authorized by federal law to dispose of them, provided that such disposal occurs in accordance with regulations issued by the Attorney General to prevent diversion of controlled substances. These implementing regulations, issued by the DEA in September 2014, substantially expand the options and opportunities available to patients for safe and secure disposal of their unwanted prescription opioid and other controlled substance medication. The DEA regulations governing secure disposal of controlled substances allow three primary options for patient disposal of controlled substances. The first option is for federal, state, tribal, or local law enforcement agencies to conduct periodic drug "take-back" events to collect controlled substances from unwanted users; private entities or community groups may also partner with law enforcement to hold community take-back events. Second, DEA-registered manufacturers, distributors, narcotic treatment programs, hospitals/clinics with an on-site pharmacy, or retail pharmacies that wish to become collectors of unwanted controlled substances for disposal purposes must seek authorization from DEA to do so. Authorized collectors may then conduct "mail-back" programs that utilize the mail system for convenient transfer of the unwanted controlled substances, although the physical packages in which the drugs are shipped must comply with certain requirements (for example, tamper-resistance and tracking numbers) that DEA has specified. The third option permits law enforcement agencies or authorized collectors to manage, maintain, and empty secure collection receptacles at their DEA registered location. A long-term care facility may also dispose of controlled substances on behalf of its residents (or former residents) by using on-site collection receptacles that are installed, managed, and maintained by authorized retail pharmacies or hospitals/clinics with an on-site pharmacy. Finally, the regulations provide requirements that collectors must follow regarding methods of destroying controlled substances and destruction procedures, in order to render the collected controlled substances "non-retrievable." Congress also enacted prescription drug disposal and take-back provisions as part of the Comprehensive Addiction and Recovery Act (CARA) of 2016. Section 201 of CARA authorizes the creation of a grant program at the Department of Justice addressing the problems of opioid addiction and abuse, through which the Attorney General may award grants to states, units of local governments, and Indian tribes to fund their activities relating to opioid abuse, including "[d]eveloping, implementing, or expanding a prescription drug take-back program." Section 203 of CARA requires the Attorney General, in coordination with the DEA Administrator, the Secretary of Health and Human Services, and the Director of the Office of National Drug Control Policy, to coordinate with "covered entities" to expand or make available disposal sites for unwanted prescription drugs. The law defines "covered entities" to include state, local, or tribal law enforcement agencies, drug manufacturers and distributors, retail pharmacies, narcotic treatment programs, hospitals or clinics with an onsite pharmacy, and long-term care facilities. Congress included two chapters relating to drug disposal in the SUPPORT for Patients and Communities Act that was enacted in October 2018. The first chapter addresses the difficulties faced by home hospice employees regarding disposal of pharmaceutical controlled substances. Under the Disposal Act of 2010, a member of a hospice patient's household may dispose of an unused controlled substance medication after the patient dies, but a home hospice employee cannot do so unless authorized by law (such as state law). Chapter 3 of subtitle B, title III of the SUPPORT Act, referred to as the "Safe Disposal of Unused Medication Act," amends the CSA to allow an employee of a "qualified hospice program" to dispose of a controlled substance after (1) the death of a person receiving hospice care, (2) the expiration of the controlled substance, or (3) a modification in the plan of care of the hospice patient if the employee is the physician of the person receiving hospice care and has a DEA registration. This chapter also requires the Comptroller General of the United States, head of the Government Accountability Office (GAO), to study and report to Congress, not later than 18 months after the SUPPORT Act's enactment on October 24, 2018, on the federal requirements applicable to the management and disposal of controlled substances in the home, as well as the challenges encountered by select qualified hospice programs regarding the disposal of controlled substances. Chapter 6 of subtitle B, title III of the SUPPORT Act, referred to as the "Access to Increased Drug Disposal Act of 2018," addresses the relatively low number of pharmacies and other DEA-registered entities eligible to collect unused prescription drugs for disposal who have voluntarily sought DEA authorization to become registered collectors. This chapter does not directly amend the CSA but instead provides the Attorney General (acting through the Assistant Attorney General for the Office of Justice Programs) with authority to make grants to states in an effort to increase participation rates of eligible collectors as authorized collectors. A state seeking a grant award under this chapter must submit an application that (1) designates a single state agency responsible for complying with the conditions of the grant, (2) describes a plan to increase the participation of eligible collectors as authorized collectors, and (3) explains how the state will select eligible collectors to be served under the grant. The Attorney General is required to award these grants to five states, and at least three of these states must be "in the lowest quartile of States based on the participation rate of eligible collectors as authorized collectors, as determined by the Attorney General." Certain prescription drugs may be used to treat opioid abuse and facilitate recovery from addiction; this type of practice is commonly referred to as "medication-assisted treatment" or MAT. Currently, the main prescription drugs used in MAT are methadone, buprenorphine, which are controlled substances under the CSA, and naltrexone, which is not scheduled under the CSA. The CSA requires any practitioner wanting to administer and dispense methadone (a Schedule II substance) for the purpose of maintenance treatment or detoxification treatment to obtain annually a separate DEA registration for that purpose, referred to as a "Narcotic Treatment Program" or NTP registration. (NTPs are also regulated by the Substance Abuse and Mental Health Services Administration (SAMHSA) in the Department of Health and Human Services, as well as by state methadone authorities). However, a practitioner may apply for and receive a waiver from this separate registration requirement (commonly known as a "DATA waiver") if the controlled substance to be used for addiction treatment outside of a NTP is a Schedule III, IV, or V substance, such as buprenorphine (a Schedule III drug). If a medical professional wishes to prescribe the third type of drug used in MAT, naltrexone, he need not be registered with the DEA to do so because naltrexone is not a controlled substance under the CSA. One section of CARA amended the CSA to expand temporarily the types of practitioners who may, without being separately registered with the DEA as a NTP, dispense buprenorphine or other narcotic drug in Schedule III, IV, or V, for treating opioid dependence outside of a NTP. Prior to CARA, only "qualified physicians" were permitted to dispense such narcotics for these purposes; CARA temporarily (until October 1, 2021) expands the categories of practitioners to include a qualifying nurse practitioner or physician assistant. The DEA issued a final rule, effective January 22, 2018, that implemented the changes made to the CSA by CARA. Note that CARA did not make any changes to who may dispense methadone. Congress included several provisions relating to MAT in the SUPPORT Act. Chapter 1 of subtitle B, title III of the SUPPORT Act amends the CSA by removing the time limit imposed by CARA during which nurse practitioners and physician assistants may dispense controlled substances for maintenance and detoxification treatment under a DATA waiver, effectively making CARA's temporary authority permanent. This chapter also allows clinical nurse specialists, certified registered nurse anesthetists, and certified nurse midwives to obtain DATA waivers until October 1, 2023. In addition, the SUPPORT Act addresses issues relating to controlled substances that require a physician to administer them to a patient by injection or implantation in a medical office. For example, buprenorphine is a schedule III controlled substance prescribed for treatment of opioid use disorders that may require administration via injection or implantation. However, under the CSA prior to its amendment by the SUPPORT Act, a pharmacist was prohibited from dispensing a controlled substance to anyone other than the ultimate user; as such, the pharmacist could not give a particular controlled substance prescribed for a patient directly to that patient's physician. The SUPPORT Act amends the CSA by allowing a pharmacy, under specified conditions, to deliver a controlled substance to a practitioner, pursuant to a prescription, to be administered by the practitioner to the patient by injection or implantation for the purpose of maintenance or detoxification treatment. The physician must administer the controlled substance to the patient within 14 days after the physician has received the controlled substance. The Attorney General, in coordination with the Secretary of Health and Human Services, may reduce the number of days within which the physician must administer the controlled substance if such reduction will reduce risk of diversion or protect public health; however, the Attorney General cannot make a modification that is less than seven days. The SUPPORT Act requires the GAO to study and submit a report to Congress on access to and potential diversion of controlled substances administered by injection or implantation not later than two years after the Act's enactment. As discussed previously in this report, manufacturers and distributors of Schedule I and II drugs must report their controlled substances transactions to the DEA through the Automated Reports and Consolidated Orders System (ARCOS). Chapter 7 of subtitle B, title III of the SUPPORT Act, referred to as the "Using Data to Prevent Opioid Diversion Act of 2018," is intended "to provide drug manufacturers and distributors with access to anonymized information through ARCOS to help drug manufacturers and distributors identify, report, and stop suspicious orders of opioids and reduce diversion rates." This chapter amends the CSA to require the DEA Administrator to make certain data available to registered manufacturers and distributors through the ARCOS system on a quarterly basis; it covers the total number of registrants that distribute controlled substances to a pharmacy or practitioner registrant and the total quantity and type of opioids distributed to each pharmacy and practitioner registrant. These provisions impose an affirmative obligation on manufacturers and distributors to review this ARCOS information and establish new civil and criminal penalties for failure to do so. Furthermore, these provisions provide that the DEA Administrator may consider a failure of a manufacturer or distributor to review this information in determining whether to initiate administrative actions against the registrant for noncompliance with CSA requirements. The legislation also requires the Attorney General to submit to Congress within one year of enactment of the act a report that provides information about how the Attorney General is using data in ARCOS to identify and stop suspicious activity. Chapter 8 of subtitle B, title III of the SUPPORT Act, referred to as the "Opioid Quota Reform Act," amends the CSA by adding statutory considerations for the DEA in establishing annual production quotas (APQ) for schedule I and II controlled substances. In establishing the annual medical, scientific, and research need for a controlled substance, the DEA Administrator may, if he determines it will help to address "overproduction, shortages, or diversion of a controlled substance, establish an aggregate or individual production quota," or a procurement quota that he has set by regulation, "in terms of pharmaceutical dosage forms prepared from or containing the controlled substance." In addition, in establishing annual quotas for the production of fentanyl, oxycodone, hydrocodone, oxymorphone, or hydromorphone, the SUPPORT Act requires the DEA Administrator to estimate the amount of diversion of these particular controlled substances that occurs in the United States and then make appropriate reductions from the quota the DEA Administrator would have otherwise established had such diversion not been considered. Prior to being amended by the SUPPORT Act, the statutory text of the CSA did not require registrants to design and operate a system to disclose to them any suspicious orders of controlled substances and to report such orders to the DEA; rather, such requirements appeared in DEA regulations. The CSA's definitions section also lacked a definition of the term "suspicious order." Chapter 9 of subtitle B, title III of the SUPPORT Act, referred to as the "Preventing Drug Diversion Act of 2018," adds a statutory definition of "suspicious order" to the CSA that essentially adopts the language of the existing regulatory definition. These provisions also add a new section to the CSA entitled "Suspicious Orders," which requires a DEA registrant to take essentially the same actions as those required under the DEA regulation: (1) to design and operate a system (that is compliant with applicable federal and state privacy laws) that will alert the registrant of suspicious orders of controlled substances, and (2) upon discovering a suspicious order or series of orders, to inform the DEA Administrator and the Special Agent in Charge of the DEA Field Division Office. The SUPPORT Act provisions also require the DEA Administrator, within a year of the act's enactment, to establish a centralized database for storing suspicious orders reports; if a registrant submits a suspicious order to this database, the registrant is considered to have complied with the notification requirement mentioned above. The DEA Administrator must share information regarding suspicious orders for prescription controlled substances in a state with an entity designated by the governor or chief executive officer of that state. The SUPPORT Act also establishes a maximum criminal fine of $500,000 for registered manufacturers or distributors of opioids who intentionally fail to report suspicious orders for opioids. The 116 th Congress may consider legislation to amend the CSA beyond the changes made by the SUPPORT Act. These potential additional amendments to the CSA may resemble opioid legislation introduced, but not enacted to date, in the 115 th Congress. Legislative proposals introduced in the 115 th Congress include the following: Changes to the DEA's Authority to Deny, Revoke, or Suspend a Registration, and to Issue Immediate Suspension Order s . The DEA Opioid Enforcement Restoration Act of 2017 ( H.R. 4095 ) would repeal the Ensuring Patient Access and Effective Drug Enforcement Act of 2016 (EPAEDEA) ( P.L. 114-145 ), discussed above in the section describing the DEA's authority to issue "immediate suspension orders," and would restore the sections of the CSA amended by such act as if it had not been enacted into law. This bill would thus delete the definition of "imminent danger to the public health or safety" that the EPAEDEA had added to the CSA provision governing the DEA Administrator's power to suspend immediately an existing registration for a temporary period of time to avoid such a harm, thereby returning to the DEA significant discretion in interpreting this phrase that is a necessary finding to support an immediate suspension order. The bill would also remove the option afforded by the EPAEDEA for the registrant or applicant to submit a "corrective action plan" to the DEA prior to the agency's denial, revocation, or suspension of his registration. The Opioid Immediate Suspension Order Act of 2017 ( H.R. 4073 ) would also delete the statutory definition of "imminent danger to the public health or safety" for purposes of immediately suspending a registration but, unlike H.R. 4095 , the bill would not disturb the "corrective action plan" provision that P.L. 114-145 had added to the CSA. Establishing a n Opioid Prescription Limit . Current federal law does not restrict the particular quantity of opioids that may be prescribed by a practitioner. The Opioid Addiction Prevention Act of 2017 ( S. 892 ) would, among other things, amend the CSA to prohibit the DEA Administrator from registering, or renewing the registration of, a practitioner who is licensed under state law to prescribe controlled substances in schedule II, III, or IV, unless the practitioner certifies to the DEA that he will not prescribe any schedule II, III, or IV opioid for the initial treatment of "acute pain" (except opioids approved by the FDA for treating drug addiction) in an amount greater than a seven-day supply of the drug (with no refills allowed), or exceeding an opioid prescription limit established under state law, whichever is lesser. The bill would define "acute pain" to mean "pain with abrupt onset and caused by an injury or other process that is not ongoing" and excludes chronic pain, pain associated with cancer, hospice or other end-of-life care, or pain being treated as part of palliative care. The CARA 2.0 Act of 2018 ( S. 2456 ) would also impose a supply limitation on opioid prescriptions, requiring practitioners to certify, as a precondition for DEA registration or renewal of registration, that they will not prescribe any opioid (other than an addiction-treatment opioid) for the initial treatment of acute pain in an amount exceeding a three-day supply. Medical Education and Prescriber Education Initiatives . 358 The Safer Prescribing of Controlled Substances Act ( S. 1554 ) would, among other things, amend the CSA to require physicians, dentists, and scientific investigators who wish to dispense or conduct research with controlled substances to complete training that provides them with information concerning best practices for pain management (including alternatives to prescribing controlled substances), responsible prescribing of opioids, methods for diagnosing and treating substance use disorders, and tools to manage diversion of controlled substances such as prescription drug monitoring programs and the use of drugs to treat opioid overdoses. The bill would also make such required training a precondition to the DEA's granting or renewing the registration of these types of practitioners. The Opioid Preventing Abuse through Continuing Education (PACE) Act of 2017 ( H.R. 2063 ) would impose similar practitioner education requirements as a condition for registration to prescribe or dispense opioids, though the specifics of the training differ from S. 1554 . Increasing Penalties for Fentanyl Trafficking. Several bills, including the Stop Trafficking in Fentanyl Act of 2017 ( H.R. 1354 ), the Comprehensive Fentanyl Control Act ( H.R. 1781 ), the Stop Trafficking in Fentanyl Act of 2018 ( S. 2481 ), and the Ending the Fentanyl Crisis Act of 2018 ( H.R. 5459 , S. 2635 ), would reduce the quantity (in grams) of fentanyl that triggers mandatory minimum sentences for anyone who, in violation of the CSA, knowingly or intentionally manufactures, distributes, or dispenses fentanyl or fentanyl analogues (or possesses such substances with intent to engage in these prohibited activities). Under current law, a trafficking offense involving 400 grams or more of a mixture or substance containing a detectable amount of fentanyl, or 100 grams or more of a mixture or substance containing a detectable amount of a fentanyl analogue, is punishable by a te rm of imprisonment of at least 10 years and up to life in prison (or a minimum sentence of 20 years to life in prison, if death or serious bodily injury results from the use of the trafficked fentanyl). The bills would reduce these quantities to 20 grams and 5 grams, respectively. In addition, under current law, a drug trafficking offense involving 40 grams or more of a mixture or substance containing a detectable amount of fentanyl, or 10 grams or more of a mixture or substance containing a detectable amount of a fentanyl analogue, is punishable by a term of imprisonment of at least 5 years but not more than 40 years (or a minimum of 20 years to life in prison, if death or serious bodily injury results from the use of the trafficked fentanyl). The bills would reduce these quantities to 2 grams and 0.5 grams, respectively. | According to the Centers for Disease Control and Prevention, the annual number of drug overdose deaths involving prescription opioids (such as hydrocodone, oxycodone, and methadone) and illicit opioids (such as heroin and nonpharmaceutical fentanyl) has more than quadrupled since 1999. A November 2017 report issued by the President's Commission on Combating Drug Addiction and the Opioid Crisis also observed that "[t]he crisis in opioid overdose deaths has reached epidemic proportions in the United States ... and currently exceeds all other drug-related deaths or traffic fatalities." How the current opioid epidemic happened, and who may be responsible for fueling it, are complicated questions, though reports suggest that several parties likely played contributing roles, including pharmaceutical manufacturers and distributors, doctors, health insurance companies, rogue pharmacies, and drug dealers and addicts. Many federal departments and agencies are involved in efforts to combat opioid abuse and addiction, including a law enforcement agency within the U.S. Department of Justice, the Drug Enforcement Administration (DEA), which is the focus of this report. The primary federal law governing the manufacture, distribution, and use of prescription and illicit opioids is the Controlled Substances Act (CSA), a statute that the DEA is principally responsible for administering and enforcing. The CSA and DEA regulations promulgated thereunder establish a framework through which the federal government regulates the manufacture, distribution, importation, exportation, and use of certain substances which have the potential for abuse or psychological or physical dependence, including opioids. Congress enacted the CSA in 1970 to facilitate the availability of controlled substances for authorized medical, scientific, research, and industrial purposes, while also preventing these substances from being diverted out of legitimate channels for illegal purposes such as drug abuse and drug trafficking activities. The CSA aims to protect the public's health and safety from dangers posed by highly addictive or dangerous controlled substances that are diverted into the illicit market, while also ensuring that patients have access to pharmaceutical controlled substances for legitimate medical purposes such as the treatment of pain. This report describes the current federal legal regime governing opioids and other controlled substances under the CSA and its implementing regulations, including (1) the classification of various plants, drugs, and chemicals into one of five schedules based on the substance's medical use, potential for abuse, and safety or dependence liability; (2) who must register with the DEA in order to receive authorization to handle the substances (such as drug manufacturers, wholesale distributors, doctors, hospitals, pharmacies, and scientific researchers); (3) what obligations registrants must satisfy in order to maintain a valid registration (such as keeping records of drug inventories and transactions, submitting reports to the DEA, and providing security measures to safeguard controlled substances); and (4) the DEA's administrative, civil, and criminal authorities for enforcing regulatory compliance with the CSA (such as suspending or revoking a registrant's legal authority to handle controlled substances if the DEA Administrator finds that the registrant has "committed such acts as would render his registration ... inconsistent with the public interest."). The report then examines DEA initiatives and actions taken, pursuant to its legal authorities under the CSA, which specifically target the abuse of opioids. The report concludes by describing the legislative response to the opioid epidemic, including a summary of the amendments to the CSA made by legislation enacted by the 115th Congress, the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (P.L. 115-271). |
Pursuant to the Resource Conservation and Recovery Act (RCRA), the U.S. Environmental Protection Agency (EPA) has established regulations regarding the transport, treatment, storage, and disposal of hazardous wastes. RCRA establishes certain minimum standards that states must meet. However, states have the option to implement requirements that are more stringent than those specified under RCRA. Many states have opted to do so—particularly with regard to the management of certain hazardous wastes generated by households. Households and certain small businesses are essentially exempt from RCRA. This means that under federal law, hazardous wastes generated by those entities may be disposed of in municipal solid waste landfills or incinerators. One category of household hazardous waste that many states are choosing to regulate more strictly is electronic waste, commonly referred to as "e-waste." There is no universally accepted definition of e-waste, but it generally refers to obsolete, broken, or irreparable electronic equipment such as televisions, computers and computer monitors, laptops, printers, cell phones, VCRs, DVD players, copiers, fax machines, stereos, and video gaming systems. State and local agencies, particularly municipal waste management agencies, have become increasingly concerned about the landfill disposal or incineration of e-waste because of the large volumes in which it is being generated and because of the hazardous constituents the waste may contain. To avoid landfill disposal or incineration, e-waste may be recycled. Recycling may include any of a number of services or processes, such as: sorting to find reusable devices (which may in turn be sold or donated to an entity such as a school or charitable organization); demanufacturing into component parts that can be resold; or further processing components to extract materials such as metals, glass, or plastic. For example, leaded glass in a cathode ray tube (CRT) may be recovered and reprocessed to produce new CRTs. Recycling can be a costly process (see "The Cost of Recycling Electronics," below). A challenge to many states is how to finance an e-waste collection and recycling program. To date, 14 states have enacted some form of legislation or regulations that will affect e-waste recycling and disposal practices. As more states propose such legislation, potentially regulated stakeholders (particularly electronics manufacturers and retailers) have expressed concern that they will be required to comply with a patchwork of state requirements throughout the United States. In 2005, two congressional hearings were held to explore issues associated with e-waste, and the Congressional E-Waste Working Group was formed. One goal common to both the hearings and the establishment of the working group was to explore potential national solutions to the e-waste management issue. With increased legislative activity in the states, it is anticipated that stakeholders will increase their call for federal legislation regarding e-waste management. To illustrate the issues associated with individual state action, this report discusses the key issues that have led to state action, describes common elements in state waste laws and proposals, and provides an overview of each enacted state law. The proliferation of and increasingly rapid technological advances in electronics means that the volume of e-waste generated in the United States is large and growing. Until recently, data regarding electronic products sold, stored, recycled, disposed of, and exported in the United States were limited. In 2007, EPA completed a study that attempted to gather more data. According to that study, as of 2005, of electronic products sold in the United States between 1980 and 2004, almost half (976 million units) were still in use or reuse, almost 42% (842 million units) were recycled or disposed of, and almost 9% (180 million units) were in storage. Further, in 2005 alone, EPA estimated that between 1.9 to 2.2 million tons of electronics became obsolete. Of that amount, between 1.5 to 1.9 million tons were discarded, primarily in landfills. Although EPA estimates that e-waste comprises about 2% of the municipal solid waste stream, it is anticipated that this percentage will grow as consumers continue to replace old and outdated electronic equipment and discard equipment in storage. This will be the case particularly after the transition from analog to digital television broadcasts and with the increased use of flat-screen televisions and computer monitors. In addition to the bulky nature of electronic devices such as televisions and computers, the increasing volume of e-waste concerns some states, particularly state and municipal waste management agencies. Because these items have the potential to be reused or recycled, some states have become increasingly interested in diverting such waste from municipal landfills. The potential presence of various toxic or hazardous components is another reason that e-waste is a concern. For example, cathode ray tubes (CRTs), computer central processing units (CPUs), and other electronic devices generally contain significant quantities of lead. CRTs contain an average of four pounds of lead but may contain more, depending on the size, age, and make of the device. Electronic devices are also likely to contain a number of other heavy metals, such as mercury, beryllium, barium, chromium, nickel, or zinc. Also, brominated flame retardants are commonly added to the plastic housing of televisions, computers, and other electronic devices. When disposed of in landfills or incinerated, hazardous components of e-wastes may be released into the groundwater or air. In some instances, hazardous materials are used in electronics to make those devices safe for consumer use or because less toxic alternatives are not readily available. For example, CRT glass is infused with lead to protect users from radiation emitted from the tube; flame retardants are added to plastics to prevent the heated electronic devices from catching fire. Although flat panel monitors are replacing CRTs, those monitors often need mercury to operate efficiently. The continued use of certain hazardous substances makes the need for recycling options greater, if the goal is to minimize the disposal of those substances in a landfill or incinerator. There are various elements that contribute to the cost of a state recycling program. The recycling infrastructure itself includes the cost of collecting, transporting, and sorting the devices. There is also a cost associated with recycling the devices themselves. Recyclers and refurbishers often charge a fee for their services because their costs outweigh the revenue received from recycled commodities (e.g., glass, metals, or reusable components) or from the sale of refurbished units. Although they will recover a certain amount of usable scrap from e-waste, they will also likely incur expenses when they have to handle and dispose of any hazardous components. Also, unlike household consumers, recyclers will be regulated under RCRA and are subject to the more stringent requirements applicable to hazardous waste storage, transportation, and disposal. Some stakeholders argue that one method of lowering the cost of processing electronics is to improve economies of scale through increased volume. Until recently, the primary sources of electronic devices for recycling have been manufacturers and large businesses. Redirecting household-generated e-waste, that has typically been disposed of in a landfill or left unused in storage, could provide recyclers with a larger and steadier supply of products to recycle. According to the Government Accountability Office (GAO), cost and inconvenience inhibit consumers from recycling used electronics. Although some computer manufacturers now accept their own products for recycling free of charge, consumers generally have to pay the manufacturer a fee to recycle their e-waste (by packing and shipping them to the manufacturer themselves) or they must drop off their used electronics at often inconvenient locations (also, often for a fee). If the consumer does not pay for recycling, any recycling fees would likely be absorbed by the state or local agency collecting the device. Most stakeholders agree that if e-waste is to be recycled, it must be as easy for consumers to recycle electronics as it is to buy them. Many local and state agencies, retailers, and electronics manufacturers have worked with EPA to sponsor pilot programs providing convenient, free recycling services to consumers. The success of those programs demonstrated how successful e-waste recycling programs can be if they are convenient and inexpensive. However, most states do not want to bear the full financial burden of establishing an e-waste management program. One factor driving states to develop e-waste laws is to implement a system that will provide financing for an e-waste collection, transportation, and recycling system. For several years, interested stakeholders have debated how to best address the e-waste management issue. Those stakeholders include electronics manufacturers and retailers, local and state governments (particularly waste management and water treatment agencies), recyclers, environmental organizations, and charitable organizations that accept donation of used electronics. In general, these groups have agreed that the growth of e-waste has outpaced the development of infrastructure to appropriately reuse or recycle it. However, those stakeholders have disagreed about the best way to implement a program to manage such waste. In 2001, a group of stakeholders formed the National Electronics Product Stewardship Initiative (NEPSI). The group's mission was the "development of a system, which includes a viable financing mechanism, to maximize the collection, reuse, and recycling of used electronics, while considering appropriate incentives to design products that facilitate source reduction, reuse and recycling; reduce toxicity; and increase recycled content." Relatively early in the process, NEPSI determined that federal legislation would be required to implement any plan agreed to by the group. By 2004, the group had reached an impasse on how to finance a nationwide recycling system. That impasse divided the group into two camps—those who believed that a collection and recycling program should be financed through a consumer-paid advance recycling fee (ARF) assessed at the point-of-sale of designated electronic devices, and those who advocated a "producer pays" model wherein electronics manufacturers either took back their own e-waste and recycled it or paid for a system that would. (For more information about these two financing systems, see the section " A Mechanism to Fund the Program " below.) In the absence of federal e-waste legislation or stakeholder consensus regarding an appropriate national e-waste collection and recycling program, states have begun to implement their own programs. Provisions of each law vary significantly and range from a ban on the landfill disposal of CRTs to implementation of a state-wide e-waste collection and recycling program. Fourteen states have enacted some form of e-waste management law. Although the goals of each law are similar—to avoid landfill disposal of certain e-waste—the approaches taken to achieve those goals differ significantly. However, most state laws and proposals have certain broad elements in common, such as specifying the electronic devices covered under the law, how a collection and recycling program will be financed, collection and recycling criteria that must be implemented to minimize impacts on human health and the environment, and restrictions or requirements that products must meet to be lawfully sold in the state. Each state e-waste management program identifies certain electronic devices covered under the law. Most often, these are referred to as "covered electronic devices" (CEDs). Each state e-waste law defines CEDs slightly differently, but all include cathode ray tubes (CRTs). All state laws apply to CRTs in computer monitors, most also include CRTs in televisions. The laws also apply only to CRTs above a designated screen size—generally greater than four inches measured diagonally. CEDs may also include desktop computers—including the central processing unit (CPU); flat panel computer monitors or televisions using a plasma display or liquid crystal display (LCD); portable computers (laptops); combination units (CPUs with monitors); peripheral devices, such as keyboards, printers, and other devices sold for external use with a computer; facsimile (fax) machines; DVD and video cassette players or recorders; and cell phones. Each state law also specifies the types of electronic devices that are not regulated under the law, which usually includes video displays that are contained within a motor vehicle or piece of industrial, commercial, or medical equipment, and certain consumer products, such as clothes washers or microwave ovens. In attempting to reach consensus among the various stakeholders, determining "who pays" for e-waste collection and recycling programs has been the most contentious issue. Many potential methods exist for funding an e-waste collection and recycling program. Most current state programs fall into two broad categories: a consumer-paid system or a producer- or manufacturer-paid system. Under any financing scheme, it must be determined who will pay to manage orphan waste. "Orphan waste" is e-waste for which no manufacturer can be identified or for which the manufacturer is no longer in business. Given the high rate of turnover in the electronics business, the large numbers of foreign manufacturers that may be difficult to track down, and the large numbers of "white box" products (electronic products put together by component assemblers without a brand name affixed to the device), the proportion of orphan waste is potentially substantial. For example, as a part of its e-waste program, Washington State identified more than 1,200 orphan brands of electronics potentially sold or likely to appear in the state's e-waste stream. One method of financing an e-waste collection and recycling program requires consumers to pay an advanced recycling fee (ARF) at the point-of-sale of designated electronics. Proceeds from the ARF would be used to implement the state's e-waste collection infrastructure and recycling programs. The collected funds may be managed by a state commission or a private third-party organization (TPO). Suggested ARFs are generally between $6 and $10, depending on the size of the device. This amount is less than the cost of recycling individual CEDs. However, because more products are sold than enter the waste stream, the cost of establishing a recycling infrastructure may be paid for at less than the per-unit recycling price. A portion of the funds may pay for local collection so that the government does not assume the cost of developing and running the recycling infrastructure. Also, retailers collecting the fee may keep a certain percentage of the fee to cover their administrative costs. The ARF approach has been adopted in California and is favored by certain electronics manufacturers. Supporters of this system argue, in part, that it would immediately and reliably create a sustainable source of funding for a recycling infrastructure; pay for recycling all returned products, including orphan waste; be simple and could be implemented efficiently; and include a fee that is transparent to consumers and may contribute to consumer awareness of the need to recycle. Stakeholders opposed to this approach argue, in part, that it would not be easily applied to Internet sales, presenting a competitive disadvantage to retailers assessing the fee; it would not provide manufacturers with an incentive to produce more environmentally benign products or to design products that may be more easily recycled; and if the collected funds exceeded recycling costs, those funds could be taken by the state and used for other purposes. This approach requires manufacturers to implement or finance a collection and recycling program that takes responsibility for their share of returned e-waste and a share of orphan waste (generally assessed based on the company's total market share in the state). This is often referred to as an extended producer responsibility (EPR) or producer-pays approach. Some models allow the producer to address its share of waste by establishing its own recycling program (or one in cooperation with other manufacturers) or paying the state for the collection, consolidation, and recycling costs of its share. To date, all state e-waste programs, except California's, implement some version of the producer-pays model. Stakeholders in favor of this approach include environmental organizations, retailers, and certain manufacturers that have already established recycling programs for their products. Some of their arguments to support this approach include the system places limited responsibilities on retailers and consumers and avoids the creation of new taxes on consumers, manufacturers implementing their own recycling programs have the flexibility to design their recycling program as they see fit, and making manufacturers responsible for recycling their own products may make them more likely to design products that are easier to recycle or that would have fewer toxic components. Stakeholders opposed to this approach argue, in part, that the allocation of disposal/recycling costs to a given manufacturer would likely require costly sorting to identify the appropriate manufacturer, existing manufacturers would be responsible for the cost of recycling orphan waste, and the internalization of recycling costs may ultimately cost consumers more than an ARF once the recycling costs are subject to mark-up as the product moves through the distribution process. Another variation on the producer-pays model involves manufacturers paying a flat fee to sell their products in that state. The collected fees are used to create a grant program for local governments to implement an e-waste recycling program. Maryland is currently the only state with such a program. State e-waste programs do not specify how e-waste must be collected. That is, they do not specifically require curbside pickup, municipal drop-off centers, retailer collection, or producer-established drop-off centers. However, each state program includes certain provisions regarding e-waste collection and recycling criteria that are intended to protect human health (particularly the health of individuals involved with recycling operations) and the environment. Although the details of state e-waste programs vary, one goal they all share is to reduce landfill disposal or incineration of e-waste, particularly CRTs. To reach that goal, some states have chosen to ban the disposal of CEDs in municipal solid waste landfills or incinerators. Several states have implemented only a landfill or incineration ban (i.e., they have established no program to fund a collection and reuse/recycling program). Those states are Arkansas, Massachusetts, New Hampshire, and Rhode Island. In some states, a landfill ban preceded implementation of a full e-waste recycling program (see discussion regarding the California and Minnesota programs, below). In other cases, implementation of an e-waste collection and recycling program is required before a landfill ban takes effect (see discussion regarding the Connecticut program, below). No state specifically requires consumers to recycle. Therefore, if a landfill ban is in place, the responsibility generally falls solely on the municipal government to collect e-waste and ensure that it is properly managed (i.e., not sent to a municipal landfill). According to the Department of Commerce, much e-waste (possibly 50% to 80%) is sent overseas for recycling because it is more costly to recycle in the United States and most consumer electronics manufacturers (who provide the market for materials recovered from recycled electronics) have moved overseas. Also, in states that ban the disposal of CRTs in landfills and incinerators within their borders, e-waste can be recycled, disposed of outside of the state, or exported. If a recycling infrastructure is not present before a disposal ban takes effect, exporting e-waste may be the most likely choice. Even if there are recyclers present in a given state, recyclers manage a significant percentage of the e-waste they receive by exporting it. Most often the exported e-waste is sent to nations such as China or developing countries of Asia. Environmental organizations and certain other stakeholders are concerned that those countries do not enforce environmentally sound waste management practices or recycle in a manner that would protect workers handling toxic materials. These practices potentially expose vulnerable populations to toxic chemicals, with few, if any, worker protections or a framework to protect the local environment. Some states have responded to these concerns by banning e-waste exports. Some state programs address potential environmental concerns by attempting to ensure that the law does not exchange one potentially harmful disposal method (e.g., disposal in a solid waste landfill) for another (e.g., recycling in a manner that may harm employees or the environment). They may do so by directing their state environmental protection agency to develop recycling standards. Those standards generally specify criteria that should be met to ensure that e-waste is recycled in compliance with all applicable environmental, health, and safety regulations, and in a manner that protects the environment and the health and safety of workers in the United States and other countries. Federal Prison Industries, a government-owned corporation that does business under the trade name UNICOR, runs e-waste recycling programs employing prison laborers. Some stakeholders are opposed to the use of UNICOR. For example, some recyclers have cited unfair competition from UNICOR, which they see as an impediment to creating a competitive recycling market because UNICOR's low labor rates keep prices down. Others cite health and safety problems that have led to inmate workers being exposed to toxic and hazardous components. These concerns have led some states to include a ban on the use of prison labor in their recycling programs. Most state e-waste laws specify some conditions that manufacturers or retailers must meet before a product can be offered for sale in the state. Most state e-waste programs implemented to date require some entity (e.g., a state agency, e-waste collector, or other third party) to determine the share of collected e-waste that can be attributed to individual manufacturers. In order to more easily identify responsible manufacturers, most state laws specify that a manufacturer may not offer for sale in the state a CED unless it has a visible, permanent label clearly identifying the manufacturer of the device. Most state e-waste programs require electronics manufacturers to register with the state. Generally, states require an initial registration, an annual registration thereafter, and payment of a registration fee. Information required to be included in the registration varies significantly from state to state. States may also require e-waste collectors, transporters, and recyclers to register with the state in order to be paid for their services. Although not common, state e-waste laws may include certain elements of European Union (EU) Directive 2002/95/EC on the restriction on the use of certain hazardous substances in electrical and electronic equipment (EEE). Known commonly as the RoHS Directive, it bans the use of certain heavy metals and brominated flame retardants from EEE. The RoHS Directive requires that EEE does not contain lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls (PBBs), and polybrominated diphenyl ether (PBDE). Exemptions for certain applications of these substances are granted where substitution is not feasible or the potential negative environmental and/or health impacts caused by substitution outweigh the environmental benefits. By July 6, 2006, manufacturers selling electronic equipment in EU member states were required to have made the required substitution for hazardous substances. Most electronics manufacturers sell to a worldwide market. Since they cannot easily change their production processes to accommodate different markets, it is likely that manufacturers that sell products in the United States will similarly meet the requirements of the RoHS Directive. For those manufacturers that do not, RoHS-like provisions in even a small number of states could have the effect of a nationwide requirement. To date, only California has included RoHS-like provisions in its e-waste law by prohibiting the sale of electronic devices that would be prohibited for sale under the RoHS Directive. Some state laws make retailers a party to enforcing the law, in essence, by prohibiting them from selling CEDs that do not meet certain requirements. For example, retailers may be required to sell only those CEDs from manufacturers that are registered with the state or that meet labeling requirements. State e-waste laws are similar in that they intend to facilitate the recycling of certain electronic devices. Although the designated CEDs vary slightly from state to state, all include CRTs from computer monitors. Aside from that similarity, each state's means of achieving its goals is significantly different. Following this overview of enacted state e-waste laws, Table 1 compares key elements of each program. On April 9, 2001, the state enacted the Arkansas Computer and Electronic Solid Waste Management Act. The law applies to computer and electronic equipment—defined as a personal computer, computer component, audio player, stereo player, videocassette player, facsimile machine, copy machine, cellular telephone, wireless paging device, video game console, or any electronic item containing an intact or broken CRT. The law authorizes the state's Department of Environmental Quality to establish and implement rules and regulations banning the disposal of all computer and electronic equipment in Arkansas landfills by January 1, 2008 (that deadline was extended from the original date of January 1, 2005). The law also establishes a program that requires state agencies to develop plans to sell, reuse, recycle, or dispose of surplus computer equipment and electronics; and encourages those agencies to donate unsold equipment to Arkansas public schools. A portion of the funds generated from selling surplus electronics must be allocated to a Computer and Electronics Recycling Fund, also established by the law. Among other activities, funds may be used for product market research and development grants to determine the most efficient means of collecting, transporting, and processing scrap electronic equipment, and to establish statewide contracts for computer and electronics recycling and demanufacturing businesses. California's Electronic Waste Recycling Act of 2003 was enacted on September 24, 2003, and subsequently amended September 29, 2004. The law applies to new or refurbished televisions or computer monitors that use a CRT or liquid crystal display (LCD), laptop computers, or any other video display device larger than four inches. Beginning January 1, 2005, the law requires that at the time of retail sale, California consumers must pay an "electronic waste recycling fee" ranging from $6 to $10, depending on screen size. No recycling fee is assessed on the resale or reuse of a covered device. Retailers are required to transfer the collected fees to the Board of Equalization, which in turn deposits the money into an account managed by the California Integrated Waste Management Board (CIWMB). The CIWMB distributes the funds from this account to approved recyclers or to registered manufacturers that are collecting and recycling CEDs. Following are additional requirements of California's e-waste program: A new or refurbished CED cannot be sold without a clearly visible label showing the name of the manufacturer or the manufacturer's brand. CED wastes cannot be exported to a foreign country without proper notification to the state Department of Toxic Substances Control. The sale of electronic devices that would be prohibited for sale under the RoHS Directive would be prohibited for sale in the state. State agencies purchasing or leasing covered electronic devices must require prospective bidders to certify that they comply with the law. A ban on the landfill disposal of CRTs went into effect under regulations issued by the state in 2001. On July 6, 2007, Connecticut enacted its e-waste recycling law, which applies to desktop or personal computers, computer monitors, portable computers, CRT-based televisions and non-CRT-based televisions or any other similar or peripheral electronic device. Under this law, by January 2009, manufacturers will be required to participate in a program to implement and finance the collection, transportation, and recycling of certain electronic devices. The law requires manufacturers to register with the state Department of Environmental Protection and pay an annual fee that the state will use to administer the recycling program. Also by January 2009, municipalities must provide for the collection of CEDs; waste CEDs must then be transported to and recycled by an approved recycler. In addition to the registration fee, manufacturers must pay reasonable costs of transportation and recycling CEDs attributed to them, and will be billed a pro rata market share for orphan devices. Following are additional elements of Connecticut's e-waste program: By January 1, 2008, a manufacturer or retailer cannot sell a CED in the state unless it has permanently affixed, readily visible label with the manufacturer's brand. To be eligible to receive funds from the state, CED collectors, transporters, and recyclers must meet performance standards established by the state. Retailers must provide consumers with information on recycling. By January 1, 2009, CEDs collected through any state program can not be exported for disposal in a manner that poses a significant risk to the public health or to the environment. A landfill disposal ban will take effect in January 2011. On April 22, 2004, Maine enacted the Act to Protect Public Health and the Environment by Providing for a System of Shared Responsibility for the Safe Collection and Recycling of Electronic Waste. The law applies to waste televisions and computer monitors (CRTs and flat panel displays or similar video display devices with a screen greater than four inches measured diagonally). The law implements a version of the producer-pays model that requires manufacturers to pay for the handling, transportation, and recycling of televisions and computer monitors. By July 20, 2006, municipalities were required to ensure that waste televisions and computer monitors generated by households are recycled. They are required to ensure that a system is in place for delivering residential waste televisions and computer monitors to a consolidation facility in Maine. Each municipality may determine how this requirement will be met (e.g., operate an ongoing collection center, have one-day collections, or have residents deliver directly to a nearby consolidator). Beginning January 1, 2006, consolidation facilities were responsible for counting each household-generated waste television and computer monitor and determining the total from each manufacturer. By March 1 of each year, beginning in 2007, the consolidator must provide this accounting to the state Department of Environmental Protection and submit a bill to manufacturers for allowable costs associated with recycling (i.e., the costs of handling, transportation, and recycling of their own television and computer monitor products, plus a pro rata share of orphan products). The consolidator must also transport waste televisions and computer monitors to a certified recycling and dismantling facility. Following are additional elements of Maine's e-waste program: All CEDs offered for sale in the state must have a visible, permanently affixed label clearly identifying the manufacturer of the device. Retailers are prohibited from selling any CED offered for sale by a manufacturer not in compliance with the law. Recyclers must provide consolidators with a sworn statement that their operations meet environmentally sound management guidelines established by the state. A ban on the landfill disposal of mercury-added products and CRTs went into effect under separate law on July 20, 2006. The law implementing Maryland's Electronic Recycling Program took effect on July 1, 2005, and was subsequently amended with changes that take effect October 1, 2007. The law, implemented as a pilot program scheduled to end December 31, 2010, applies to manufacturers of computer or video display devices (CRT, LCD, plasma, digital, or other image-projection technology) with a screen greater than four inches. To sell CEDs in Maryland, manufacturers of more than 1,000 devices a year must register with the Maryland Department of the Environment and pay a $10,000 registration fee (before the amendment, the fee was $5,000). In subsequent years, manufacturers must pay a $5,000 annual fee. Manufacturers with an approved takeback program pay an annual fee of $500. The fees are deposited in a fund to make grants to counties and municipalities to implement local recycling plans and address methods for the separate collection and recycling of CEDs. Following are additional elements of Maryland's e-waste program: All CEDs offered for sale in the state must be labeled with the name of the manufacturer name or the manufacturer's brand label. Retailers are prohibited from selling any CED offered for sale by a manufacturer not registered with the state. The law specifies criteria a manufacturer must meet to demonstrate that it has implemented its own takeback program. A ban on the landfill disposal of CRTs from television and computer monitors has been in effect since April 1, 2000. The law makes it illegal for a person to dispose of, or for a landfill, incinerator, or transfer station to accept, CRTs for disposal. As part of its electronics recycling strategy, the state has established a grant program providing free electronics recycling for municipalities. On May 8, 2007, Minnesota enacted its e-waste recycling law, which applies to computers, peripherals (keyboards, printers, or other devices sold for external use with a computer), facsimile machines, DVD players, video cassette recorders, and "video display devices"—defined as a television or computer monitor, including laptops, with a CRT or a flat panel screen that is larger than nine inches. Beginning July 1, 2007, the law requires manufacturers to register with the state and pay an initial registration fee of either $5,000 (those that sell more than 100 units per year in the state) or $1,250 (those that sell under 100 units). Thereafter, manufacturers must pay $2,500, plus a variable recycling fee based on the total weight of CEDs sold in the previous year. In addition to the registration fee, manufacturers must pay for collection and recycling of their e-waste. The law also requires manufacturers to meet specific recycling goals (Minnesota is the only state to set such mandatory goals). During the first program year (July 1, 2007 through June 30, 2008), manufacturers must collect and recycle an amount equal to 60% of the total weight of CEDs sold in the state in the previous year; this amount increases to 80% in subsequent program years. Starting August 1, 2008, to assist manufacturers in determining the total weight of CEDs sold in the state, retailers are required to report to manufacturers the number and type of video display devices sold to households in Minnesota during the program year. Following are additional elements of Minnesota's e-waste program: All CEDs offered for sale in the state must be labeled with the manufacturer's name or brand label. Retailers are prohibited from selling any CED offered for sale by a manufacturer not registered with the state. In addition to manufacturers, CED recyclers and collectors must also register with the state (but pay no fee). By September 2008, manufacturers' annual registration must include a report on any CEDs they sell that do not meet RoHS requirements. Recyclers are prohibited from using prison labor. A ban on the landfill disposal of CRTs went into effect under separate law on July 1, 2006. On May 24, 2006, New Hampshire enacted a ban on the landfill disposal and incineration of "video display devices." Video display devices are defined as a "visual display component of a television or a computer, whether separate or integrated with a computer central processing unit, and includes a cathode ray tube, liquid crystal display, gas plasma, digital light processing, or other image projection technology, greater than four inches when measured diagonally, and its case, interior wires, and circuitry." The ban took effect July 1, 2007. On January 13, 2008, New Jersey enacted the Electronic Waste Recycling Act. The law applies to desktop or personal computers, computer monitors (CRT, LCD, gas plasma, digital light processing, or other image projection technology greater than four inches measured diagonally), portable computers, and televisions sold to consumers. Beginning February 1, 2009 (January 1, 2009, for television manufacturers), and each January 1 thereafter, CED manufacturers must register with the state Department of Environmental Protection (DEP) and pay a $5,000 registration fee. Each manufacturer's registration and renewal shall include a list of all of the brands under which its products are sold. Beginning January 1, 2010, registered manufacturers must participate in and pay for a statewide CED collection, transportation, and recycling program (based on their return share in weight—as established by DEP). Manufacturers have the option of developing their own program. Following are additional elements of New Jersey's e-waste program: A manufacturer may not sell any CED in the state unless it is labeled with its brand. A retailer may not sell any CED unless it is properly labeled and produced by a manufacturer, listed by DEP, that is in compliance with the law. Retailers are required to post information, provided by DEP, describing to consumers how and where to recycle CEDs. DEP is required to establish recycling criteria for local and municipal agencies to follow; and to establish performance requirements for collectors, transporters, and recyclers. DEP is required to establish per-capita collection and recycling goals. By January 1, 2010, CED manufacturers and retailers cannot sell a device unless it meets RoHS requirements. CED recycling programs are prohibited from using prison labor or exporting CEDs for disposal "in a manner that poses a significant risk to the public health or the environment." By January 1, 2010, the law requires that no person shall knowingly dispose of a used CED as solid waste. On August 31, 2007, North Carolina enacted the Solid Waste Management Act of 2007. Section 16 of the law includes provisions regarding the management of CEDs (referred to in this law as "discarded computer equipment"). CEDs are defined as any desktop CPU or laptop computer, the monitor or video display unit for a computer system, and the keyboard, mice, and other peripheral equipment (not including printers, scanners, or fax machines). The definition does not include televisions. By January 1, 2009, manufacturers that sell more than 1,000 items of computer equipment per year must register with the state and pay a $10,000 registration fee and an annual renewal fee of $1,000. Manufacturers are prohibited from selling computer equipment in the state unless an item has a visible, permanent label identifying the manufacturer affixed to the equipment. Within 120 days of registration, manufacturers will be required to submit to the state a plan for the reuse or recycling of equipment. Among other provisions, recycling plans must describe any take-back programs that will be implemented; how the manufacturer will implement and finance the plan; and how it will transport discarded equipment from collectors. Manufacturers may implement recycling plans jointly with other manufacturers. Standards for recyclers are not specified in the law. However, manufacturer recycling plans are required to "provide for environmentally sound management practices to transport and recycle discarded computer equipment." Manufacturers must also submit an annual report to the state that includes an evaluation of the recycling rate for equipment. However, the law does not specify recycling goals that manufacturers must meet. Also by January 1, 2009, the state Department of Environment and Natural Resources will be required to maintain a list of registered manufacturers; implement a public education program regarding computer equipment reuse and recycling; and provide technical assistance to local governments on the establishment and operation of equipment collection centers. On June 7, 2007, Oregon passed its e-waste recycling law, which applies to televisions and computer monitors of any type with screens larger than four inches, and to desktop or portable computers. By January 1, 2009, manufacturers that sell these products in the state will be required to finance "free, convenient, and environmentally sound" recycling services. Manufacturers can create their own take-back program or participate in a common program, but they must pay for collection, transportation, and recycling costs. Manufacturers must also register with the state and pay an annual registration fee of $20, $200, $5,000, or $15,000, depending upon their market share in the state. The registration must include a list of products sold in the state and a statement regarding whether the manufacturer will implement its own recycling program in accordance with criteria established by the law, or use the state contractor program. Among other requirements, the state Department of Environmental Quality will be responsible for maintaining a list of registered manufacturers and orphan brands; determining each manufacturer's return share of CEDs; establishing a state contractor program to collect, transport, and recycle CEDs; and determining the recycling fee to be paid by each registered manufacturer. State and local governments will fund consumer education and promotion of the law. At the time of sale, retailers will be required to provide consumers with information about where and how they can recycle CEDs in the state. Following are additional elements of Oregon's e-waste program: A manufacturer may not sell any CED in the state unless it is labeled with its brand. A retailer may not sell any CED unless it is properly labeled and is on the list of registered manufacturers posted by the state. A ban on the landfill disposal of CEDs becomes effective January 1, 2010; the state Department of Environmental Quality may postpone the prohibition in any area of the state where there is an inadequate system for CED collection, transportation, and recycling. On July 7, 2006, Rhode Island enacted the Electronic Waste Prevention, Reuse and Recycling Act. The law bans the landfill disposal of desktop computers (including CPUs), computer monitors, including CRT monitors and flat panel monitors, laptops, combination units (CPUs with monitors), CRT- and non-CRT-based televisions (including plasma and LCD), or any similar video display device with a screen greater than four inches diagonally and that contains a circuit board. The law specifies that after July 1, 2008, no person shall dispose of a CED in any manner other than by recycling or disposal as hazardous waste. The law also requires the state Department of Environmental Management, in consultation with stakeholders, to develop a plan for implementing and financing a program that addresses the collection, recycling, and reuse of covered electronic products from all covered electronic product generators in the state. Progress reports on the study were due to the general assembly on January 1 and May 1, 2007. By December 31, 2007, the law also requires the department to submit to the general assembly a plan and recommendations for any legislation necessary to implement the plan for collection, recycling, and reuse of CEDs. On June 15, 2007, Texas enacted its e-waste recycling law, which applies to computer equipment—defined as desktop or notebook computers, including computer monitors or other display devices that do not contain a tuner (i.e., it does not include televisions). The law requires manufacturers to implement a recovery plan that provides consumers with a free and convenient program to recycle the manufacturer's computer equipment. Following are additional elements of Texas's e-waste program: A manufacturer may not sell any CED in the state unless it is labeled with its brand. Retailers may not sell any CED unless it is properly labeled and is on the list of registered manufacturers maintained by the state. The Texas Commission on Environmental Quality (the Commission) is required to adopt standards for recycling such as those provided by the Institute of Scrap Recycling Industries, Inc. (which bans the use of prison labor). The Commission is required to educate the public regarding the computer recycling programs, maintain program information on a website, enforce requirements for recycling computer equipment, and compile and issue an annual electronic report to the state legislature. On November 11, 2006, Washington passed its e-waste recycling law, which applies to CRTs or flat panel computer monitors or televisions with a screen size of more than four inches, and to desktop or laptop computers. The law requires CED manufacturers to finance and implement a program to collect, transport, and recycle waste CEDs. The program must be implemented in accordance with requirements specified in a "Standard Plan," implemented by the state, that will apply to all manufacturers. Individual manufacturers may opt to implement their own "Independent Plan," if it is approved by the Washington Department of Ecology. By January 1, 2007, and annually thereafter, manufacturers must register with the state and pay an annual administrative fee. By January 1, 2008, and annually thereafter, manufacturers must pay their apportioned costs associated with the implementation of the Standard Plan. Initially, there is no provision to address financing orphan waste. However, by April 1, 2010, the state's Department of Ecology must report to the state legislature regarding the amount of orphan products collected. If more than 10% of the total products collected are orphan products, the department must provide recommendations for reducing the amount of orphan products or alternative methods for financing the collection, transportation, and recycling of orphan products. Following are additional elements of Washington's e-waste program: A manufacturer may not sell any CED in the state unless it is labeled with its brand. The state is required to establish performance standards for environmentally sound management of CED processors, including financial assurances to ensure proper closure of a facility that is consistent with specified environmental standards. Retailers must provide information to consumers describing where and how to recycle CEDs and locations for collection or return of products. Each collector, transporter, and recycler of CEDs must annually register with the state. No plan or program may include the use of federal or state prison labor for CED processing. | Pursuant to the Resource Conservation and Recovery Act (RCRA), the U.S. Environmental Protection Agency (EPA) has established regulations regarding the disposal of hazardous wastes. Although there are federal requirements under RCRA for the management of hazardous waste, some states have opted to implement more stringent requirements—particularly with regard to the management of certain hazardous wastes generated by households and small businesses (entities that are essentially exempt from RCRA's hazardous waste management requirements). One category of household hazardous waste that many states are choosing to regulate more strictly is electronic waste, commonly referred to as "e-waste." E-waste generally refers to obsolete, broken, or irreparable electronic equipment like televisions, computers and computer monitors, laptops, printers, cell phones, copiers, fax machines, stereos, or video gaming systems. Cathode ray tubes (CRTs) in televisions and computer monitors have presented a particular concern to states, primarily due to the potentially significant amounts of lead they contain and the large numbers in which they are generated. State concerns specific to the landfill disposal or incineration of e-waste are largely due to its increasing volume and often bulky nature; hazardous constituents, such as lead and mercury, it may contain; its high cost of recycling; and the inability of interested stakeholders, such as electronics retailers and manufacturers, to reach consensus on how to voluntarily implement a national e-waste management system. States have responded to this concern by enacting their own e-waste management laws. Requirements of those laws range from a ban only on the landfill disposal or incineration of designated e-wastes to the implementation of a full e-waste collection, transportation, and recycling system. To date, 14 states have enacted some form of e-waste management law (as many as 20 states proposed e-waste laws in 2006 and 2007). Although the goal of each law is similar—to avoid landfill disposal and incineration of certain types of e-waste—approaches taken to achieve that goal differ significantly. However, most state laws and proposals have certain broad elements in common, such as specifying the electronic devices covered under the law; how a collection and recycling program will be financed; collection and recycling criteria that must be met to minimize the impact to human health and the environment; and restrictions or requirements that products must meet to be sold in the state. As more states propose e-waste legislation, potentially regulated stakeholders (particularly electronics manufacturers and retailers) have expressed concern that they will be required to comply with a patchwork of state requirements throughout the United States. This concern has led to an increased call for federal legislation regarding e-waste management. To help policy makers better understand the impact of state e-waste legislation, this report discusses issues that have led to state action, common elements in state-waste laws and proposals, and an overview of each enacted state law. |
In 1980, Chile replaced its pay-as-you-go public pension system, under which benefits for current beneficiaries were paid with taxes from current workers, similar to Social Security in the United States, with a system of individual accounts that has become a possible model for public pension restructuring around the world. The preceding pay-as-you-go system had been foundering financially and was unable to pay full scheduled benefits. In addition, the previous system had been extremely complex, with more than 100 different combinations of contribution rates, retirement ages, and benefit amounts for different groups of employees. Chile's system of private pension accounts has been widely studied as one model for public pension restructuring. The U.S. Congress has considered a number of proposals to include private accounts in the Social Security system, either by carving contributions to private accounts out of Social Security's current payroll tax revenue stream or by adding private accounts onto Social Security's traditional benefit system. This report provides an overview of Chile's pension system, including a description of major reforms approved in 2008, the Chilean government's role, and challenges facing the system. The Chilean pension system consists of three tiers: a poverty prevention tier, an individual account tier, and a voluntary savings tier. The poverty prevention tier provides a basic benefit to aged persons who did not participate in the public pension system and to retired workers whose monthly pensions financed by individual account assets (the second tier) do not reach certain thresholds. Under the second tier, workers contribute 10% of wage or salary income to an individual account and choose a private-sector Administradora de Fondos de Pensiones (AFP) to manage the account. Upon retirement, the worker may withdraw the individual account's accumulated assets as an immediate or deferred annuity or through programmed withdrawals. A third, voluntary savings tier encourages workers to supplement pension income with additional savings. The 2008 reforms were designed, among other goals, to increase participation in the public pension system, reduce high investment management fees and administrative costs, and bolster the poverty prevention tier. The first tier of Chile's public pension system is a poverty prevention tier funded by general revenues. The poverty prevention tier is available to all citizens aged 65 and older who pass a means test and who have lived in Chile for at least 20 years, and for at least 3 of the past 5 years, whether or not they contributed to an individual account (the second tier). The Chilean government pays a Basic Solidarity Pension to individuals who have not contributed to individual accounts and pass the means test. The Basic Solidarity Pension is 75,000 Chilean pesos (about $154) per month, wage indexed starting from July 2008. A Pension Solidarity Complement is paid to individuals who contributed to individual accounts (the second tier) and pass the means test, but who would receive a monthly pension below a threshold amount of 255,000 Chilean pesos (about $523) in July 2011, wage indexed thereafter. In the case of retirees who have annuitized their individual account balances, the Pension Solidarity Complement is paid as the difference between the minimum benefit amount and the annuity financed by the individual account. In the case of pensions paid through programmed withdrawals from the individual account, the Pension Solidarity Component is paid once the member has used the balance in his or her individual account. Because the existence of a poverty prevention tier could discourage savings through the second tier (individual accounts), the state's contributions are designed so that every dollar saved always increases retirement income, but not by a full dollar. Employees are required to contribute 10% of wage and salary earnings to an individual account, up to a ceiling on monthly taxable earnings of 60 unidades de fomento (UF). Since 2009, the earnings ceiling has been indexed to growth in average earnings and stood at 67.4 UF in early 2012. Employers are required to withhold workers' contributions from their paychecks and to forward contributions to the AFP chosen by each worker. Employees' contributions are tax deferred: contributions do not count as income in the period they are made and interest earnings are exempt from taxation until withdrawal. Retirees pay regular income taxes on pension income when it is drawn as a retirement benefit. Employers are not generally required to contribute to employees' accounts. Since 2008, employers have been required to pay premiums for survivor and disability insurance, which in Chile is provided by private insurance companies. Survivor and disability insurance premiums have recently totaled about 1.49% of employers' payroll, on average. Tax incentives are available to employers who make matching contributions to employees' supplemental savings through the third, voluntary savings tier. Workers choose one AFP with which to invest their 10% pension contributions. An AFP is a private company that is regulated by Chile's Superintendent of Pensions. An AFP exclusively manages a worker's pension investments and administers pension benefits, including collecting pension contributions, keeping records, managing pension investments, calculating retirement annuities (unless a worker chooses to contract with an insurance company), and paying retirement annuities. Workers may choose any AFP and may switch AFPs at any time for a fee. In February 2012, there were six AFPs. Each AFP offers up to five government-approved funds, called Funds A to E, with different levels of risk. Fund A, with the highest proportion of equities, carries the highest risk and potentially the highest return. The five-fund portfolios operate within regulations established separately for each type of fund concerning the credit rating and liquidity of investments, diversification, and other factors. Participants pay administrative charges to the AFPs for managing individual account assets. These charges are levied in addition to the 10% mandatory contribution. The AFPs are free to set fees and commissions, as long as these are standard for all members. In other words, it has been assumed that participants' freedom to choose their AFPs, combined with competition among AFPs, will result in an appropriate level of commissions. Administrative charges and AFP profits have historically been significant, however. A worker's pension annuity is calculated based on the accumulated assets, plus returns, in his or her individual account. The annuity calculation is based on age and gender-specific life expectancy. If the pension annuity is below certain thresholds, the Chilean government provides additional payments to bring the total pension up to the monthly Solidarity Pension (first tier) amount. Early retirement is possible at any time as long as the capital accumulated in the account is sufficient to finance a pension that (1) starting from August 2010, replaces 70% of the worker's average earnings in the 10 years prior to drawing the pension, and (2) starting from July 2012, equals 80% of the Pension Solidarity Complement. The normal retirement age (NRA) is reduced by one or two years for each five years of work in certain specified, arduous occupations, with a maximum reduction in the NRA of 10 years. The assets accumulated in the individual account can be withdrawn in the following ways: 1. Programmed Withdrawal . The AFP calculates monthly annuity amounts, including an annual inflation adjustment, and manages the pension payments. The account balance is held in one of the three lower-risk funds, at the retiree's choice, to avoid risk-taking that might result in premature account exhaustion and trigger the government's minimum benefit guarantee. The account holder retains ownership of the account, and can leave any remaining balance to heirs, but assumes longevity and investment risk in the case of monthly withdrawals that exceed the minimum benefit guarantee. 2. Life Annuity . Members may choose a life insurance company to pay an inflation-adjusted monthly pension and a survivor pension to any beneficiaries. The account holder transfers ownership of the assets to the life insurance company, which assumes both financial and longevity risk. The decision to choose a life annuity is irrevocable once the ownership of the account assets has been transferred to the life insurance company. 3. Temporary Income with Deferred Life Annuity . The account holder contracts with an insurance company to provide temporary or programmed monthly payments until, at some point after retirement, the insurance company starts to pay a life annuity. In this way the account holder retains ownership of the part of the account that remains in the AFP until the life annuity begins. 4. Immediate Annuity Plus Programmed Withdrawals . In 2004, a new option was created, under which a portion of the account balance is used to purchase an immediate annuity and the remainder is paid out as programmed withdrawals. From the account balance, 15 UFs are reserved to cover funeral expenses. In Chile, disability and survivor benefits are financed by a combination of the worker's individual account and private insurance. AFPs are required to purchase insurance policies to finance disability and survivorship benefits on behalf of participants and their surviving dependents through the age of 65. Since 2009, employers have been required to pay the premiums to the AFPs on behalf of their employees. Survivor and disability insurance premiums have recently averaged about 1.49% of payroll contributions. This insurance is used to pay the difference between an annuity financed from the accumulated assets in the worker's account and the disability or survivor pension to which the disabled worker or the worker's survivor (spouse, children, or parents) is entitled. The monthly disability pension is 70% of the worker's base salary (defined as his or her average monthly salary for the previous 10 years) for those entitled to a total disability pension and 50% of base salary for those who are entitled to a partial disability pension. Eligible survivors may include a surviving widow(er) and children younger than aged 18 or aged 24 if a student. There is no age limit for disabled surviving children. Workers may make voluntary additional contributions to certain savings products authorized by the Chilean government, including voluntary savings accounts managed by the AFPs, mutual funds offered by banks, and savings products offered by insurance companies. Contributors may pay up to 50 UF per month (unindexed) to voluntary savings vehicles, over and above the mandatory 10% basic contribution to the AFP. Contributions may be made on a periodic basis or on a single occasion. Contributors may transfer funds from a voluntary savings account to the individual account (tier 2) to increase the amount of the monthly pension annuity. Voluntary contributions receive tax preferences. At the worker's choice, contributions may be paid from pre-tax income with the assets and accumulated income subject to taxation upon withdrawal, or contributions may be made out of after-tax income and are tax-free at withdrawal. Because tax preferences provide little incentive to workers who have no income tax liability, the government subsidizes low-income workers' contributions to voluntary savings accounts. Since 2008, the government has also offered tax incentives to promote employer-sponsored voluntary pension plans (Ahorro Previsional Voluntario Colectivo). The tax incentives are intended to encourage firms to establish voluntary savings accounts for their employees and to match a share of employees' contributions. The second tier of individual accounts is generally fully funded by workers' contributions. In cases in which the Superintendent closes an AFP or an AFP becomes insolvent, the Chilean government assumes responsibility for contributions, guaranteeing pension benefits, disability pensions, and the death benefit. Chile's government is also responsible for financing the first, poverty prevention tier, from general revenues, including the Basic Solidarity Pension for persons who did not contribute to individual accounts and the Pension Solidarity Complement for persons whose annuitized individual accounts provide pensions below the guaranteed minimum. The Chilean government also provides subsidies to low-income workers who contribute under the third, voluntary savings tier, and tax incentives to employees who save in the third tier as well as to employers who establish voluntary savings accounts and match employees' contributions to these accounts. Transition costs have been financed from general revenues, particularly during the first years of Chile's move from a pay-as-you-go system to a system of individual accounts plus poverty prevention programs. Between the 1981 conversion to individual accounts and 1999, total transition costs averaged about 3.25% of gross domestic product (GDP) per year. Transition costs include spending for current beneficiaries and those who remained in the pay-as-you-go system, plus "recognition bonds" issued to those who transferred to the new individual account system. Although expenditures on recognition bonds are currently increasing as more former pay-as-you-go system participants reach retirement age, total transition costs have begun to decline as the number of participants under the pay-as-you-go system declines and are expected to be negligible by about 2050. The 2008 reforms discussed below, which included substantial expansions of the government-financed poverty prevention tier, are expected to cost an additional 0.5% of GDP in the first few years, rising to about 1% of GDP after phase-in by 2025. This estimate is qualified, however, by considerable uncertainty in the number of potential beneficiaries in the reformed poverty prevention tier, as well as uncertainty about future demographic and economic assumptions. It is "quite possible" that the current 10% contribution rate may be insufficient to fund adequate benefits from individual accounts, particularly if life expectancy increases, in which case payouts from the poverty prevention tier would increase. The Superintendent of Pensions is responsible for supervising and regulating the mandatory and voluntary individual account systems. The Superintendent approves new AFPs; sets capital requirements; oversees AFP accounting, advertising, investment, and legal practices; interprets laws; issues regulations; proposes new laws; imposes fines; and orders the dissolution of AFPs when necessary. For each of the five investment portfolios that AFPs are authorized to offer, the Chilean government sets certain per-instrument, per-issuer, and per-group-of-instrument limits to ensure that the five authorized portfolios are diversified, have appropriate balances of risk and return, and that a single AFP does not acquire a controlling interest in any single issuer of stocks or bonds. In 2008, Chile under President Michelle Bachelet introduced several major reforms to the pension system to address concerns, including low participation rates, high pension fund management fees, and inadequate benefits for low-wage and women workers. Before the 2008 reforms, only about 62% of the labor force, and about 68% of those employed, participated actively in the national pension system. A large share of the workforce was then, and continues to be, self-employed in Chile's formal and large informal sectors. Prior to 2008, the law allowed self-employed workers to participate on a voluntary basis and only a small percentage of the self-employed chose to contribute. Other non-participants were temporarily out of the workforce due to caregiving or unemployment. Among those who did participate, many underreported their income to lower their contributions. As a result of low participation rates and underreporting, there was concern that many workers would reach retirement with individual account balances that were too small to provide an adequate pension annuity. The 2008 reforms phased in a requirement that most self-employed workers contribute to the pension system. In addition, the 2008 reform package, to increase participation among younger workers, established government subsidies to the accounts of low-income workers between the ages of 18 and 35. The 2008 reforms also tightened rules facing employers who fail to transfer workers' contributions. Historically, fees and commissions charged by AFPs to manage individual accounts have been a concern attributed to high-cost marketing and increased concentration in the industry. The number of AFPs was 12 in 1981, rose to 21 by 1994, and declined to 5 by 2008 due to mergers and closures. Administrative costs reduce investment returns to account holders, reducing a worker's account balance over time and resulting in a lower annuity at retirement. The 2008 reform package included a number of measures intended to reduce administrative costs, including a simplified fee structure that facilitates workers' ability to compare administrative costs among the AFPs. The 2008 package also included provisions intended to increase competition among the AFPs and reduce industry concentration. Insurance companies were allowed to create AFP subsidiaries. In addition, AFPs were allowed to contract out more services, such as record keeping and customer service, in order to lower barriers to entry for new AFPs. The 2008 reforms also created a competitive bidding process under which all new participants for two years are automatically enrolled in the AFP that offers the lowest management charges in the most recent round of bidding; it is hoped that this new bidding process, by guaranteeing a steady flow of participants for two years without having to incur marketing costs, will attract potential new AFPs. It may be too early to tell if these reforms will increase competition. In February 2012, the number of AFPs was six. In January 2012, AFP Modelo won the competitive bidding process for new workers' accounts for the next two years with a low bid of 0.77% for administrative expenses, notably lower than current AFP administrative expenses, which range from 1.14% to 2.35% of covered (that is, taxable) earnings. The adequacy of pension benefits has also been a source of concern. Individual accounts systems do not generally allow for the redistribution that occurs in public defined benefit systems; instead, a worker's pension is directly related to his or her own earnings and contribution history. In addition, low or negative returns between 1995 and 1998, combined with high management fees, caused many workers to lose money during this period. In 1998, the Chilean government asked workers to consider delaying retirement until the market recovered. As part of the 2008 reforms, the Chilean government restructured the poverty prevention tier to expand protection for low-income workers and workers who have contributed inconsistently, or not at all, to the individual account tier. In addition, to encourage participation in the third tier of voluntary savings, the 2008 reforms created bonuses for low-income workers and tax incentives for contributing employees and for employers who establish voluntary savings accounts and match employees' contributions to these accounts. Also in 2008, a subsidy was approved to encourage employers to hire workers between the ages of 18 and 35, on the principle that early contributions can have a significant impact on final pension amounts. The 2008 reforms also contained several measures intended to improve the adequacy of women's benefits from their individual accounts, given that women often earn lower wages than men and many leave the workforce temporarily or permanently for caregiving. The Chilean government deposits a bonus in a woman's private account at age 65 for every live birth or adopted child. For women who have not contributed to the pension system, the Chilean government makes a corresponding increase in the amount of the Solidarity minimum benefit. The bonus is equivalent to 10% (i.e., the contribution rate) of the monthly minimum wage at the time of the child's birth, times 18 months, plus the average net rate of return on individual account pension plans in the C Fund from the child's birth until the pension is claimed. Women's contributions are boosted somewhat above the statutory 10% rate by a 2008 provision that charges both sexes the same premium for survivor and disability insurance, but deposits the difference between the higher premium that would have been charged to men into women's individual accounts. Finally, reforms passed in 2008 allow a judge to transfer up to 50% of funds from one spouse's account to the other spouse's account in cases of divorce or annulment. Lessons from Chile's introduction of individual accounts may be helpful to other countries considering a similar transition, although not all of Chile's experiences are directly comparable to major Organisation for Economic Co-operation and Development (OECD) countries, such as the United States. For example, Chile's experience with high administrative costs may or may not be relevant to a second country, depending on whether the second country's public or private sector would manage account investments and the extent of financial-sector competition in the second country. Another difference between Chile and other countries may be the degree of public acceptance for the first, welfare tier of the system, which creates fiscal pressures similar to those of a pay-as-you-go system. Another political consideration is that Chile in the early 1980s, under General Pinochet, had considerable latitude to impose top-down reform of the pension system. Transition costs are another issue facing a country considering a move to a Chilean-type model. When Chile transitioned to a private account system in 1981, the earlier pay-as-you-go system was chaotic, insolvent, and unfair. At the same time, Chile's non-pension budget in the early 1980s was in surplus and available for financing transition costs, and high growth rates of economic growth in Chile during the 1980s reduced the burden of transition on the economy. The 2008 reforms to the poverty prevention tier (the Solidarity tier) are generally acknowledged as the most important component of the 2008 reform package. Chile's public pension system continues to face challenges after the 2008 reforms, however. Although the 2008 reforms will bring many self-employed workers into the public pension system, much of the informal sector remains outside the pension system. It remains to be seen whether reforms to AFPs will increase competition and lower costs. | In 1980, Chile was the first country to replace its pay-as-you-go public pension system with a system of individual accounts. The "Chilean model" has been widely studied as one possible model for public pension restructuring. Chile's public pension system consists of three tiers: a poverty prevention tier, an individual account tier, and a voluntary savings tier. The poverty prevention tier provides a minimum benefit to aged persons who did not participate in the public pension system and to retired workers whose monthly pensions financed by individual account assets (the second tier) do not reach certain thresholds. Workers contribute 10% of wage or salary income to an individual account in the second tier and choose a private-sector Administradora de Fondos de Pensiones (AFP) with which to invest their pension contributions. Employers are not required to contribute to employees' AFPs, although since 2008 employers have been required to pay the premiums for workers' survivor and disability insurance, which are provided by private insurance companies. Upon retirement, the worker may withdraw assets that have accumulated in the individual account as an immediate or deferred annuity or through programmed withdrawals. The third tier allows workers to supplement retirement income with voluntary, tax-favored savings. In 2008, Chile approved major reforms intended, among other goals, to increase participation in the public pension system, improve competition among the private-sector individual account managers, and bolster the poverty prevention tier. There has been concern that, as a result of low participation rates and underreporting, many workers could reach retirement with individual account balances that are too small to provide an adequate pension annuity. The 2008 reforms helped address these concerns by expanding the poverty prevention tier, phasing in coverage for most self-employed workers, and providing incentives for additional voluntary saving through the system's third tier. Other provisions approved in 2008 are intended to reduce high investment management fees (administrative costs) by increasing competition among AFPs. |
As Congress debates the justification for comprehensive health reform and considers various proposals, some states have taken the initiative by enacting reforms to address concerns about health insurance coverage and health care costs, among other issues. Massachusetts is one such state. While Massachusetts has a legislative history full of reforms to its health care system, its most ambitious effort to date was enactment and implementation of a comprehensive health reform law that sought to provide universal health insurance coverage and reduce health care costs at the same time. This report provides background information on the main components of the state's reform law and the law's initial impact on coverage, costs, access to care, employers, and uncompensated care. In 2006, Massachusetts enacted a comprehensive health reform law that included provisions to expand eligibility for Medicaid and the State Children's Health Insurance Program (CHIP), provide premium subsidies for certain individuals with income below 300% of the federal poverty level (FPL), require the purchase of insurance by adult residents who can afford it ("individual mandate"), and require employers to make contributions towards health coverage ("employer mandate"). To comply with the individual mandate, individuals must enroll in insurance that meets "minimum creditable coverage" (MCC) standards. Firms with at least 11 full-time equivalent employees must (1) establish Section 125 plans which allow workers to buy health insurance on a pre-tax basis, and (2) pay an assessment ("fair share contribution" of up to $295 annually per employee) if they do not make "fair and reasonable" contributions to employee health benefits ("pay or play" provision). Employers may be subject to a "free rider surcharge" if they do not establish Section 125 plans but are required to, or if any one of their employees receives free care three or more times in a year or if a firm has five or more instances of employees receiving free care in a year. To make private health insurance plans more accessible, the state modified its insurance laws (e.g., merging the state's non-group and small group markets) and created a quasi-public entity called the Health Insurance Connector Authority ("Connector") whose duties include facilitating the purchase of insurance primarily by individuals who are not offered subsidized insurance by a large employer and are not eligible for public coverage (e.g., Medicaid). The Connector, governed by a board of directors, serves as an intermediary to assist individuals and small groups in acquiring health insurance through private insurance carriers. In this role, the Connector manages two programs: Commonwealth Care ("CommCare"), which offers public subsidies to individuals up to 300% FPL who are not otherwise eligible for traditional Medicaid or other coverage (e.g., Medicare, job-based coverage) for the purchase of Connector-approved plans (Plan Types 1, 2, and 3 based on income) offered by several health insurers; and Commonwealth Choice ("CommChoice"), which offers an unsubsidized selection of four benefit tiers (Gold, Silver, Bronze, and Young Adult), from a handful of insurers, to individuals and small groups. Before reform, Massachusetts administered the Uncompensated Care Pool (UCP). UCP paid for medical services provided by community health centers (CHCs) and acute care hospitals to eligible individuals with income up to 400% FPL. Under the reform law, UCP was renamed the Health Safety Net (HSN) and redesigned to finance services obtained by individuals with income up to 400% FPL who are not eligible for comprehensive coverage under MassHealth (the state's combined Medicaid program and State Children's Health Insurance Program), or Commonwealth Care. To partially pay for the reforms the state relied on a federally approved waiver of statutory Medicaid restrictions. The state redirected some existing Medicaid funding that was used to reimburse health care providers (primarily hospitals) for treating uninsured and other patients who generated uncompensated care costs. It obtained additional federal Medicaid and CHIP dollars, collected assessments from insurers and hospitals, used state general funds, and collected fair share contributions from employers. The stated goals of the reform plan as articulated by then-Governor Mitt Romney are so "every uninsured citizen in Massachusetts [would have] affordable health insurance and the costs of health care [would be] reduced." A typical approach to assess the impact of reform is to use a before-after framework, comparing data on coverage, cost and access prior to enactment with similar data after enactment. Some state-level data exists that has allowed researchers to do such comparisons. However, it would be erroneous to attribute data changes solely to the impact of the health reform law. For example, economic conditions tend to greatly impact the labor market, which, in turn, impacts the availability and cost of employer-sponsored health benefits. Access to providers is, in part, a function of the supply and mix of providers in the state, which is affected by non-reform factors such as the standard of living in a given area. Given the difficulty in attributing changes to coverage, cost, and access to the health reform law, apart from other factors, any analytical findings should be considered with caution. Moreover, implementation of the law's various components and rules has occurred in stages since enactment and still continues to some degree, which makes definitive statements about overall progress difficult to make. For example, while the two programs administered by the Connector each have been in operation for a full two years, the MCC standards developed by the Connector became effective in January 2009. In addition, the current penalty for violating the individual mandate is more substantial than the original penalty. To the extent that outcomes and impact of the reform law may be observed and quantified, reliable data may become available only after provisions have been implemented for some time so that the full effects may be captured. Notwithstanding the limitations of analysis, some research has been conducted to assess the initial impact of reform on health insurance coverage. According to the latest health coverage data, Massachusetts had an uninsurance rate of 2.7% in 2009. This compares with an uninsurance rate of 6.4% in 2006, the year of enactment. Since enactment, the number of newly insured persons has increased by approximately 430,000. Of this group, 34% were newly enrolled in private, employer-sponsored coverage, 9% had private, non-group coverage (through the traditional non-group market or CommChoice program), 18% had public coverage through MassHealth, and 38% had fully or partially subsidized coverage through Commonwealth Care. Certain subpopulations experienced statistically significant increases in coverage as compared to other groups. Given the focus of many components of health reform on lower-income adults, such individuals reported greater gains in coverage than higher-income individuals. In 2006, the uninsurance rate for nonelderly adults with income below 300% FPL was 19.5%; by 2009 that rate dropped to 6.2%. In contrast, for nonelderly adults with income at or above 300% FPL, the change in uninsurance rate went from 8.6% in 2006 to 2.0% in 2009. Another group that experienced significant gains in coverage during the initial implementation phase was young adults. The uninsurance rate for adults ages 18 to 34 was about 18% in 2006. A year later that rate had dropped to around 7%. This decrease in uninsurance may be attributed in large part to the availability of low-cost "Young Adult" plans offered through CommChoice, and the requirement that insurers allow dependents to remain on their parent's insurance policy up to age 25 or two years past the loss of their dependent status, whichever comes first. A likely correlation with the increase in coverage was an overall increase in health care use. From 2006 to 2008 there was a 4.5% increase in doctor visits and 6.6% increase for preventive care doctor visits for nonelderly adults (see Figure 1 ). There also has been a steady increase in visits to dentists, and more people have reported having a "usual source of care" (excluding the emergency department). Similar to their experience in coverage gains, lower-income (less than 300% FLP) adults had somewhat greater gains in access to care than higher-income adults. At the same time as the increase in health care use, there has been an overall mixed trend regarding reports of unmet medical need. As seen in Figure 2 , from 2006 to 2007, a smaller share of nonelderly adults reported problems accessing health care, but from 2007 to 2008, that share grew for all but one type of care reported. While these increases were generally slight, they were statistically significant for a couple of types of care (specialist care and medical tests, treatment, or follow-up care). Along with the rapid increase in health insurance coverage, the state has experienced higher than expected costs. Concerns about costs have focused primarily on the Commonwealth Care program. As seen in Figure 3 , original expenditure projections for the CommCare program in FY2007, FY2008, and FY2009 were $160 million, $400 million, and $725 million, respectively. While actual spending for FY2007 was less than originally projected, expenditures for FY2008 and FY2009 were greater than original projection amounts. The difference between projected and actual spending is due, in part, to greater than anticipated enrollment in the CommCare program, at least during initial implementation. One of the reasons is that the state originally underestimated the size of the uninsured population. According to 2006 state survey data, there were 395,000 individuals without coverage. This underestimated the number of uninsured persons in the state, especially in light of the previously mentioned coverage statistic that 430,000 individuals became newly insured since enactment. The 2006 uninsured estimate also understated the number of uninsured persons with income below 300% FPL—individuals who potentially could access subsidized coverage under CommCare. These factors, along with a successful outreach campaign, led to greater enrollment in the Commonwealth Care program than previously anticipated. Besides size of enrollee population, costs under CommCare were larger than expected because the subsidies provided under the program are more generous than originally specified. The law stated that full premium subsidies would go to enrollees with income up to 100% FPL. However, full premium subsidies have been provided to individuals with income up to 150% FPL since July 2007. Moreover, the program initially experienced some adverse selection. Enrollment began in October 2006 (FY2007) and grew steadily until November and December 2007 (FY2008) when it spiked due to increased public outreach and the advent of tax penalties for non-compliance with the individual mandate. The individuals who enrolled during the first year were less healthy than the uninsured population overall, and disproportionately enrolled in full-subsidy plans rather than across both fully and partially subsidized coverage. These factors taken together led to the large initial increase in spending under Commonwealth Care. However, it appears that enrollment and costs in the program have stabilized to some degree. According to the most recent data available, Commonwealth Care enrollment was 165,000 participants in March of this year, down from the peak of 176,000 enrollees in June 2008. Although still large, the increase in payments to insurers participating in CommCare was lower between FY2008 and FY2009. In FY2008 government payments increased by 15.4%, but for FY2009 the payment increase dropped by six percentage points to 9.4%. Nonetheless, the state has underlying cost problems that may end up undermining gains in coverage in the long run. For instance, Massachusetts has greater-than-average health care spending. Per capita health spending in the state is 26% higher than in the nation as a whole. In addition, health insurance premiums in Massachusetts grew nearly 9% per year from 2001 to 2007, slightly faster than the national average growth rate of 7.7%. Some researchers have suggested that Massachusetts's health care system is more expensive than the nation as a whole, in part, because either the state's use of medical services is increasing at a faster rate, technological innovations are adopted more quickly, or provider payments are growing faster. Notably, the state's health insurance market is characterized by dominant players in both the provider and insurance carrier markets. Some in the provider market enjoy marquee status as premier medical institutions, making negotiations with insurers on payments and network inclusion somewhat one-sided. This is particularly the case in the greater-Boston area. In past contract negotiations (prior to health reform) with carriers, "[provider] organizations with strong reputations and strong physician-hospital relationships [were] well positioned to prevail," ultimately leading to more expensive insurance products. For example, Partners HealthCare System, Boston's prestigious hospital system, had heated negotiations with local plans in 2000. In the end, Partners came away with "large payment increases that forced the plans to raise premiums significantly." While contract negotiations no longer are so contentious, providers still retain and wield tremendous market power. In addition, there is little competition over costs between the dominant providers and other provider systems in local markets, also contributing to the cost growth trend in the state. On the carrier side, the state, and to a great degree the whole of the Northeast, is dominated by Blue Cross Blue Shield both in terms of size and brand name appeal. Some observers have noted the difficulty that other insurers have competing with such a dominant player, coupled with the lack of incentive for the Blues to constrain premiums in order to gain market share, further exacerbate the state's long-term cost problem. From a broader economic perspective, typically as unemployment rises more people lose access to employer-sponsored health insurance. To the extent that such persons still have to comply with the individual mandate, this may increase the demand for subsidized health coverage, placing further demands on limited state resources. Massachusetts residents initially experienced gains in affordability during the first year after reform enactment. However, during the second year of reform, the percent of residents "reporting problems paying medical bills and problems with medical debt they were paying off over time moved back toward the fall 2006 levels for all adults." In addition, the share of family income spent to cover out-of-pocket health care costs has increased from the past year (see Table 1 ). Not surprisingly, a greater proportion of low-income adults (those with income below 300% of FPL) experienced these financial problems. This increase in financial burden likely had contributed to the aforementioned increase in unmet medical need from 2007 to 2008. One study concluded that there were "some increases in unmet need for care because of costs over that period." Commonwealth Care enrollees face different premium and cost-sharing structures depending on their income. By statute, persons with the lowest income receive full premium subsidies and face very few cost-sharing requirements. Individuals with higher income face a progressive scale of increased cost-sharing for copayments and premium contributions (see Table 2 ). According to the latest research on employer-provided health benefits in Massachusetts, it appears that reform has not led to a substitution of public coverage for job-based insurance ("crowd out"), at least during the initial implementation phase. A survey of Massachusetts employers in 2008 found that 79% offered health benefits, a slight increase from 73% in 2007. The increase in offer rate of health insurance was found across all firm size categories, including the smallest firms surveyed (firms with 3-10 workers and 11-50 workers). Moreover, 3% of Massachusetts firms surveyed in 2008 were "somewhat likely" to drop coverage next year; no firms indicated that they were "very likely" to do so. In contrast, 6% of firms across the nation indicated that they were either somewhat or very likely to drop coverage. A survey of individuals in the state found similar results regarding availability and enrollment in employer-provided health coverage. The share of workers in firms that provide health benefits to any worker have incrementally increased from 89.7% in 2006 to 91.3% in 2008 (see Table 3 ). Similarly, both the share of workers who qualify for coverage offered by their employer, and the share with employer-sponsored health insurance also increased over that time period. Overall, these findings reflect a general commitment by the business community to provide health benefits. According to a 2008 survey of Massachusetts employers, including those that did and did not offer coverage, 77% agreed with the sentiment that all firms bear some responsibility for offering health coverage to their employees. And to the extent that employers did offer coverage, the state made deliberate efforts under health reform to discourage workers from dropping employer-sponsored health benefits. For example, in order to be eligible for subsidized coverage under CommCare an individual must have low income and not have access to employer-sponsored insurance. Nonetheless, given the underlying cost pressures that are especially acute in Massachusetts's health care system, employer support of health reform may weaken over time. As health insurance premiums and health care costs continue to grow, more and more employers may find it difficult to continue to offer health benefits. Moreover, the offer dilemma may be further exacerbated if unemployment continues to remain high and health care costs continue to grow rapidly. To underscore such cost concerns, a coalition of business organizations and health plans submitted a letter to state legislative leadership in July 2008 in opposition to proposed employer assessments to further fund health reform. In the letter, the coalition argues that employer spending has increased by $500 million so far in response to direct and indirect requirements under health reform. Further, it questions the merit of new employer assessments in the midst of the downturn in the economy. At the same time, Massachusetts employers are facing greater benefit responsibilities under health reform. As previously mentioned, the Connector-defined minimum creditable coverage (MCC) standards for individuals became effective on January 1, 2009. To the extent that job-based coverage did not meet these standards prior to that date, those employers must now decide whether to expand their benefit offerings so that workers will be in compliance with the MCC requirements. The expectation is that employers will be pressured to offer coverage that meets these requirements. In doing so, firms would protect their employees from having either to obtain additional coverage or pay the tax penalty for non-compliance. Employer compliance with MCC standards may be expensive. For example, according to one estimate approximately 163,000 Massachusetts residents with health insurance did not have prescription drug coverage, one of the required benefits under the MCC standards. Of those residents, over 80% have employer-sponsored health insurance. One estimate of the cost to employers to meet the requirement to provide prescription drug coverage is $24 million. Financially vulnerable firms, especially small ones, "may decide that the requirements associated with offering their employees coverage are onerous or costly ... and may opt instead to forgo providing coverage" altogether. Or employers may pass along the cost of providing richer benefits to their workers in the form of lower wages, higher premiums, or greater cost-sharing. While employers generally are supportive of health reform, there is some evidence that workers in small firms are facing greater increases in premiums and cost-sharing relative to workers overall. In 2006, 13.3% of all workers had premium contributions that were at least twice the average employee contribution for health insurance, compared to 16.0% of workers in small firms (50 or fewer workers). By 2008, the share of workers with premium contributions that were twice the average were 15.7% for all workers and 24.6% for workers in small firms. A similar pattern emerges with respect to high out-of-pocket spending. In 2006, the share of workers reporting high out-of-pocket spending was 7.2% for all workers, and 4.7% for workers in small firms. By 2008, those shares had increased for all workers and workers in small firms to 10.3% and 14.6%, respectively. As previously mentioned, Massachusetts's health reform law established the Health Safety Net (HSN) program to provide access to medical care to low-income individuals ineligible for publicly subsidized health insurance coverage. For uninsured individuals with income up to 200% FPL who are eligible for HSN assistance, the program serves as their only payer. For eligible uninsured individuals with income between 200% and 400% FPL, HSN provides partial payments to cover costs associated with receiving medical care. HSN also is a secondary payer for eligible individuals with coverage, and provides payments towards emergency bad debt charges. Since enactment, HSN-financed hospital and community health center (CHC) visits have dropped. In the first six months of FY2008, there were 496,000 Health Safety Net-financed visits, a 36% drop from the same period in FY2007 when there were 777,000 Uncompensated Care Pool (UCP) visits (see Table 4 ). Likewise, program costs have also dropped. Comparing the same time periods, HSN payments to hospitals decreased from $620 million to $373 million (38%), and payments to CHCs decreased from $41 million to $37 million (10%). Since health insurance provides a broader range of care, including visits to private doctors and specialists, than the episodic visits paid through the pool, reductions in free-care spending will not cover the total cost of subsidies. From October 2006 to September 2008, more than 90,000 individuals who were formerly eligible for UCP assistance were determined to be eligible for subsidized coverage through the CommCare program. Nonetheless, HSN-financed medical facilities continue to provide a significant service to low-income people. In particular, CHCs "play a critical role in caring for newly insured patients while simultaneously serving as the primary care safety net for uninsured residents." For example, CHCs continue to serve a disproportionate share of uninsured individuals, even after reform enactment. One study found that CHCs served one-third of uninsured persons in 2007. Statements on the success or failure of Massachusetts health reform are far from final. The impact of the state's ambitious health reform plan may not be fully quantified and analyzed until the plan has been implemented and in operation for some time. However, the initial impact on coverage and costs simultaneously deserves attention and raises concerns. The drop in uninsurance is impressive by any measure, but long-term sustainability is seen as an open question especially with respect to costs. Massachusetts's experience also raises other relevant health system issues. In particular, what changes to the health delivery system may be necessary to fully support coverage expansions? For example, about 20% of nonelderly adults in the state reported problems obtaining care because the physician's office or clinic either were not accepting new patients or did not accept their type of insurance. This problem was much more common for lower-income adults and adults with public coverage, compared to adults with higher-income or private coverage. Consistent with these reported problems finding a health care provider or the previously mentioned difficulties regarding unmet need, there was "no change from pre-reform levels in emergency department (ED) use for nonemergency conditions. However, some of the reasons behind these findings may pre-date health reform. For instance, according to the Massachusetts Medical Society, there were severe to critical shortages in primary care providers (family medicine and internal medicine) in 2006. Nonetheless, these findings point to the limitations of comprehensive coverage reforms without equivalent changes to the health care delivery system. | As Congress debates the justification for comprehensive health reform and considers various proposals, some states have taken the initiative by enacting reforms to address concerns about health insurance coverage and health care costs, among other issues. Massachusetts is one such state. While Massachusetts has a legislative history full of reforms to its health care system, its most ambitious effort to date was enactment and implementation of a comprehensive health reform law that sought to provide universal health insurance coverage and reduce health care costs at the same time. In 2006, Massachusetts enacted a comprehensive health reform law that included provisions to expand eligibility for certain public coverage programs, provide premium subsidies for certain low-income individuals, require the purchase of insurance by adult residents who can afford it, and require employers to make contributions toward health coverage. To make private health insurance plans more accessible, it modified state insurance laws and created a quasi-public entity called the Health Insurance Connector Authority whose duties include facilitating the purchase of insurance primarily by individuals who are not offered subsidized insurance by a large employer and are not eligible for public coverage. Health reform's impact on health insurance coverage, health care costs and spending, and access to care have produced both promising results and troubling trends. Massachusetts has achieved near-universal coverage. The state had the lowest uninsured rate among all states in 2008, and by 2009, state survey data showed the insured rate was 97.3%. Along with the increase in health coverage, state residents have paradoxically reported increases in obtaining medical care and problems accessing health services. In addition, state costs associated with gains in coverage have exceeded initial projections, and consumers have experienced both increases and reductions in affordability of obtaining health care during the initial implementation phase of health reform. Statements on the success or failure of Massachusetts health reform are far from final. The impact of the state's ambitious health reform plan may not be fully quantified and analyzed until the plan has been implemented and in operation for some time. However, the initial impact on coverage and costs simultaneously deserves attention and raises concerns. The drop in uninsurance is impressive by any measure, but long-term sustainability is seen as an open question, especially with respect to costs. This report provides background information on the main components of the state's reform law and the law's initial impact on coverage, costs, access to care, employers, and uncompensated care. The report will be updated as circumstances warrant. |
In a sweeping decision issued on June 26, 2003, the Supreme Court struck down a Texasstate statute that made it a crime for homosexuals to engage in certain private sex acts. Specifically,the Court's ruling in Lawrence v. Texas held that the due process privacy guarantee of the FourteenthAmendment extends to protect consensual gay sex. (1) Although the Court also considered whether the Texas state statuteviolated the constitutional right to equal protection, the Court ultimately based its ruling on broaderprivacy grounds. In addition, the Court also overturned its 1986 decision in Bowers v. Hardwick , acontroversial case in which the Court ruled that there was no constitutional right to privacy thatprotects homosexual sodomy. This report provides an overview of the Supreme Court's opinion in Lawrence v. Texas , coupled with a discussion of its implications for future cases involving gay rights in general and same-sex marriage in particular. For a more detailed discussion of currentdevelopments regarding gay marriage, see CRS Report RL31994 , Same-Sex Marriages: LegalIssues , by [author name scrubbed]. In 1998, sheriff's officers, responding to a false report of a weapons disturbance, entered theprivate residence of John Geddes Lawrence, found Lawrence and Tyron Garner engaged inconsensual sex, and arrested the two men for violating a Texas statute that prohibits homosexualsodomy. (2) Under the Texaspenal code, "a person commits an offense if he engages in deviate sexual intercourse with anotherindividual of the same sex;" (3) "deviate sexual intercourse" is defined to include oral or analsex. (4) Following their convictions, Lawrence and Garner challenged the statute on constitutionalequal protection and due process privacy grounds. Although a panel of the Court of Appeals of Texasruled in their favor, the full Court of Appeals, sitting en banc , reversed, thereby reaffirming theoriginal convictions. (5) When the Texas Court of Criminal Appeals refused to review the case, Lawrence and Garnerappealed to the U.S. Supreme Court. (6) The Supreme Court granted certiorari, (7) and ultimately struck downthe state statute, thereby reversing the Court of Appeals of Texas. (8) At the time of the Lawrence decision, twelve other states, in addition to Texas, hadanti-sodomy laws on their books. However, of the thirteen states with anti-sodomy laws, only fourstates, including Texas, had laws that criminalized sodomy between same-sex couples but notbetween heterosexual partners. (9) The remaining states with anti-sodomy laws criminalized sodomyfor all couples, regardless of whether they consisted of same-sex or opposite-sex partners. Notably, the number of states with anti-sodomy laws had declined significantly in the nearlytwo decades since the landmark Bowers v. Hardwick case upheld a Georgia law that outlawedhomosexual sodomy in 1986. At that time, 24 states and the District of Columbia had anti-sodomylaws on the books, but half of those states, including Georgia, subsequently legislatively repealedor judicially overturned their respective anti-sodomy statutes. (10) By overturning Bowers andby deciding Lawrence on privacy grounds, the Supreme Court simultaneously overturned all stateanti-sodomy laws, including statutes that do not distinguish between heterosexual and homosexualcouples. The Supreme Court's decision in Lawrence v. Texas marks one of the few instances in whichthe Court has agreed to participate in a wider legal debate surrounding "gay rights." Indeed, over thepast two decades, the Supreme Court has heard relatively few cases involving such issues. (11) Of the gay rights cases thatthe Court has heard, two cases, namely Bowers v. Hardwick (12) and Romer v. Evans , (13) are of particularsignificance to the outcome in Lawrence and are therefore discussed in greater detail in thissection. (14) In Bowers v. Hardwick , the Supreme Court considered a challenge to a Georgia statute thatcriminalized both homosexual and heterosexual sodomy. Ruling that the Due Process clause of theFourteenth Amendment did not provide a fundamental right to engage in consensual homosexualsodomy, even in the privacy of one's own home, the Court upheld the Georgia statute. (15) Although other SupremeCourt rulings have recognized a due process right of privacy that protects personal decisionsregarding activities such as marriage, contraception, and procreation from governmentinterference, (16) the Bowers decision essentially refused to recognize a similar right of privacy to protect individualsengaged in homosexual sodomy. The other Supreme Court case shaping the Court's decision in Lawrence is Romer v. Evans .Decided in 1996, Romer held that Amendment 2 of the Colorado Constitution, which barredlocalities from enacting civil rights protections on the basis of sexual orientation, violated the EqualProtection Clause of the Fourteenth Amendment. (17) Although classifications based on sexual orientation do notreceive the heightened constitutional scrutiny normally reserved for review of suspect classificationssuch as race or gender, the Court in this case nevertheless determined that the Colorado amendmentviolated the guarantee of equal protection because the law was motivated strictly by animus forhomosexuals and because there was otherwise no rational basis for enacting such a sweepingrestriction on the legal rights of gays and lesbians. According to the Court: We must conclude that Amendment 2 classifieshomosexuals not to further a proper legislative end but to make them unequal to everyone else. ThisColorado cannot do. A State cannot so deem a class of persons a stranger to its laws. Amendment2 violates the Equal Protection Clause. (18) Despite the fact that Bowers and Romer were decided on different constitutional grounds,both of the cases involved issues that were raised in the Lawrence case. Ultimately, the SupremeCourt overruled its decision in Bowers , holding that the due process right to privacy extends toprotect private, consensual sexual activity. Although Justice Sandra Day O'Connor, who originallyvoted with the majority to uphold the Georgia statute at issue in Bowers , did not join in the 5-4decision to overrule that case, she did agree with the majority's decision to strike down the Texasstatute for different reasons. In a separate opinion reminiscent of the Court's ruling in Romer ,O'Connor indicated that she was voting to strike down the Texas sodomy law as a violation of theconstitutional guarantee of equal protection (19) . The Court's opinion, O'Connor's concurrence, and the dissent'sargument are detailed in the following section. In their petition seeking Supreme Court review, attorneys for Lawrence and Garner posedthree questions to the Court: (1) did the Texas statute violate the Equal Protection Clause of theFourteenth Amendment; (2) did the Texas statute violate the right to privacy embedded in the DueProcess Clause of the Fourteenth Amendment; and (3) should Bowers be overruled? (20) The Court's considerationof these and other issues is discussed in the following section. Under the second question presented in Lawrence -- which formed the basis for the Court'seventual ruling -- the Supreme Court was faced with the question of whether or not the homosexualsodomy statute violates the right to privacy embedded in the Due Process Clause of the FourteenthAmendment. Because the Bowers v. Hardwick case specifically considered the same issue, theCourt's decision on the privacy question likewise affected the Court's decision on the third and finalquestion -- whether or not to overrule Bowers . The Court ultimately overruled Bowers and held thatgovernment interference with a private and intimate consensual adult activity is a violation of thedue process right to privacy. This section describes the Court's reasoning and discusses the dissent'sresponse. The Court began its analysis in Lawrence by summarizing its substantive due process privacydoctrine. Under the Supreme Court's privacy jurisprudence, the Court has recognized a constitutionalright to privacy despite the fact that this right is not specifically enumerated in the Constitution. In Bowers , for example, the Court noted that the Due Process right to privacy protects from governmentinterference a wide range of personal decisions regarding issues such as child rearing, familyrelationships, procreation, marriage, contraception, and abortion. (21) This right to privacy isgrounded in the notion that certain freedoms are so "fundamental" or "implicit in the concept ofordered liberty" that "neither liberty nor justice would exist if they were sacrificed." (22) Alternatively, certainliberties may be deemed fundamental because they are "deeply rooted in this Nation's history andtradition." (23) Becausethese two tests do not always articulate clear standards for determining when a liberty is so"fundamental" that it deserves constitutional protection under the Due Process Clause, extending theright to privacy to liberties that have not previously been deemed fundamental by the Court, such asa right to engage in consensual homosexual sodomy, can sometimes prove controversial. After outlining its privacy jurisprudence, the Court set forth its reasons for reconsidering itsdecision in Bowers . Of primary importance to the Court was the idea that the Bowers Court had"misapprehended the claim of liberty there presented to it." (24) In the Lawrence Court'sview, the issue in Bowers was about more than a fundamental right to engage in homosexualsodomy. Rather, the case was about whether or not individuals have the right to make personalchoices regarding their intimate relationships free of government interference. (25) Although the Lawrence Court did not explicitly deem homosexual sodomy to be a fundamental right, the Court nonethelessconcluded that the Bowers Court had failed to properly define the liberty interests at stake whenindividuals make private, consensual choices about their sexual conduct. The Court criticized the Bowers decision on several additional grounds. First, the Court notedthat Bowers had relied in part on a history of condemnation of homosexuality, but the Courtcountered that argument by citing several legal and historical sources demonstrating that "there isno longstanding history in this country of laws directed at homosexual conduct as a distinctmatter." (26) Second,although many believe homosexuality to be immoral, the Court noted that public perceptions on thisissue have shifted over time. The Court pointed to changing trends in state law and international lawas evidence of an "emerging awareness that liberty gives substantial protection to adult persons indeciding how to conduct their private lives in matters pertaining to sex." (27) Indeed, half the states withanti-sodomy laws have legislatively repealed or judicially overruled such statutes over the last twodecades, including Georgia, the state whose anti-sodomy statute was upheld by the Court in Bowers ,and a number of Western democracies have recognized the right to sexual privacy. (28) Finally, the Court notedthat its own constitutional doctrine has evolved over the years that have elapsed since the Bowers decision was handed down, specifically citing its decisions in Romer and in Planned Parenthood ofSoutheastern Pa. v. Casey , a privacy case involving abortion rights. (29) In addition to thesecriticisms of the Bowers decision, the Court also took special note of the stigma imposed by statelaws that criminalize sodomy. (30) After finishing this critique of Bowers , the Court next considered whether or not to overturnthe case. In determining whether or not to overrule precedent, the Supreme Court typically considersfour factors: (1) whether the precedent establishes a workable rule, (2) whether the public has reliedon the rule, (3) whether legal doctrine has changed, and (4) whether facts in the case or publicperception of such facts has changed. (31) Although the Court, which recognizes a need for continuity andrespect for the rule of law, does not lightly overrule precedent, neither is the Court willing to refrainfrom doing so when it determines that a previous case has been incorrectly decided. (32) In Lawrence , the Courtdetermined that: [T]here has been no individual or societal reliance on Bowers of the sort that could counsel against overturning its holding once there are compellingreasons to do so. Bowers itself causes uncertainty, for the precedents before and after its issuancecontradict its central holding. The rationale of Bowers does not withstand careful analysis. . . . Bowers was not correct when it was decided, and it is not correct today. It ought not to remainbinding precedent. Bowers v. Hardwick should be and now is overruled. (33) After noting that the Lawrence case involved a consensual relationship and did not involveminors, public conduct, prostitution, or other legitimate state concerns, the majority concluded itsopinion with the following strongly worded statement in support of its holding: The petitioners are entitled to respect for their privatelives. The State cannot demean their existence or control their destiny by making their private sexualconduct a crime. Their right to liberty under the Due Process Clause gives them the full right toengage in their conduct without intervention of the government. It is a promise of the Constitutionthat there is a realm of personal liberty which the government may not enter. The Texas statutefurthers no legitimate state interest which can justify its intrusion into the personal and private lifeof the individual. (34) In an equally strongly worded dissent, Justice Antonin Scalia criticized the majority'sdecision in Lawrence . He accused the majority of being inconsistent for failing to adhere to theprecedent established in Bowers after some of the same Justices had insisted on strong adherenceto the rules of precedent in the 1992 Casey decision, in which the Court upheld abortion rights andrefused to overturn Roe v. Wade . (35) He also accused the majority of misapplying the Court'ssubstantive due process doctrine, asserting that homosexual sodomy has not achieved the status ofa fundamental constitutional right in the years since Bowers was decided, (36) and he warned that themajority's opinion signaled "the end of all morals legislation." (37) Arguing that the Court "hastaken sides in the culture war," the dissent concluded by arguing that the majority's opinion opensthe door to legal challenges against an array of laws that regulate sexual activity and personalrelationships, including laws that prohibit same-sex marriage. (38) Although Justice O'Connor did agree that the Texas statute was unconstitutional, she did notagree with the majority's reasoning. Rather than ruling on due process privacy grounds, O'Connorbased her concurring opinion on the Equal Protection Clause of the Fourteenth Amendment. (39) Under the Supreme Court's equal protection jurisprudence, "the general rule is that legislationis presumed to be valid and will be sustained if the classification drawn by the statute is rationallyrelated to a legitimate state interest." (40) Laws based on suspect classifications such as race or gender,however, typically receive heightened scrutiny and require a stronger, if not compelling, state interestto justify the classification. (41) Because sexual orientation is not considered to be a suspectcategory, a state need only advance a rational reason for enacting a statute that treats individualsdifferently depending on their sexual orientation. (42) Since Lawrence involved a statute that criminalized sodomy when engaged in by same-sexcouples but not identical conduct by different-sex couples, O'Connor's concurring opinion relied onthe rational basis standard of review. Acknowledging that most laws that are reviewed under therational basis standard survive constitutional scrutiny, O'Connor nevertheless noted that "[w]hen alaw exhibits such a desire to harm a politically unpopular group, we have applied a more searchingform of rational basis review to strike down such laws under the Equal Protection Clause." (43) Citing Romer , O'Connorextended this argument further, contending that "[m]oral disapproval of this group, like a bare desireto harm the group, is an interest that is insufficient to satisfy rational basis review under the EqualProtection Clause. . . . The Texas sodomy law raises the inevitable inference that the disadvantageimposed is born of animosity toward the class of persons affected." (44) As with the Coloradoconstitutional amendment at issue in Romer , therefore, O'Connor concluded that the Texas statuteviolated the Equal Protection Clause. Despite this conclusion, O'Connor was careful to note that notall laws that distinguish between heterosexuals and homosexuals would violate equal protection,specifically noting that an interest in preserving national security or the traditional institution ofmarriage could constitute a legitimate governmental interest. (45) Although no other member of the Court signed on to O'Connor's concurring opinion, themajority opinion, which found the equal protection argument "tenable," appeared to favor the privacyapproach because of its broader effect. (46) The dissent, however, disagreed with O'Connor's equal protectionanalysis, arguing that the Texas statute does not discriminate because it applies equally to men andwomen, as well as to heterosexuals and homosexuals, all of whom are subject to the sameprohibition against engaging in same-sex sodomy. (47) Because many observers had expected the Court to issue a ruling on the more narrow equalprotection grounds favored by O'Connor, the Court's privacy ruling was more sweeping thanpredicted. (48) The broaddecision in Lawrence is sure to have lasting consequences for other cases involving, among otherissues, sexual privacy and gay rights. Some of these potential consequences are highlighted below. One immediate effect of the Court's ruling in Lawrence was to invalidate all thirteen of theexisting state anti-sodomy laws, regardless of whether they applied to homosexual couples only orto all couples both heterosexual and homosexual. Had the Court issued its ruling on the more narrowequal protection grounds favored by O'Connor, the effect of the decision would have been toinvalidate only those state statutes that discriminated against gays by prohibiting homosexualsodomy exclusively. Since the Court issued a broader ruling that the government cannot criminalizeprivate, consensual, adult sexual behavior, the Lawrence case appears to create a more expansiveright to sexual privacy that prohibits the states from making sodomy a crime for anyone, homosexualor heterosexual. In another development, the Court also vacated the Kansas Court of Appeals' ruling in Limonv. Kansas , a similar case involving an equal protection challenge to a state law that treatshomosexuals and heterosexuals differently. (49) Under Kansas law, sodomy with a child between the ages of 14and 16 is punishable with probation if the partner is an older teenager of the opposite sex, but thesame act is punishable with a prison sentence if the partner is an older teenager of the same sex. Asa result of the Kansas statute, 18-year old Matthew Limon received a 17-year sentence for engagingin consensual gay sex with a 14-year old boy, despite the fact that he would have received a farlighter sentence for engaging in similar conduct with a youth of the opposite sex. The Supreme Courtordered the Kansas court to reconsider the case in light of the Lawrence ruling, (50) but the Court of Appealsof Kansas distinguished the Lawrence case and upheld the sentence, ruling that the state's interestin protecting children provided a rational basis for criminalizing homosexual sodomy more severelythan heterosexual sodomy. (51) The Kansas Supreme Court subsequently issued a petition toreview the lower court's decision, but has not yet ruled in the case. (52) The Court's broad decision in Lawrence is likely to prompt a series of challenges to an arrayof governmental policies involving privacy interests and/or gay rights. Indeed, the case, whichappears to greatly expand constitutional protection for sexual privacy, may give rise to challengesagainst statutes that prohibit same-sex marriage, gay adoption, gays in the military, or similar issues.How the courts will resolve these controversies, however, remains unclear. On the one hand, the Court's ruling emphasized that "our laws and tradition affordconstitutional protection to personal decisions relating to marriage, procreation, contraception,family relationships, child rearing, and education" and that "persons in a homosexual relationshipmay seek autonomy for these purposes." (53) If Lawrence is viewed as establishing a broad constitutional rightto sexual privacy, then the Court's decision may be interpreted as supporting challenges to laws thatprohibit activities such as same-sex marriage or gay adoption. On the other hand, the Court also distinguished the Lawrence decision from cases involvingminors or prostitution, and it noted that the case "does not involve whether the government must giveformal recognition to any relationship that homosexual persons seek to enter." (54) Indeed, the courts maypoint to other government interests, such as an interest in preserving marriage or national securityfor example, to distinguish the private sexual conduct involved in Lawrence from the issues at stakein cases involving gay marriage or gays in the military. Like the courts, Congress may also respond to the Lawrence decision. For example, severallegislators in the 108th Congress introduced proposals to amend the Constitution to prevent same-sexmarriage, and similar proposed constitutional amendments have been introduced during the 109thCongress. (55) | In a sweeping decision issued on June 26, 2003, the Supreme Court struck down a Texasstate statute that made it a crime for homosexuals to engage in certain private sex acts. Specifically,the Court's ruling in Lawrence v. Texas held that the due process privacy guarantee of the FourteenthAmendment extends to protect consensual gay sex. Although the Court also considered whether theTexas state statute violated the constitutional right to equal protection, the Court ultimately basedits ruling on broader privacy grounds. In addition, the Court also overturned its 1986 decision in Bowers v. Hardwick , a controversial case in which the Court ruled that there was no constitutionalright to privacy that protects homosexual sodomy. This report provides an overview of the SupremeCourt's opinion in Lawrence v. Texas , coupled with a discussion of its implications for future casesinvolving gay rights in general and same-sex marriage in particular. For a more detailed discussionof current developments regarding gay marriage, see CRS Report RL31994 , Same-Sex Marriages:Legal Issues , by [author name scrubbed]. |
The First Amendment to the U.S. Constitution provides that "Congress shall make no law ... abridging the freedom of speech, or of the press." This provision limits the government's power to restrict speech. In 1976, the Supreme Court issued its landmark campaign finance ruling in Buckley v. Vale o. In Buckley , the Court found that limits on campaign contributions, which involve giving money to an entity, and expenditures, which involve spending money directly for electoral advocacy, implicate rights of political expression and association under the First Amendment. A number of principles contributed to the Court's analogy between money and speech. First, the Court found that candidates need to amass sufficient wealth to amplify and effectively disseminate their message to the electorate. Second, restricting political contributions and expenditures imposes a restriction on the amount of money that a candidate can spend on communications, thereby reducing the number and depth of issues discussed and the size of the audience reached. This is because almost all modes of communicating ideas in a mass society require the spending of money. The Court further observed that the primary purpose of the First Amendment is to increase the quantity of public expression of political ideas. From these general principles, the Court concluded that contributions and expenditures facilitate an interchange of ideas, and cannot be regulated as mere conduct unrelated to their underlying act of communication. The Court in Buckley , however, afforded different degrees of First Amendment protection to contributions and expenditures. Contribution limits are subject to more lenient review, the Court found, because they impose only a marginal restriction on speech and will be upheld if the government can demonstrate that they are a "closely drawn" means of achieving a "sufficiently important" governmental interest. On the other hand, expenditure limits are subject to strict scrutiny because they impose a substantial restraint on speech. That is, limits on expenditures must be narrowly tailored to serve a compelling governmental interest. Therefore, in Buckley and its progeny, the Court has generally upheld limits on contributions, finding that they serve the governmental interest of protecting elections from corruption, while invalidating limits on independent expenditures, finding that they do not pose a risk of corruption. Importantly, the Court's recent case law has announced that only quid pro quo corruption or its appearance constitute a sufficiently important governmental interest to justify limits on contributions and expenditures. Quid pro quo corruption involves an exchange of money or something of value for an official act. Although the Supreme Court's campaign finance jurisprudence has shifted over the years, the basic Buckley framework has generally been applied when determining whether a campaign finance limit violates the First Amendment. This report discusses current Supreme Court and other case law evaluating the constitutionality of limits on contributions and expenditures in various contexts. First, it examines contribution limits, covering base limits, aggregate limits, limits on candidates whose opponents self-finance, minors, and super PACs. As noted above, the Court has generally upheld limits on contributions, but the report examines exceptions to this general rule. It also examines a recent case that distinguishes between judicial and political elections in upholding a ban on the personal solicitation of contributions by judicial candidates. Then the report discusses expenditure limits, including limits on expenditures by candidates, political parties, and corporations and labor unions. The Court has determined that limits on expenditures are subject to strict scrutiny review, and accordingly, has found them to be unconstitutional. The Supreme Court has generally upheld the constitutionality of reasonable limits on how much money a donor may contribute to a candidate. These contribution limits are known as "base limits." In contrast, as discussed in the section below, "aggregate limits" restrict how much money a donor may contribute in total to all candidates, parties, and political committees. In Buckley v. Valeo , the Court upheld the constitutionality of a Federal Election Campaign Act (FECA) limit on individuals making contributions to candidates. While finding that limits on both contributions and expenditures implicate rights of political expression and association under the First Amendment, the Court distinguished between the two. Unlike expenditure limits, which reduce the amount of expression, contribution limits involve "little direct restraint" on the speech of a contributor. The Court acknowledged that a contribution limit restricts an aspect of a contributor's freedom of association, that is, his or her ability to support a candidate. Nonetheless, the Court found that they still permit symbolic expression of support, and do not infringe on a contributor's freedom to speak about candidates and issues. Reasonable contribution limits, the Court noted, still permit people to engage in independent political expression, associate by volunteering on campaigns, and assist candidates by making limited contributions. Therefore, the Court found, limits on contributions are permissible so long as they are "closely drawn" to serve a "sufficiently important interest." In Buckley , the Court found that the government had demonstrated that preventing corruption or its appearance was sufficiently important to justify the FECA contribution limits. The Court recognized that contribution limits serve as one of FECA's primary means to combat improper influence on candidates by contributors. Thus, the Court concluded that both the reality and appearance of corruption as a result of large campaign contributions was a sufficiently compelling interest to warrant infringements on First Amendment liberties "to the extent that large contributions are given to secure a quid pro quo from [a candidate.]" Regarding whether the contribution limit was closely drawn, the Court found that it was relevant to examine the amount of the limit. Limits that are too low could significantly impede a candidate or political committee from amassing the necessary resources for effective communication. The Court concluded, however, that the FECA contribution limit at issue in Buckley would not negatively impact campaign funding. Since Buckley , the Court has similarly upheld the constitutionality of other contribution limits. In Nixon v. Shrink Missouri Government PAC , the Court upheld a state law imposing contribution limits on candidates running for state office. The Court observed that while contribution limits must be closely drawn to a sufficiently important interest, the amount of the limitation "need not be 'fine tuned.'" Under Buckley , the Court noted, a key inquiry regarding whether a contribution limit is too low is whether there is evidence demonstrating that the limit prevents a candidate from amassing sufficient funds for effective advocacy. Applying that principle, the Supreme Court has determined that certain contribution limits are too low and invalidated them under the First Amendment. In Randall v. Sorell , in a plurality opinion, the Court invalidated a Vermont law that included a limit of $400 on individual, party, and political committee contributions to certain state candidates, per two-year election cycle. The law did not provide for inflation adjustment. While unable to reach consensus on a single opinion, six Justices agreed that the contribution limits violated First Amendment free speech guarantees. The plurality opinion written by Justice Breyer, joined by two other Justices, found that the contribution limits in this case were substantially lower than limits it had previously upheld as well as limits in effect in other states, and that they were not narrowly tailored. The opinion also concluded that the limits substantially restricted candidates, particularly challengers, from being able to raise the funds necessary to run a competitive campaign; impeded parties from getting their candidates elected; and deterred individual citizens from volunteering on campaigns (because the law counted certain volunteer expenses toward a volunteer's individual contribution limit). The Supreme Court has held that aggregate limits on contributions are unconstitutional under the First Amendment. Aggregate limits restrict how much money a donor may contribute in total to all candidates, parties, and political committees. Characterizing them as a ban on further contributions once the aggregate amount has been reached, the Court has determined that they violate the First Amendment by infringing on political expression and association rights, without furthering the governmental interest of preventing quid pro quo corruption or its appearance. In McCutcheon v. F ederal E lection C ommission , the Supreme Court invalidated Section 307(b) of the Bipartisan Campaign Reform Act of 2002 (BCRA), which amended FECA, imposing biennial limits on aggregate contributions. These limits were adjusted for inflation each election cycle. For example, during the 2011-2012 election cycle, the law prohibited individuals from making contributions to candidates totaling more than $46,200, and to parties and political action committees (PACs) (with the exception of "super PACs") totaling more than $70,800. The base limits on contributions established by the BCRA were not at issue in this case and remain in effect. As a threshold matter, the plurality opinion in McCutcheon determined that it was unnecessary to revisit the contribution/expenditure distinction established in Buckley v. Valeo , and the differing standards of review applicable to each. According to the opinion, regardless of whether strict scrutiny or the "closely drawn" standard applies, the analysis "turns on the fit" between the government's stated objective and the means to achieve it. Applying that analysis to the aggregate contribution limits, the opinion found a "substantial mismatch" between the two, and concluded that even under the more lenient standard of review, the limits could not be upheld. Importantly, the opinion announced that throughout the Court's campaign finance cases dating back 40 years, it has identified only one legitimate governmental interest for restricting campaign financing: the prevention of quid pro quo corruption or its appearance. Essentially, quid pro quo corruption captures the notion of "a direct exchange of an official act for money." While acknowledging that the Court's campaign finance jurisprudence has not always discussed the concept of corruption clearly and consistently, and that the line between quid pro quo corruption and general influence may sometimes seem vague, the opinion said that efforts to ameliorate "influence over or access to" elected officials or political parties do not constitute a permissible governmental interest. According to the opinion, the spending of large sums of money in connection with elections, but absent an effort to control how an officeholder exercises his or her official duties, does not give rise to quid pro quo corruption. Further, the opinion notes that the Court has consistently rejected campaign finance regulation based on other governmental objectives, such as goals to "level the playing field," "level electoral opportunities," or "equaliz[e] the financial resources of candidates." Although the Court did not expressly adopt a stricter standard of review for contribution limits, its announcement that only quid pro quo corruption or its appearance serve as a compelling governmental interest may impact the degree to which contribution limits are upheld in future rulings. In Buckley v. Valeo , the Court had upheld the constitutionality of a $25,000 federal aggregate contribution limit, then in effect. While acknowledging that it imposed an ultimate restriction upon the number of candidates and committees with which an individual can associate, the Court in Buckley characterized it as a "quite modest restraint" that served to prevent evasion of base limits. The plurality in McCutcheon distinguished the Buckley precedent and concluded that it did not control. In Buckley , the plurality opinion observed, the Court had engaged in minimal analysis of aggregate limits. Further, the limits at issue in McCutcheon , which were enacted in 2002, established a different statutory regime and operated under a distinct legal backdrop. Since Buckley was decided, the opinion observed, statutory and regulatory safeguards against circumvention have been enacted. The opinion also outlined additional safeguards that Congress could enact to prevent circumvention of base contribution limits, such as targeted restrictions on transfers among candidates and political committees or enhanced restrictions on earmarking, but cautioned that the opinion was not meant to evaluate the validity of any particular proposal. Further distinguishing the holding in Buckley , the ruling emphasized that aggregate contribution limits restrict how many candidates and committees that an individual can support, which is not a "modest restraint." Once an individual contributed $5,200 each to nine candidates, the aggregate limits were triggered and, as the opinion calculates, the individual was then prohibited from making further contributions, up to the maximum permitted by the base limits, to other candidates. This "outright ban" on further contributions, the opinion concludes, unconstitutionally restricts both free speech and association rights. In response to a point made by the dissent, the opinion stated that the proper focus of First Amendment protections is on the individual's right to engage in political speech, not on a generalized concept of the public good through "collective speech." The Supreme Court has ruled that a statute establishing a series of staggered increases in contribution limits for candidates whose opponents significantly self-finance their campaigns violates the First Amendment. In Davis v. Federal Election Commission , the Supreme Court invalidated such a provision, finding that the penalty it imposed on expenditures of personal funds is not justified by the compelling governmental interest of lessening corruption or its appearance. The provision at issue in this case was enacted as part of BCRA and is known as the "Millionaire's Amendment." Until it was invalidated by the Davis ruling, the complex statutory formula provided (using limits that were in effect at the time the case was considered) that if a candidate for the House of Representatives spent more than $350,000 of personal funds during an election cycle, individual contribution limits applicable to his or her opponent were increased from the usual current limit ($2,300 per election) to up to triple that amount (or $6,900 per election). Likewise for Senate candidates, a separate provision generally raised individual contribution limits for a candidate whose opponent exceeds a designated threshold level of personal campaign funding that is based on the number of eligible voters in the state. For both House and Senate candidates, the increased contribution limits were eliminated when parity in spending was reached between the two candidates. The Court noted that while it has long upheld the constitutionality of limits on individual contributions, it has definitively rejected any limits on a candidate's expenditure of personal funds to finance campaign speech. In Buckley v. Valeo , the Court noted, it had determined that such limits impose a significant restraint on a candidate's right to advocate for his or her own election that are not justified by the compelling governmental interest of preventing corruption. That is, instead of preventing corruption, it had determined that the use of personal funds actually lessens a candidate's reliance on outside contributions and thereby counteracts coercive pressures and risks of abuse that contribution limits seek to avoid. While acknowledging that the Millionaire's Amendment does not directly impose a limit on a candidate's expenditure of personal funds, the Court concluded that it nonetheless imposed an "unprecedented penalty on any candidate who robustly exercises that First Amendment right." Further, the Court said that it required a candidate to make a choice between the right of free political expression and being subjected to discriminatory contribution limits. Indeed, the Court concluded that if a candidate vigorously exercises the right to use personal funds, the law creates a fundraising advantage for his or her opponents. In contrast, if the law had simply increased the contribution limits for all candidates—both the self-financed candidate as well as the opponent—the Court opined that it would have passed constitutional muster. In response to the Federal Election Commission's (FEC's) argument that the statute's "asymmetrical limits" are justified because they level the playing field for candidates of differing personal wealth, the Court pointed out that its campaign finance precedent offers no support for this rationale serving as a compelling governmental interest. According to the Court, preventing corruption or its appearance are the only legitimate compelling governmental interests identified so far that justify restrictions on campaign financing. Quoting Buckley , the Court reiterated that restricting the speech of some, in order to enhance the relative speech of others, is "wholly foreign to the First Amendment." Intrinsically, candidates have different strengths based on factors such as personal wealth, fundraising ability, celebrity status, or a well-known family name. By attempting to level electoral opportunities, the Court observed, Congress is deciding which candidate strengths should be allowed to impact an election. Using election law to influence voters' choices, the Court warned, is "dangerous business." The Supreme Court has decided that a prohibition on contributions by minors age 17 or younger violates the First Amendment. In McConnell v. F ederal Election Commission , by a unanimous vote, the Court invalidated Section 318 of BCRA, which prohibited individuals age 17 or younger from making contributions to candidates and political parties. Determining that minors enjoy First Amendment protection and that contribution limits impinge on such rights, the Court determined that the prohibition was not closely drawn to serve a sufficiently important interest. In response to the government's assertion that such a prohibition protects against corruption by conduit—that is, parents donating through their minor children to circumvent contribution limits—the Court found little evidence to support the existence of this type of evasion. Furthermore, the Court postulated that such circumvention of contribution limits may be deterred by the FECA provision prohibiting contributions in the name of another person and the knowing acceptance of contributions made in the name of another person. Even assuming arguendo, that a sufficiently important interest could be provided in support of the prohibition, the Court determined that it is over inclusive. The Court observed that various states have found more tailored approaches to address this issue, for example, by counting contributions by minors toward the total permitted for a parent or family unit, imposing a lower cap on contributions by minors, and prohibiting contributions by very young children. The Court, however, expressly declined to decide whether any alternatives would pass muster. The U.S. Court of Appeals for the District of Columbia has held that limits on contributions to groups that make only independent expenditures are unconstitutional. In SpeechNow.org v. F ederal E lection C ommission, the court concluded that because the Supreme Court in Citizens United v. Federal Election Commission determined that independent expenditures do not give rise to corruption, contributions to groups making only independent expenditures do not give rise to corruption. Citizens United is discussed in greater detail below, in the portion of the report examining limits on expenditures. In Citizens United , the Court relied, in part, on its ruling in Buckley v. Valeo . In Buckley , it determined that expenditures made "totally independently"—in other words, not coordinated with any candidate or party—do not create a risk of corruption or its appearance, and therefore, cannot be constitutionally limited. Accordingly, the Court in SpeechNow.org reasoned that the government does not have an anti-corruption interest in limiting contributions to groups that make only independent expenditures. It further concluded that FECA contribution limits are unconstitutional as applied to such groups. Such groups have come to be known as "super PACs" or "Independent Expenditure-only Committees." Since SpeechNow was decided, the Federal Election Commission has issued advisory opinions (AOs) providing guidance regarding the establishment and administration of super PACs. For example, the FEC concluded that a tax-exempt § 501(c)(4) corporation may establish and administer a political committee that makes only independent expenditures, and may accept unlimited contributions from individuals. It confirmed that such committees may also accept unlimited contributions from corporations, labor unions, and political committees, in addition to individuals. The FEC also determined that when fundraising for super PACs, federal candidates, officeholders, and party officials are subject to FECA fundraising restrictions. That is, they can only solicit contributions up to $5,000 from individuals (other than foreign nationals or federal contractors) and federal PACs. The Supreme Court has upheld a Florida canon of judicial conduct that prohibits the personal solicitation of campaign contributions by judges and judicial candidates, finding that it does not violate the First Amendment. At the outset, it is important to note that this case does not address the constitutionality of a contribution limit, but a ban on the personal solicitation of contributions. Furthermore, it involves the regulation of judicial candidates, not candidates in the political arena, a pivotal distinction made by the Court. Williams-Yulee v. Florida Bar , decided by a 5-4 vote, found that a state judicial candidate's speech must be subject to "the highest level of First Amendment protection." In a rare instance for free speech jurisprudence, the Court concluded that the regulation passes even the most heightened scrutiny because it protects judicial integrity, and maintains the public's confidence in an impartial judiciary. In an earlier ruling, Republican Party of Minnesota v. White , the Court had struck down a state's canon of judicial conduct restricting judicial candidates from announcing their views on legal and political issues. Although the Court in White had also evaluated the restriction under strict scrutiny—requiring that a restriction be narrowly tailored to serve a compelling governmental interest—and similarly recognized the risks to impartiality posed by electing judges, it suggested that concerns about judicial integrity should be directed at the process of selection. In contrast, the opinion in Williams-Yulee, written by Chief Justice Roberts, clarified that concerns about impartiality could at least in part be achieved through strict regulation of judicial candidates, rather than by altering the selection process as a whole. This 2015 decision stands in contrast to the Court's recent campaign finance rulings. For example, as discussed in this report, in 2014, the Court in McCutcheon invalidated aggregate limits on campaign contributions to federal candidates, PACs, and parties. In 2010, in Citizens United , it invalidated limits on independent spending by corporations and labor unions. Both of those cases were also 5-4 decisions in which, notably, Chief Justice Roberts voted with the majority in concluding that a campaign finance regulation violated the First Amendment. In Williams-Yulee , however, the Court emphasized the distinction between judges and "politicians." Even though they are elected, the Court concluded, judicial candidates are different than campaigners for political office. Unlike politicians who are expected to be "appropriately responsive" to the preferences of their supporters, judges must be completely independent of their supporters' preferences. Furthermore, the Court found that a state's interest in maintaining public confidence in its judiciary "extends beyond its interest in preventing the appearance of corruption in legislative and executive elections." Therefore, the Court determined that its precedents applying the First Amendment to political elections do not apply in this context. In terms of potential impact, it appears that this ruling will increase the likelihood that the regulation of contribution solicitations in the context of judicial elections will be upheld. It is unclear, however, how it will affect the constitutionality of other types of judicial campaign finance regulation such as spending limits. Likewise, its impact, if any, on the constitutionality of campaign finance regulation in political elections remains to be seen. The Supreme Court has ruled that limits on candidate expenditures are unconstitutional in violation of the First Amendment. In Buckley v. Valeo , the Court held that in contrast to contribution limits, expenditure limits impose significantly greater restrictions on First Amendment protected freedoms of political expression and association. Expenditure limits impose a restriction on the amount of money that a candidate can spend on communications, thereby reducing the number and depth of issues discussed and the size of the audience reached. Such restrictions, the Court found, are not justified by an overriding governmental interest. That is, because expenditures do not involve money flowing directly to the benefit of a candidate's campaign fund, the risk of quid pro quo corruption does not exist. Further, the Court rejected the government's asserted interest in equalizing the relative resources of candidates, and in reducing the overall costs of campaigns. Upon a similar premise, the Court rejected the government's interest in limiting a wealthy candidate's ability to draw upon personal wealth to finance his or her campaign, and struck down a law limiting expenditures from personal funds. When a candidate self-finances, the Court pointed out, his or her dependence on outside contributions is reduced, thereby lessening the risk of corruption. Likewise, in Randall v. Sorrell , the Court struck down as unconstitutional a Vermont statute imposing expenditure limits on state office candidates. In support of the limits, the state argued that they served the governmental interest in reducing the amount of time that candidates spend raising money in order for candidates to have more time to engage in public debate and meet with voters. Further, supporters of the law argued that in Buckley , the Court did not consider this time saving rationale and had it done so, it would have upheld expenditure limitations in that decision. While unable to reach consensus on a single opinion, six Justices agreed that the expenditure limits violated First Amendment free speech guarantees. Announcing the Court's judgment and delivering an opinion, joined by two other Justices, Justice Breyer found that there was not a significant basis upon which to distinguish the expenditure limits struck down in Buckley from the expenditure limits at issue in Randall. According to the opinion, it was not likely that fuller consideration of the "time protection rationale" would have changed the result of Buckley because the Court in that case recognized the link between expenditure limits and a reduction in the time needed by a candidate for fundraising, but nonetheless struck down the expenditure limits. Therefore, Justice Breyer's opinion concluded, given the continued authority of Buckley , the Court must likewise strike down Vermont's expenditure limits. The Supreme Court has decided that limits on independent expenditures by political parties are unconstitutional under the First Amendment. Federal campaign finance law defines an independent expenditure to include spending for a communication that expressly advocates the election or defeat of a clearly identified candidate, and is not made in cooperation or consultation with a candidate or a political party. In Colorado Republican Federal Campaign Committee v. F EC (Colorado I) , the Court held that independent expenditures do not raise heightened governmental interests in regulation because the money is deployed to advance a political point of view separate from a candidate's viewpoint and, therefore, cannot be limited under the First Amendment. The Court emphasized that the "constitutionally significant fact" of an independent expenditure is the absence of coordination between the candidate and the source of the expenditure. In contrast, in Colorado II , the Court ruled that a political party's coordinated expenditures—that is, expenditures made in cooperation or consultation with a candidate—may be constitutionally limited in order to minimize circumvention of contribution limits. According to the Court, unlike independent expenditures, coordinated party expenditures have no "significant functional difference" from direct party candidate contributions. The Court has also determined that a requirement that political parties choose between making coordinated and independent expenditures is unconstitutional. In McConnell v. FEC , the Court held that Section 213 of BCRA, which required political parties to choose between coordinated and independent expenditures after nominating a candidate, burdened the First Amendment right of parties to make unlimited independent expenditures. The Supreme Court has held that limits on corporate, and it appears labor union, expenditures that are made independently of any candidate or political party are unconstitutional under the First Amendment. Such expenditures are protected speech, regardless of whether the speaker is a corporation. Permitting a corporation to engage in independent electoral speech through a political action committee (PAC) does not allow the corporation to speak directly, and does not alleviate the First Amendment burden created by such limits. In Citizens United v. F ederal E lection C ommission , the Court invalidated two prohibitions on independent electoral spending. It struck down the long-standing prohibition on the use of corporate general treasury funds for "independent expenditures," and Section 203 of BCRA prohibiting the use of such funds for "electioneering communications." The prohibitions are codified in FECA at 52 U.S.C. § 30118. Independent expenditures are communications that expressly advocate the election or defeat of a clearly identified candidate, and are not coordinated with any candidate or party. Electioneering communications are broadcast, cable, or satellite transmissions that refer to a clearly identified federal candidate and are made within 60 days of a general election or 30 days of a primary, and are not coordinated with any candidate or party. To mitigate concerns that the law could prohibit First Amendment protected issue speech—known as issue advocacy—a 2007 Supreme Court decision, FEC v. Wisconsin Right to Life, Inc. (WRTL II ) , narrowed the definition of an electioneering communication. In WRTL II , the Court determined that the term encompassed only express advocacy (for example, communications stating "vote for" or "vote against") or the "functional equivalent" of express advocacy. That is, communications that could reasonably be interpreted as something other than an appeal to vote for or against a specific candidate were not considered electioneering communications. Despite the limiting principle imposed by WRTL II , the Court in Citizens United found that both prohibitions were a "ban on speech" in violation of the First Amendment. In comparison to the prohibitions at issue in Citizens United , which include criminal penalties, the Court pointed out that it has invalidated even less restrictive laws under the First Amendment, such as laws requiring permits and impounding royalties. The statute prohibiting corporate expenditures contained an exception. It permitted corporations to use their treasury funds to establish, administer, and solicit contributions to a PAC in order to make expenditures. The Court, however, rejected the argument that permitting a corporation to establish a PAC mitigated the complete ban on speech that the law imposed on the corporation itself. A corporation and a PAC are separate associations, the Court reasoned, and allowing a PAC to speak does not translate into allowing a corporation to speak. Enumerating the "onerous" and "expensive" reporting requirements associated with PAC administration, the Court announced that even if a PAC could permit a corporation to speak, "the option to form a PAC does not alleviate the First Amendment problems" with the law. Further, the Court pointed out that such administrative requirements may prevent a corporation from having enough time to create a PAC in order to communicate its views in a given campaign. After determining that the law bans free speech, the Court explained that it is subject to a strict scrutiny analysis, requiring the government to demonstrate that the restriction is narrowly tailored to further a compelling governmental interest. Employing that analysis, the Court noted that in Buckley v. Valeo , it found that while large campaign contributions create a risk of quid pro quo candidate corruption, large independent expenditures do not. In Buckley , the Court explained, it had found that limits on independent expenditures fail to serve the governmental interest in stemming the reality or appearance of corruption. Of significance, the Court in this case found that it was faced with conflicting precedent. On one hand, its 1978 decision of First National Bank of Boston v. Bellotti had reaffirmed that the government cannot restrict political speech because the speaker is a corporation. On the other hand, its 1990 decision of Austin v. Michigan Chamber of Commerce had permitted a restriction on such speech in order to avoid corporations having disproportionate economic power in elections. In Bellotti , the Court struck down a state law prohibiting corporate independent expenditures related to referenda. Notably, Bellotti did not consider the constitutionality of a ban on corporate independent expenditures in support of candidates . Even if it had, the Court in Citizens United said, such a restriction would also have been unconstitutional in order to be consistent with the main tenet of Bellotti , "that the First Amendment does not allow political speech restrictions based on a speaker's corporate identity." In contrast, the Court in Austin upheld a state law prohibiting, and imposing criminal penalties on, corporate independent expenditures that supported or opposed any candidate for state office. According to the Court in Citizens United , in order to "bypass Buckley and Bellotti ," the Court in Austin identified a new governmental interest justifying limits on political speech, the "antidistortion interest." That is, the Court in Austin determined that "the corrosive and distorting" impact of large amounts of money that were acquired with the benefit of the corporate form, but were unrelated to the public's support for the corporation's political views, constituted a sufficiently compelling governmental interest to justify such a restriction. The Court rejected the antidistortion rationale it had relied upon in Austin . Independent expenditures, the Court announced, including those made by corporations, do not cause corruption or the appearance of corruption. The Austin precedent "interferes with the 'open marketplace' of ideas protected by the First Amendment" by permitting the speech of millions of associations of citizens—many of them small corporations without large aggregations of wealth—to be banned. The Court found that the First Amendment prohibits restrictions that allow the speech of some, but not of others, and said it was "irrelevant for purposes of the First Amendment that corporate funds may 'have little or no correlation to the public's support for the corporation's political ideas,'" noting that all speakers—including individuals and the media—are financed with monies derived from the economic marketplace. In its prior jurisprudence, the Court observed, it has determined that the protections of the First Amendment extend to the political speech of corporations. Specifically, the Court noted that it has rejected the argument that the political speech of corporations or other associations should be treated differently under the First Amendment "simply because such associations are not 'natural persons.'" Notably, the Court also found that supporting the ban on corporate expenditures would have the "dangerous" and "unacceptable" result of permitting Congress to ban the political speech of media corporations. Although media corporations were exempt from the federal ban on corporate expenditures, the Court announced that upholding the antidistortion rationale would allow their speech to be restricted, in violation of First Amendment precedent. In sum, the Supreme Court in Citizens United overruled its holding in Austin and the portion of its decision in McConnell v. FEC upholding the facial validity of the BCRA prohibition on electioneering communications, finding that the McConnell Court relied on Austin . The Supreme Court has clarified that its holding in Citizens United applies to state and local law. In American Tradition Partnership v. Bullock , the Court rejected arguments made by the State of Montana attempting to distinguish a Montana law from the federal law invalidated by Citizens United . Reversing a Montana Supreme Court ruling, the Supreme Court found that the arguments proffered by the state either had already been rejected in Citizens United or did not distinguish that ruling in a meaningful way. The Court reiterated that "political speech does not lose First Amendment protection simply because its source is a corporation." Throughout the history of its campaign finance jurisprudence, the U.S. Supreme Court has found that limits on contributions are afforded less rigorous scrutiny under the First Amendment than limits on expenditures. As a result, with some notable exceptions, the trend of the Court has been to uphold limits on contributions, but invalidate limits on expenditures. Its most recent rulings, however, have announced that only quid pro quo corruption or its appearance constitute a sufficiently important governmental interest to justify limits on both contributions and expenditures. Spending large sums of money in connection with elections without attempting to control how an officeholder exercises his or her official duties does not give rise to corruption, the Court has found. Further, government interests in lessening influence over or access to elected officials have been soundly rejected, as well as interests in lessening the costs of campaigns and equalizing financial resources among candidates. As a result, in 2014, the Court overturned limits on aggregate contributions. Although the Court did not expressly adopt a stricter standard of review for contribution limits, the Court's finding may have a doctrinal impact on the constitutionality of contribution limits in future rulings. | The First Amendment to the U.S. Constitution provides that "Congress shall make no law ... abridging the freedom of speech, or of the press." This provision limits the government's power to restrict speech. In 1976, the Supreme Court issued its landmark campaign finance ruling in Buckley v. Valeo. In Buckley, the Court determined that limits on campaign contributions, which involve giving money to an entity, and expenditures, which involve spending money directly for electoral advocacy, implicate rights of political expression and association under the First Amendment. In view of the fact that contributions and expenditures facilitate speech, the Court concluded, they cannot be regulated as mere conduct. The Court in Buckley, however, afforded different degrees of First Amendment protection to contributions and expenditures. Contribution limits are subject to more lenient review because they impose only a marginal restriction on speech, and will be upheld if the government can demonstrate that they are a "closely drawn" means of achieving a "sufficiently important" governmental interest. On the other hand, expenditure limits are subject to strict scrutiny because they impose a substantial restraint on speech. That is, limits on expenditures must be narrowly tailored to serve a compelling governmental interest. Therefore, in Buckley and its progeny, the Court has generally upheld limits on contributions, finding that they serve the governmental interest of protecting elections from corruption, while invalidating limits on independent expenditures, finding that they do not pose a risk of corruption. Importantly, the Court's recent case law has announced that only quid pro quo corruption or its appearance constitute a sufficiently important governmental interest to justify limits on contributions and expenditures. Although the Supreme Court's campaign finance jurisprudence has shifted over the years, the basic Buckley framework has generally been applied when determining whether a campaign finance limit violates the First Amendment. This report discusses current Supreme Court and other case law evaluating the constitutionality of limits on contributions and expenditures. For example, while the Court has generally upheld reasonable limits on contributions, it has invalidated them when it found that they were too low, prohibited minors age 17 or under from contributing, and after determining that aggregate contribution limits serve as a complete ban once the aggregate amount has been reached. The Court has also ruled that a series of staggered increases in contribution limits for candidates whose opponents significantly self-finance their campaigns are unconstitutional. An appellate court has held that limits on contributions to groups making only independent expenditures are unconstitutional, which resulted in the creation of super PACs. Cases including McConnell, Davis, SpeechNow.org, McCutcheon, and Williams-Yulee are examined. The Supreme Court has overturned limits on candidate expenditures, including limits on candidates using personal wealth to finance campaigns, as well as on independent expenditures by political parties. Further, the Court has held that requiring parties to choose between coordinated and independent expenditures after nominating a candidate is unconstitutional because it burdens the right of parties to make unlimited independent expenditures. On the other hand, the Court has upheld limits on party coordinated expenditures because they are functionally similar to contributions. The Court has also invalidated a long-standing prohibition on corporations, and it appears labor unions, using treasury funds for independent expenditures, finding that regardless of the speaker being a corporation, such expenditures are protected speech. Cases including Colorado Republican Federal Campaign Committee, Randall, Wisconsin Right to Life, and Citizens United are discussed. |
T he U.S. Food and Drug Administration (FDA) ensures the safety of all food except for meat, poultry, and certain egg products over which the U.S. Department of Agriculture (USDA) has regulatory oversight. Under the Federal Food, Drug, and Cosmetic Act (FFDCA), the FDA has the authority to regulate the manufacturing, processing, and labeling of food, with the primary goal of promoting food safety. Congress has granted the FDA with the authority to take both administrative and judicial enforcement actions. The agency initiates and carries out administrative enforcement actions while judicial enforcement actions, including seizures and injunctions, require some type of involvement by the courts. Additionally, administrative enforcement actions, such as inspections and warning letters, tend to precede any judicial enforcement action. The Food Safety Modernization Act (FSMA) expanded the FDA's enforcement authority with new and broader measures. The FDA's implementation of FSMA and related delays in the rulemaking process, in addition to general oversight of FSMA's new food safety provisions, are of continuing interest to Congress. This report focuses on the FDA's statutory authority to initiate the following administrative enforcement actions: inspections, warning letters, recalls, suspension of registration, administrative detention, and related legal issues. Section 301 of the FFDCA prohibits the violation of any of the substantive provisions of the act and serves as the basis for the FDA's enforcement actions. Under Section 301, "causing" any of the prohibited acts as well as the act itself is prohibited. The specific enforcement mechanisms available to the agency to enforce the FFDCA are found throughout the act. Private citizens do not have the right to sue to enforce the FFDCA. Section 310(a) states that "all ... proceedings for the enforcement, or to restrain violations, of this [act] shall be by and in the name of the United States." The FDA conducts inspections of regulated facilities in order to oversee a firm's compliance with the FFDCA and corresponding regulations. The FFDCA grants the agency with the enforcement authority to inspect both facilities and records. However, courts have generally held that inspections properly executed under the FFDCA do not violate the Fourth Amendment rights against search and seizure of the facility owners. This section examines the inspection enforcement authority of both facilities and records. Because of FSMA's mandate to increase the number of inspections by the FDA, this section also discusses the tools and methods used by the agency to target inspection resources effectively and efficiently. The section concludes by analyzing the Fourth Amendment protections embedded within this particular enforcement authority. The FFDCA authorizes designated FDA employees to enter "at reasonable times and within reasonable limits and in a reasonable manner" any factory, warehouse, or establishment in which food is manufactured, processed, packed, or held for introduction into interstate commerce. Generally, courts have interpreted "reasonableness" in this context by considering whether the inspection meets the statutory requirements outlined in Sections 703 and 704 of the FFDCA. This inspection authority covers all pertinent equipment, finished and unfinished materials, containers, and labeling at these locations. The FDA inspector must present the appropriate credentials and a written notice to the owner, operator, or agent in charge before entering the facility. However, the act does not require the FDA to include the reasons for the inspection in this notice. After the inspection, the FDA employee presents the owner, operator, or agent in charge with a written report setting forth the conditions or practices observed. This report notes any food that contains filthy, putrid, or decomposed substances, or whether the food has been prepared, packed, or held under insanitary conditions, leading to contamination that may be injurious to a consumer's health. The FDA employee also provides the owner, operator, or agent in charge with a receipt for any samples obtained during the inspection. Refusal to permit an FDA inspector to duly enter and inspect a regulated facility violates the FFDCA and may lead to the FDA seeking further judicial enforcement action, such as an inspection warrant issued by a district court. If the FDA reasonably believes that an article of food is likely to be adulterated and presents a threat of serious health consequences or death to humans and/or animals, then the FDA may inspect the records related to that food. According to the FDA, such determinations are fact specific, and thus are made on a case-by-case basis. The holder of the relevant records must make the records accessible to the FDA within 24 hours from the receipt of the official FDA request. The holders of these records include those who manufacture, process, pack, distribute, receive, hold, or import the food. The FFDCA generally exempts farms, restaurants, and some retail food establishments from these record requirements. FSMA directed the FDA to increase the frequency of inspections at all facilities. For domestic high-risk facilities, the FDA must inspect each facility at least once between January 4, 2011, and January 4, 2016, and then once every three years after January 4, 2016. For domestic facilities that are not high risk, the FDA must inspect each facility once between January 4, 2011, and January 4, 2018, and then once every five years after January 4, 2018. FSMA required the FDA to create "risk profiles" of certain foods susceptible to microbial contamination in order to assist the FDA with scheduling inspections and allocating resources to accommodate this increased frequency of food facility inspections. A risk profile incorporates known safety risks of the food that is manufactured, processed, packed, or held at the facility. The profile also addresses the compliance history of the facility, and the effectiveness of the facility's hazard analysis and risk-based preventative controls. Generally, government inspections are a form of a search, and thus are constrained by the Fourth Amendment's prohibition against "unreasonable searches and seizures." However, courts have held that the FDA is not required to obtain a search warrant to inspect a facility under Section 704 of the FFDCA as long as the FDA conducts the inspection reasonably as to time, place, and method. In a case involving the inspection authority pursuant to the Gun Control Act of 1968, the U.S. Supreme Court in U.S. v. Biswell stated that a warrantless inspection is reasonable under the Fourth Amendment when a statute provides the authority to conduct an inspection in a carefully limited manner. The Court expanded on this principle in New York v. Burger by holding that an owner of commercial premises in a closely regulated industry has a reduced expectation of privacy regarding inspections by the government. Therefore, according to the Court in Burger , a warrantless inspection of the commercial premises by the government may be reasonable under the Fourth Amendment. The Court in this case outlined three criteria that would deem a warrantless government inspection as reasonable under what the Court referred to as the Colannade-Biswell doctrine. First, a substantial government interest must support the regulatory inspection scheme. Second, the warrantless inspections must be "necessary to further [the] regulatory scheme." Finally, the regulatory statute must function as a warrant by limiting the discretion of the inspecting officers and by advising the owner of the commercial premises that the government may conduct a search within the properly defined scope of the law. Applying the Colannade-Biswell doctrine to FDA inspections, lower courts have concluded that these inspections generally further a federal interest in food safety, and thus may proceed without a warrant despite the potential threat to privacy. In U.S. v. New England Grocers Supply Co., the court held that neither a warrant nor consent was required to inspect the defendant's warehouse because the government's interest in food safety underlies the FDA's inspection regulations and the agency conducted the searches reasonably as to time, manner, and scope. Although considering the search and seizure of veterinary drugs, the Ninth Circuit in U.S. v. Argent Chemical Laboratories, Inc. held that an FDA inspection pursuant to the relevant FFDCA provisions satisfied the Colannade-Biswell doctrine because a substantial government interest is present regarding the safety and effectiveness of the product; unannounced, warrantless inspections further the regulatory scheme by having a deterrent effect; and finally the FFDCA and accompanying regulations define the scope of the search and serve as a "[C]onstitutionally adequate substitute for a warrant." Section 309 of the FFDCA permits the FDA to decline to institute formal enforcement proceedings for "minor violations of this [act] whenever [the agency] believes that the public interest [would] be adequately served by a suitable written notice or warning." These warning letters give recipient firms an opportunity to take voluntary corrective actions before the FDA initiates more formal enforcement action. A warning letter sent by the FDA also establishes prior notice and documents prior warning if adequate corrections are not made and further enforcement action is necessary. The FDA may consider issuing a warning letter if the agency has found evidence that a firm or product violates the FFDCA and that failure to correct such a violation may lead to the agency's consideration of further formal enforcement action. The agency may favor a warning letter as a more efficient enforcement option if the agency reasonably expects that the responsible firm or persons would take prompt corrective action after receiving such a letter. Warning letters include two types of correspondence: a regulatory letter and a report of investigation finding. A regulatory letter warns the violator that formal enforcement is likely in the absence of voluntary compliance. A report of investigation finding (also referred to as an information letter) requests voluntary correction by the addressee. Both methods of communication are informal and advisory. An FDA warning letter typically is labeled as such and includes the dates of the inspection during which the agency discovered the statutory violation(s). The letter would also request the recipient to institute corrective action(s) and to return a written response to the agency's warning letter. The FDA generally includes a warning in the letter that failure to correct the violation promptly may result in additional enforcement action. FDA warning letters are informal and advisory. A warning letter may communicate the FDA's position on a certain issue but does not commit the agency to taking any further enforcement action. Thus, the FDA has concluded that a warning letter does not qualify as a final agency action subject to judicial review under the Administrative Procedure Act. Courts generally agree with this interpretation of the legal status of warning letters. In Holistic Candlers and Consumers Ass'n v. FDA, the D.C. Circuit found that the agency's warning letters requesting that the addressee take prompt action to correct certain FFDCA product violations did not qualify as final agency action, and thus could not serve as the basis for the addressee's legal claim against the agency. The D.C. Circuit further articulated that in order for any agency action to be "final" the action must mark the beginning of the agency's decision-making process, and that the action must be one from which "legal consequences will flow." According to the court, an FDA warning letter is not final because it provides firms with an opportunity to take voluntary corrective action before the FDA decides to initiate any enforcement action. Additionally, the court concluded that "legal consequences" cannot arise from warning letters due to their informal and advisory nature. Similarly, the Ninth Circuit in Biotics Research Corp. v. Heckler emphasized the point that FDA regulatory letters do not constitute final administrative determinations subject to judicial review due to the absence of any commitment on behalf of the FDA to follow the correspondence with additional enforcement actions. The recall process permits the FDA to enforce the adulteration and misbranding provisions of the FFDCA by encouraging industry participants to remove the product and correct the violation. This section addresses this FDA recall enforcement authority by first analyzing the various triggers of the recall process and then by examining the FDA recall process itself. This section concludes with an analysis of the due process concerns related to the mandatory recall enforcement authority. FDA regulations define a "recall" as a firm's removal or correction of a marketed product that the FDA considers to be in violation of the laws it administers and against which the agency would initiate legal action, such as a seizure. Under these regulations, a "recall" is different from a "market withdrawal." A market withdrawal is a firm's removal or correction of a distributed product that involves a minor violation that would not be subject to legal action by the FDA. A market withdrawal may not involve an FFDCA violation at all. Normal stock rotation practices and routine equipment adjustments and repairs may prompt a market withdrawal. The FDA may assist a firm issuing a market withdrawal when the cause for withdrawal may not be obvious or clearly understood, but the deficiency of the product is apparent (for example, when a consumer complains of adverse reactions to the product). A common reason for a recall is an undeclared ingredient. These recalls typically violate FFDCA's labeling provisions that require food labels to declare major food allergens. A food label subject to such type of recall may not include a statement after the ingredient list disclosing that the food contains a major food allergen, or the label may list the major food allergen in the ingredients but not by the common or usual name. For example, Whole Foods Market recalled its organic creamy spinach dip in December 11, 2013, because the label did not disclose that the dip contained eggs, a major food allergen. Another common trigger of a recall is the detection of microbiological contamination, such as Salmonella enteritidis and L isteria monocytogenes . For example, Flat Creek Farm & Dairy recalled 200 pounds of Heavenly Blue Cheese in November 26, 2013, due to potential contamination with Salmonella enteritidis. Recalls due to microbiological contamination often arise because of a firm's violation of the FDA's Current Good Manufacturing Practices (CGMPs). CGMPs outline the methods, equipment, facilities, and controls to produce safe and wholesome food. If the FDA determines that there is a reasonable probability that an article of food is adulterated or misbranded and the use or exposure to such article of food will cause serious health consequences or death to humans or animals, the FDA then provides the responsible party with the opportunity to cease distribution and recall such article of food voluntarily. While most recalls are "voluntary" or "requested by the FDA," FSMA granted the FDA with the authority to issue mandatory recalls. If the responsible party does not cease distribution or recall such an article of food within the time and manner prescribed by the FDA or refuses to act at all, the FDA may require the responsible party to immediately cease distribution of the violative product. The FDA must provide the responsible party with the opportunity to initiate a voluntary recall before the agency issues the mandatory recall order. After receiving the mandatory recall order, the responsible party then notifies the following people of the recall: those involved in manufacturing, processing, packing, transporting, distributing, receiving, holding, importing, or selling of the product. The responsible party must also provide third-party warehouses with sufficient information to identify the article of food covered by the recall. FDA guidance outlines five broad phases as part of the recall process for both voluntary and mandatory recalls. The five phases are as follows: initiation, classification, notification, monitoring, and termination. The recalling firm and the FDA take different steps to initiate the recall depending on whether the recall is voluntary, requested by the FDA, or mandated by the FDA. When a company voluntarily initiates a recall, FDA regulations recommend that the recalling firm immediately contact the FDA. At this phase, the recalling firm provides the FDA with the following information: identity of the product involved in the recall; reason for removal; an evaluation of the risk; total amount of such products produced and distributed; distribution information; and a proposed strategy for conducting the recall. The FDA may request a recall if a product presents a risk of illness, injury, or gross consumer deception; the firm has not initiated a recall of the product; and agency action is necessary to protect public health and welfare. If the FDA has requested the recall, the FDA notifies the firm that has the primary responsibility for the manufacture or marketing of the product of the need to recall the product immediately. The firm then provides the agency with similar information to that described in the above paragraph. If the FDA has issued a mandatory recall, the FDA then issues a written order to the firm to recall the product. The order includes the provision of the act violated by the firm that prompted the recall, the basis for FDA's authority to issue the recall, a description of the product, and a time frame for the firm to reply. After either the FDA or the firm initiates the recall, the FDA evaluates the health hazard presented by the product and looks at whether a precedent exists to guide strategy based on this specific health hazard. Relying on the information from the evaluation, the FDA classifies the recall according to the health hazard presented by the recalled product. A reasonable probability of serious adverse health risks and/or death triggers a Class I recall. A Class II recall covers products that may cause a temporary or medically reversible adverse health outcome. A Class III recall includes violative products that are unlikely to cause an adverse health outcome. When classifying a recall, an ad hoc committee of FDA scientists may take into account the following factors: "(1) Whether any disease or injuries have already occurred from the use of the product. (2) Whether any existing conditions could contribute to a clinical situation that could expose humans or animals to a health hazard.... (3) Assessment of hazard to various segments of the population ... who are expected to be exposed to the product being considered, with particular attention paid to the hazard to those individuals who may be at greatest risk. (4) Assessment of the degree of seriousness of the health hazard to which the populations at risk would be exposed. (5) Assessment of the likelihood of occurrence of the hazard. (6) Assessment of the consequences (immediate or long-range) of occurrence of the hazard." In conjunction with the classification, the FDA reviews the recall strategy presented by the firm. The strategy addresses the depth and scope of the recall, a communication plan to warn the public, and methods used to measure the effectiveness of the recall. After classification, the firm must then notify affected parties. FDA regulations state that the format, content, and extent of the recall communication should reflect the hazard of the product being recalled as well as the strategy for that particular recall. Recall communications should convey information that identifies the product in question and the reason for the recall and provide instructions regarding any specific actions that should be taken with the product. FDA guidance also outlines the scope of recipients. These recipients may include the wholesale distributor, retail vendor, or the consumer, depending on how far the violative product has been distributed in commerce. In addition to recall communications issued by the firm, the FDA also notifies other federal agencies and state and local governments of the recall and relevant information. Additionally, the FDA agency publicly discloses all recalls on its website, and may also notify consumers by issuing a press release for Class I recalls. The FDA lists each recall and accompanying information in its weekly FDA Enforcement Report. The agency does not include market withdrawals or stock recoveries in this report. The recalling firm has the legal responsibility to monitor the effectiveness of the recall. As part of this monitoring, the firm must submit recall status reports to the appropriate FDA district office, generally every two to four weeks. These reports update the agency on the number of individuals who were notified, the response to these notifications, and the number of products returned. The FDA can provide assistance with monitoring the effectiveness of the recall if some substantial difficulty is present, such as when the product is widely dispersed on the consumer level. The FDA may also audit the recall independently of this assistance to ensure that the recall action has been effective. The FDA terminates a recall when the firm has completed all recall activity, as required by the previous phases. When the FDA makes such a final determination, the agency provides a written notification of the termination to the recalling firm. Generally, the agency officially terminates a successful recall within three months of the recalling firm's completion of the recall activities. Before Congress granted the FDA with the mandatory recall authority under FSMA, commentators speculating about the possibility of this method of enforcement raised concerns about due process. Commentators were particularly concerned with the protection of a firm's interests against a potentially arbitrary mandatory recall order. FSMA's provision mandating that the FDA shall provide the responsible party subject to a mandatory recall order with the opportunity for an informal hearing addresses these due process concerns. This informal hearing must occur no later than two days after the mandatory recall order. The hearing is designed to address the actions required by the order. The recalling firm also has the opportunity at the hearing to argue against the recall and to articulate reasons for its termination. After the hearing, the FDA may then amend the order to specify a timetable for the recall and to require periodic reports, submitted by the responsible party, updating the agency on the recall's progress; or the agency may vacate the order if the agency determines at the hearing that adequate grounds do not exist for the recall. The FFDCA requires all food facilities to register with the FDA and to renew such registration biennially so that the agency may effectively oversee all areas of food production. To register, facilities must submit the following information to the FDA: the name (including trade names), address, and phone number of the facility, and the food product categories associated with that facility. All food facilities that manufacture, process, pack, or hold food for consumption in the United States must complete this registration process. However, FDA regulations exempt foreign facilities, where the food from such facility undergoes further manufacturing or processing by another facility outside the United States. Farms, retail food establishments, restaurants, and meat and egg facilities that are regulated exclusively by the USDA are also exempted from these requirements. The FFDCA authorizes the FDA to suspend the registration of a food facility to enforce the public health and safety provisions of the act. If the FDA determines that a food manufactured, processed, packed, received, or held by a facility has a reasonable probability of causing serious adverse health consequences or death to humans or animals, the agency may suspend the registration of a facility that created, caused, or was otherwise responsible. The agency may also order a registration suspension of a facility that knew of or had reason to know of such reasonable probability of harm and packed, received, or held such food. With its registration suspended, a facility cannot import or export food into the United States or introduce food into interstate or intrastate commerce in the United States. Any distribution of food products from such facility violates the FFDCA and may lead to the FDA taking further enforcement action. Food facility registration and the suspension of such registration enable the agency to determine the location and source of an outbreak of food-borne illnesses and thus notify facilities that may be affected quickly and efficiently. Similar to other enforcement actions, the suspension provision in the FFDCA offers due process protections for a facility subject to a registration suspension. The FDA must provide a registrant with the opportunity for an informal hearing no less than two business days after issuing a suspension order. The hearing gives the registrant an opportunity to present reasons for reinstating the registration. If at the hearing, the FDA determines that a suspension is necessary, the registrant must then submit a corrective action plan to the agency. The FDA will reinstate a registration if the agency determines, based on the evidence presented at the hearing, that adequate grounds do not exist to continue the suspension of the registration. When the FDA determines that adequate grounds do not exist to continue the suspension, the FDA will then vacate the order suspending the facility's registration and reinstate the registration for that particular facility. Under Section 304 of the FFDCA, a designated FDA employee may order the detention of any article of food that is found during an FDA inspection if the employee has reason to believe that such article is adulterated or misbranded. Under this administrative detention authority, FDA may prevent holders of illegal articles from moving the food before a federal district court issues a warrant permitting the agency to seize the food. This enforcement authority also permits the agency to prevent consumption of the illegal articles in an effort to ensure public safety. The FDA may detain the food under an administrative detention for a reasonable period, generally measured by the time necessary to institute a seizure action. The FFDCA states that such period cannot exceed 30 days. Any person, who is entitled to claim the article, may file an appeal of the detention order. The claimant must file the appeal within two calendar days upon receipt of the detention order for perishable food and within four calendar days upon receipt of the detention order for nonperishable food. Upon such appeal, the FDA must then grant the claimant the opportunity for an informal hearing. At the informal hearing, the agency can either terminate or confirm the order, which serves as a final agency action. Generally, federal courts lack jurisdiction over agency actions committed under the agency's discretion as granted by law, including, for example, most of the statutory enforcement authorities discussed in this report. However, a federal court may exercise judicial review of an agency's activities, if such an activity is a final agency action; the party subject to the agency action has exhausted the procedures provided by the agency; and no other remedies at law are present. Therefore, the agency's termination or confirmation of an administrative detention order may be subject to judicial review. | The U.S. Food and Drug Administration (FDA) ensures the safety of all food except for meat, poultry, and certain egg products over which the U.S. Department of Agriculture (USDA) has regulatory oversight. Under the Federal Food, Drug, and Cosmetic Act (FFDCA), the FDA has the authority to regulate the manufacturing, processing, and labeling of food with the primary goal of promoting food safety. Congress has granted the FDA the authority to take both administrative and judicial enforcement actions. The agency initiates and carries out administrative enforcement actions while judicial enforcement actions, including seizures and injunctions, require some type of involvement by the courts. Additionally, administrative enforcement actions, such as inspections and warning letters, tend to precede any judicial enforcement action. The Food Safety Modernization Act (FSMA) expanded the FDA's enforcement authority with new and broader measures. This report focuses on the statutory authority and legal issues relating to the following administrative enforcement actions: inspections, warning letters, recalls, suspension of registration, and administrative detention. Inspections: The FDA conducts inspections of regulated facilities in order to oversee a firm's compliance with the FFDCA and corresponding regulations. The FFDCA grants the agency with the enforcement authority to inspect both facilities and records. However, the act narrowly tailors this authority in order to balance the protection of the facility owners' Fourth Amendment rights and the promotion of public health. Warning Letters: Under the FFDCA, the FDA also has the ability to decline to institute formal enforcement proceedings for minor violations of the act if the agency believes that it could adequately serve public interest through written correspondence to violators. These warning letters give recipient firms an opportunity to take voluntary corrective actions before the FDA initiates a more formal enforcement action. Recalls: The recall process permits the FDA to enforce the adulteration and misbranding provisions of the FFDCA by encouraging industry participants to remove the product and correct the violation. FDA regulations outline several steps that both the firm and agency must take when issuing either a voluntary or mandatory recall. FSMA granted the FDA the authority to issue a mandatory recall. FSMA also established the opportunity for an informal hearing, at which a firm may dispute these types of recalls, in order to protect the due process rights of the recalling firms. Suspension of Registration: The FFDCA requires all food facilities to register with the FDA so that the agency may effectively oversee all areas of food production. If the FDA determines that a food manufactured, processed, packed, received, or held by a registered facility has a reasonable probability of causing serious adverse health consequences or death to humans or animals, the agency may suspend the registration of a facility that created, caused, or was otherwise responsible. This enforcement authority is intended to permit the agency to determine the location and source of an outbreak of food-borne illness and thus notify facilities that may be affected quickly and efficiently. Administrative Detention: Under the FFDCA, an FDA employee may order the detention of any article of food that is found during an FDA inspection if the employee has reason to believe that such article is adulterated or misbranded. Under this administrative detention authority, the FDA may prevent illegal articles from being moved or consumed until the court grants a seizure order. |
Transportation congestion most likely will be a major issue for Congress as it considers reauthorization of the Safe, Accountable, Flexible, Efficient Transportation Equity Act—A Legacy for Users ( SAFETEA), P.L. 109-59 , which is set to expire on September 30, 2009. By many accounts, congestion on the nation's road and railroad networks, at seaports and airports, and on some major transit systems is a significant problem for many transportation users, especially commuters, freight shippers, and carriers. Moreover, trends underlying the demand for freight and passenger travel—population and economic growth, the urban and regional distribution of homes and businesses, and international trade—suggest that pressures on the transportation system are likely to grow in the years ahead. A number of experts and organizations believe that congestion has reached crisis proportions. In announcing a new National Congestion Strategy in May 2006, then Secretary of Transportation Norman Mineta stated that "congestion is one of the single largest threats to our economic prosperity and way of life." In a similar vein, the Transportation Research Board (TRB) currently has congestion on its "critical issues" list as one of the most pressing problems of the transportation system, arguing "if the 20 th century can be called the era of building, the 21 st may be called the era of congestion." More recently, in January 2007, the U.S. Government Accountability Office (GAO), for the first time, placed transportation financing and capacity on its list of high-risk federal programs and operations. Not everyone agrees that congestion is a major, national problem. Some see it as a minor impediment to mobility, others as an unfortunate by-product of prosperity and accessibility in economically vibrant places. Several environmental groups argue that congestion is less the problem than the over reliance on the cars and trucks that cause it. Indeed, this over reliance on highway transportation, they believe, leads to more important problems, such as suburban sprawl and air pollution. Furthermore, because the problem is geographically concentrated, most places and people in America do not suffer noticeable levels of congestion. Thus, many might question to what extent transportation congestion is a national problem warranting a federal government response. In uncongested regions, transportation problems are more often to do with basic connectivity of the transportation system, system access, and economic development. Connectivity, system access, economic development, and congestion relief are some of the objectives of national transportation policy that also include mitigating the negative effects of transportation, such as deaths, injuries, and environmental damage. According to 49 U.S.C. § 101, The national objectives of general welfare, economic growth and stability, and security of the United States require the development of transportation policies and programs that contribute to providing fast, safe, efficient, and convenient transportation at the lowest cost consistent with those and other national objectives, including the efficient use and conservation of the resources of the United States. To accomplish these objectives, the federal government regulates transportation activities and provides funding to encourage states and local governments to build and operate transportation infrastructure. Since the beginnings of this "federal-aid" system, there have been major debates about how these funds should be distributed and spent. An underlying tension throughout these debates has been whether to distribute funds to encourage the pursuit of nationally defined transportation goals, such as the building of the Interstate system, or to distribute funds equally between the states (according to a predefined formula) and allow them to pursue their own objectives. In SAFETEA, about 90% of highway funds are authorized to be distributed by formula, and states are guaranteed by FY2008-FY2009 a 92% return on money paid into the highway account of the Highway Trust Fund. Because transportation congestion is geographically concentrated, Congress has tended to favor a state and local approach to solving transportation congestion in the recent history of the federal surface transportation program. This has been accompanied by several sizeable boosts in funding for public transit and traffic reduction measures directed to major metropolitan areas in an attempt to curb the negative effects of cars and trucks, including road traffic congestion. Congress also has enacted a patchwork of other programs to deal with congestion at the national level, with some success, but these have generally been relatively modest efforts. Consequently, the flexibility provisions of recent federal laws, and with them the equity provisions that attempt to return to each state the taxes paid by its highway users into the highway account of the Highway Trust Fund, have largely left it to the states, and in some cases metropolitan planning organizations, to decide funding priorities. The extent to which Congress decides congestion is a national problem to be solved by federal dictates, and funding may be a major issue in reauthorization. Congress may decide its current "bottom-up" approach to planning and programming transportation improvements, with some modifications, is the best approach to congestion in the broader scheme of transportation priorities. Conversely, Congress may decide that congestion warrants a stronger role for the federal government. Three broad elements of the issue are discussed here: overall levels of transportation spending, the prioritization of transportation spending, and congestion pricing and other alternative rationing schemes that require limited government spending. Although congestion is being experienced throughout the transportation system, including at ports and airports, this report is limited to a discussion of congestion associated with the surface transportation system—highways, public transit, and freight and passenger rail. Because these modes connect with ports and airports, there is some discussion of intermodal issues at these nodes as well, but the report does not discuss congestion in the waterway or airway systems per se. This report begins by outlining in broad terms some of the issues that Congress may face in the reauthorization debate. This is followed by a brief history of transportation congestion in the United States, and how Congress has dealt with the issue in the recent past. It then goes on to discuss transportation congestion concepts, measures, and trends, followed by information on the national costs of congestion. The final section lays out some of the major types of congestion remedies that have been proposed by transportation engineers, planners, and policy makers. Most experts agree that surface transportation congestion has grown over the past few decades and, moreover, that the demand for surface transportation services is likely to continue growing over the next few decades. According to one national assessment of highway congestion by the Texas Transportation Institute (TTI), total delay in 437 urban areas increased five-fold between 1982 and 2005, and delay per peak-period traveler almost tripled. Anecdotal evidence suggests that overcrowding is a growing problem in some major transit systems and that conflicts between freight and passenger rail trains (commuter and intercity) are an issue for both. In the freight rail industry, the Congressional Budget Office (CBO) notes that average speeds, one indicator of congestion, are lower now than at anytime since the early 1980s except for the 1997-1998 period following the merger of Union Pacific and Southern Pacific. With dramatic increases in foreign trade, many fear that ports and border crossings have become significant bottlenecks to the flow of commerce. Despite these trends, the question remains as to whether or not congestion is a national problem and, therefore, should be a specific goal of national transportation policy. Although congestion has intensified and spread, congestion is geographically concentrated in major metropolitan areas, at international trade gateways, and on some intercity trade routes. Because of this geographical concentration, most states and localities do not suffer any appreciable transportation congestion directly. Moreover, some argue that even in places with relatively intense congestion problems, it only adds a few extra minutes to daily travel and that many actually enjoy the extra time alone in the car away from the pressures of work and family. Seen in terms of an entire trip, including the time it takes to park and walk to the office, one expert believes the extra time caused by freeway delay is relatively minor. Some even go so far as to suggest that much like a crowded restaurant or nightclub, congestion is a sign of success and its costs must be balanced against the benefits of access to jobs, stores, recreational amenities, etc. that congested regions provide. Environmental organizations generally argue that road traffic congestion results from an unbalanced transportation system, one that favors cars and trucks, and that urban sprawl, air pollution, and noise, not road traffic congestion per se, should be the focus of national policy. The alternative view is that transportation congestion is a major problem, national in scope, and, if unchecked, a problem that will intensify and spread over the next 25 years. Many experts point out that although congestion may be highly localized, because transportation is a network that serves the U.S. population in a variety of ways, its economic effects are national. Most obviously, freight movement is largely dependent on a national transportation network in which a bottleneck in one place, such as southern California, may affect businesses and consumers in largely congestion-free Nebraska. Moreover, these experts point out the national network effects are becoming increasingly important as supply chains lengthen and become more complex. Similarly, although passenger transportation is mostly a local affair, congestion on roads that service airports and other passenger terminals may also result in inefficient intercity passenger travel, dragging down the productivity of businesses that rely on it for managing far-flung operations. Local congestion may also be thought of as a national issue in that the places where it is found tend to be the hubs of the national economy and its costs, therefore, are not inconsequential in terms of the national economy. For instance, the 28 metropolitan areas that experienced 40 hours or more of annual delay per peak-period traveler (as measured in 2005 by TTI) account for more than 45% of total personal income in the United States (in 2005). Most businesses rely, to one degree or another, on the efficient transportation of people locally, whether it is the transportation of managers to business meetings, workers to work, or customers to places where products are consumed. Research has shown that metropolitan areas with the largest labor markets tend to have the highest productivity. Consequently, when added together, the local costs of congestion, some argue, are significant in national terms. Another commonly expressed view is that given current trends in the supply and demand for transportation the problems of congestion will affect more people and more businesses in the future. Road traffic congestion, for instance, is growing fastest in the smaller urban areas included in the TTI study, though admittedly from a small base. However, research by the Federal Highway Administration (FHWA) shows a wider problem when it projects future demand on the current highway system. Underlying these trends are broader trends in population and the economy. For example, the population is expected to reach 364 million by 2030, an increase of about 20% from 2007. Over the same period, the CBO projects GDP to increase by about 70% (in real terms). Furthermore, the FHWA predicts that freight movements will nearly double between 2002 and 2035. The federal surface transportation program approach to congestion tends to view it as a state and local issue, not as a major national problem. At least as far back as passage of the Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991 ( P.L. 102-240 ), Congress has tended to leave to the discretion of the states, within certain planning parameters, the relative weight to be placed on congestion mitigation vis-à-vis other transportation priorities. In this regard, many argue that governments and other stakeholders closest to transportation problems are in the best position to craft solutions. Another issue since the 1980s, with the near completion of the Interstate system, has been the controversy regarding state payments to and from the Highway Trust Fund (HTF), known as the "donor-donee" debate. This debate focuses on the perceived fairness of the relative size of each state's payments to and receipts from the highway account of the Highway Trust Fund. Increasingly over the years, federal law has attempted to equalize these amounts rather than concentrate funding where needs are greatest. Several new federal programs to tackle congestion nationally have been developed, but, in dollar terms, these have been relatively modest. Because state and local funding flexibility has been a significant feature of federal transportation policy since ISTEA, Congress may decide to continue with this approach in reauthorization. States and localities that suffer major transportation congestion would be free to devote federal and local resources to congestion mitigation if they wish. Similarly, congestion-free locales would be able to focus on other transportation-related problems, such as connectivity, system access, safety, and economic development. Alternatively, Congress may want to take a less flexible and, in other ways, more aggressive approach to congestion mitigation. Three basic elements to the problem that Congress may want to consider are (1) the overall level of transportation spending, (2) the prioritization of transportation spending, and (3) congestion pricing and other alternative ways to ration transportation resources. The amount of federal funding for surface transportation programs is a major issue during all reauthorization debates and will undoubtedly be an issue in the reauthorization of SAFETEA. Some observers contend that America is underinvesting in transportation infrastructure, resulting in deteriorating conditions and worsening performance, including growing congestion. One alternative to addressing transportation congestion, in this view, is a significant increase in the overall level of infrastructure investment to deal with the existing backlog of projects and future needs. The most recent needs assessment by the U.S. Department of Transportation (USDOT) suggests that the cost to maintain the current condition and operational performance of the highway system is about 12% more annually than is being currently spent by all levels of government. For transit, the figure is 25%. Spending to improve conditions and reduce congestion would be greater than this. It should be pointed out that, as with any attempt to estimate current and future system conditions and performance, there are a host of simplifying assumptions, omissions, and data problems that influence the results. Nevertheless, this analysis suggests that if total government spending is not increased above current levels, the physical condition of system elements may decline and congestion, particularly highway congestion, will continue to increase. An alternative view of the overall level of government transportation spending is that it has not been dramatically deficient. In this view, deteriorating performance, and in some places deteriorating conditions, are the result of resources not being directed to the parts of the system that are in greatest demand and, therefore, have the greatest needs for maintenance and expansion. Indeed, USDOT's own analysis of historic spending patterns shows that total government spending in highways and transit, including capital spending, has generally kept pace with usage since the early 1980s, although the federal share has declined. Capital spending by all levels of government on highways per vehicle mile has remained relatively constant since about 1980, at around 2.5 cents per vehicle mile (in real terms). Over this period, the federal share declined from close to 60% to a little under 40% at the end of the 1990s, but has since rebounded to about 44% in 2004. In terms of the nation's transit systems, the USDOT analysis shows that total government spending on capital and operations grew by approximately 80% between 1980 and 2004 (in real terms), much faster than passenger trips, which grew by 12%. The federal share of total spending declined from 42% to 25% over this period. The federal share of capital spending in 2004 was 39%, somewhat lower than the approximately 50% share that existed in the mid-1990s. In 2004, the federal government funded about $36 billion of highway and transit capital expenditure, with 86% going to highways and 14% to transit. The transit share increases to about 16% if all government spending is included. Consequently, assessments of highways nationally reveal that conditions have generally improved overall during the past decade, particularly in rural areas, but have declined in large urban areas. Similarly, bridge conditions have improved, but to a much greater extent in rural areas than in urban areas. As noted above, operational performance on the urban highway system has generally declined, but there are also growing pressures on the higher elements of the rural highway system, especially rural interstates. Transit conditions and performance have remained about the same over the past decade, but rail system performance has declined to some extent. Some experts, however, believe that investment in the freight rail industry fell behind demand at some point over the past decade or so, leading to rail congestion and higher prices for shippers. Freight rail, as a predominantly private industry, depends on investment received mostly from railroad profits or from money borrowed in capital markets to be paid back with future revenues. One view is that these sources of investment will be adequate to cope with future demand. Another view is that because of the great risks inherent in investing in rail infrastructure and the demands of shareholders, the railroads themselves will not be able to supply the necessary capital to expand capacity. In that case, some contend that government financial assistance will be needed, otherwise rail congestion will grow and more freight will be diverted to the roads. As the case of the railroads reminds us, not all transportation infrastructure investment comes from federal, state, and local government. The private sector is a major source of investment and not just in rail transportation. A flurry of recent major privatization efforts, such as the Chicago Skyway and the Indiana East-West Toll Road, have increased interest in this approach. Thus, some argue that there is a need for much greater investment in transportation, but that the federal government should consider using its resources to leverage private investment through public-private partnerships. Others argue that these types of public-private partnerships will be limited to only a few places with the highest profit potential and that investment could be quickly cut off if macroeconomic conditions change. With growing pressure on transportation infrastructure but competing claims on governmental resources, another issue for congressional consideration is improving the efficiency of federal investments. Some argue that prioritizing investments may be a better way to deal with congestion mitigation than the scattershot, "more-is-better" approach. Several aspects of prioritizing federal transportation spending to mitigate transportation congestion could be of interest to Congress. These are prioritizing projects by location and project type, and the issue of mode-neutrality. Inherent in these discussions, of course, is how project decisions are made and the ways in which the relationships between federal, state, and local governments affect the outcome. This is another aspect of prioritization that may be of interest to Congress. Continued federal transportation funding likely will be needed to maintain and operate the transportation system as a whole and to meet other national transportation goals such as rural access, urban mobility, safety, and national security. However, it can be argued that if mitigating congestion in the name of enhancing national mobility and economic productivity is a national goal, then federal funding will need to be focused in the places that promise the greatest return: those with the most congestion. The three major locales of transportation congestion are major metropolitan areas, some intercity trade routes, and foreign trade gateways. An oft-cited argument for targeting federal resources toward congested places is that while the project costs of congestion mitigation are local, the benefits, at least in part, are regional or national in scope. In addition, fixing transportation bottlenecks is very often a hugely expensive proposition and, therefore, beyond the means of a single locality or state. Moreover, many point out that in addition to the pecuniary costs of large transportation facilities, costs associated with local environmental and social disruptions must be mitigated. Another aspect of prioritizing federal funding to mitigate congestion is the way in which projects are planned and funded within states and regions. For the most part, project development and funding decisions are made by state departments of transportation (DOTs). Metropolitan planning organizations (MPOs) have assumed a greater role over the years, but not enough to fundamentally change the traditional federal-state intergovernmental relationship that has existed since the beginning of the Federal-Aid Highway Program. One effect of this, some have suggested, is that highway funding tends to be funneled disproportionately toward rural areas at the expense of urban and suburban areas where needs, including congestion mitigation needs, are greatest. A study of Ohio found this to be the case because many municipal roads are ineligible for state funding, state gas taxes are limited by state law to highway projects, and state apportionments are made equally to counties without regard to needs such as population, miles of road, and traffic volumes. Some of the same processes may also occur within metropolitan regions that comprise many local jurisdictions. For instance, some observers contend that local government officials are often more concerned about receiving their "fair share" of funding than they are about solving regional problems such as transportation congestion. MPOs also tend in most instances to be dominated by suburban areas at the expense of center cities because voting power is often not weighted by population size. Of course, weighted voting is no guarantee that a central city will not be dominated by surrounding jurisdictions when collectively they comprise a larger share of the regional population. A number of other factors have also been found to affect transportation investment decisions. Broad stakeholder involvement requirements in federal law and, in some cases, the need for local voter approval can have a major influence on which types of projects move forward and which do not. For example, freight interests, a relatively minor constituency, argue that such requirements often lead to the prioritization of passenger projects over freight projects. In addition, state and local officials, needing to forge consensus on major investment decisions, tend to favor system preservation, maintenance, and operations projects because they are comparatively easy and quick to implement. By contrast, major capacity expansion projects are typically controversial and can take a decade or two to complete. Added to this is the fact that densely populated urban areas often have limited space available for major new infrastructure and that old and inadequate infrastructure can be very difficult and expensive to expand. Choosing among the types of strategies that provide the most cost-effective reductions in congestion could be done in a number of ways. The most effective projects are likely to vary from place to place and situation to situation, requiring local solutions rather than national dictates. However, Congress may require project alternatives to be chosen after an assessment of the full benefits and costs, with congestion mitigation and economic efficiency as high priorities. A major study of transportation in the United Kingdom found that projects aimed at relieving congestion "offer remarkably high returns, with benefits four times in excess of costs on many schemes, even once environmental costs have been factored into the assessment." A different approach is a performance-based assessment in which a federal standard or goal is set, such as a certain level of congestion reduction, freeing state and local governments to determine the most efficient way of meeting the goal. Another important issue with respect to prioritization is "mode neutrality." Traditionally, federal surface transportation funding has been focused on highways and transit. This has made it difficult to fund projects involving modes that fall outside these categories, such as freight rail or multi-modal projects. Program changes have been made over the years to allow greater flexibility, but some argue that these changes have not gone far enough. An opposing view is that when private transportation infrastructure providers are involved, it is very difficult if not impossible to properly assess the public benefits and costs of public subsidies. Others fear that subsidizing private businesses may substitute public investment for private investment with no net gain for the transportation system, or that such assistance may provide some businesses an unfair advantage over others. Mode neutrality in transportation congestion mitigation is still an issue in the relative balance between funding highways and transit. Some argue that highway congestion cannot be solved by building more highway capacity or otherwise improving service because this only encourages or "induces" more people to travel by highway, thereby restoring the same, or an even higher, level of congestion. Instead, they contend that alternatives such as public transit in concert with land use measures to encourage the use of alternative modes of travel are the only way around congestion. Others argue that so few people use transit to get to work, and even fewer for other reasons, that major new investments in transit capacity, except in a limited number of situations, are not likely to reduce highway congestion appreciably, if at all. The problem and empirical measurement of induced demand are a central element in many of the debates about road traffic congestion. The theory of induced demand suggests that building more road capacity will not solve road traffic congestion because it merely "induces" travelers using other modes, driving on other routes, or driving at other times of the day to travel on the new facility during the peak period, resulting in congestion as bad as that suffered before the expansion. Some suggest it is even possible for congestion to become worse in the long run after a road is built or expanded because the new capacity encourages more development, resulting in proportionally more drivers than the new capacity added. Attaining a definitive answer to this question is difficult because of the confounding factors of regional trends in population and employment growth and other things that lead to changes in transportation habits. However, several studies show that although induced demand is real, it typically takes a number of years for the new capacity to be absorbed, suggesting that new capacity can reduce congestion in the medium term. Moreover, other experts note that while congestion may reassert itself after the addition of major new capacity, the new facilities still serve more travelers than before even if service quality is poor, and the increase in travelers on the new or larger facility may take pressure off other facilities, improving travel over the whole network. Many economists argue that transportation congestion is caused by the way in which service is rationed. In highway transportation, for example, because the marginal cost of driving is so low, congestion is the main method for rationing peak-period roadway space. Peak-period roadway space is in great demand for deep-seated reasons that have to do with the need for face-to-face interaction in economic and social situations. Thus, at certain times and in certain places, demand for roadway space exceeds supply and vehicles have to queue for the next available space to open up. It is argued that road traffic congestion could be reduced by using different rationing methods. One approach is to limit roadway space to certain types of vehicles or vehicles carrying a certain number of passengers, such as buses or high-occupancy vehicle (HOV) lanes. Another method is to ban a vehicle or driver from driving at certain times for one or more days a week. The method generally favored by economists, however, is to use some sort of pricing mechanism, known as congestion pricing or value pricing . Its supporters argue that not only does road pricing have the potential for solving congestion, it also promotes the most efficient use of highway infrastructure. Detractors argue that road pricing unfairly favors higher-income drivers, may cause severe mobility problems where no reasonable alternative exists, and may, if it raises the cost of traveling in the most dense urban areas, lead to more sprawl and highway congestion farther out from the urban core. Another argument against tolling in general, of which congestion pricing is one form, is that drivers have often already paid for the infrastructure and its maintenance through taxes and fees, and so it amounts to a form of double taxation. Consequently, some suggest that such strategies should be used only to fund and manage new capacity or should not be used at all. Demand for transit service in large cities is typically more concentrated, both in time and by direction, than demand for highway travel. The result can be vehicle overcrowding, service denial, and, because overcrowding tends to increase vehicle dwell times (i.e., time spent at a station or bus stop to discharge and pick-up passengers), overall slower speeds. Despite this, most transit agencies do not differentiate fares on the basis of peak/off-peak service but instead have flat-fare structures and offer unlimited ride passes. As is often pointed out, higher peak-period fares would help to cover the higher costs of providing peak-period service and might persuade some travelers to travel during less busy periods. Even where higher peak-period fares are employed, however, they are not usually high enough to substantially reduce demand peaking. Proposals to introduce differentiated fare schemes to reduce overcrowding—or in places that have them to raise fares even higher at congested times or places—are often viewed skeptically as a way for a transit agency to generate more revenue, particularly from transit-dependent travelers. Others fear such schemes might push public transit users to drive instead, causing greater highway congestion. In freight rail transportation, prices (or "rates" as they are more commonly known) are already the main mechanism used to manage supply and demand. Rates reflect the cost of providing freight rail service and demand. Demand for rail service is largely a function of the overall strength of the economy and the ability of rail transportation to compete with other modes, particularly trucks and barges. With strong demand and constrained supply, economic theory would suggest, all else equal, that rates will increase, providing greater resources for investing in expanding supply. Although the situation is complex, because not all else is equal, the evidence suggests that with greatly improved productivity and strong demand, the financial health of the railroad industry has improved substantially since deregulation. This has allowed railroad companies to make significant investments to maintain the current system and to increase capacity in some places. Nevertheless, there is widespread concern that the railroads will not be able to make sufficient investments to keep up with demand. A number of reasons have been posited for the inability of railroads to invest sufficiently in new capacity to keep up with demand. Clearly, expanding capacity is a slow process, meaning it may take decades for supply and demand to find an equilibrium, if it ever does. Moreover, in many congested urban areas, railroads find it difficult to acquire land for new capacity. Port areas that could benefit from new rail lines and terminal facilities are notoriously space-constrained. The railroads argue that they suffer several inequities that hinder their ability to finance new capacity. The railroads note that, unlike trucking and barge firms, they provide their own infrastructure and must bear the long-term risks associated with owning fixed assets. Furthermore, they argue, other modes pay less in taxes and fees than their use of public infrastructure would warrant, putting the railroads at a competitive disadvantage. Railroads also argue that they are subject to several industry-specific laws that raise their costs in comparison with their competitors. These laws include the Railroad Unemployment Insurance System and some remnants of the Interstate Commerce Act. Ultimately, the railroads argue that despite improvements in their financial situation since deregulation, they continue to have problems earning enough to cover the cost of capital, hindering their ability to compete for financing in capital markets. In this context, a number of public policy alternatives have been suggested to alter the current rationing of public and private resources. One controversial proposal is to impose greater taxes and fees on truck and barge companies to "level the playing field" with railroads. Another is to provide government assistance to railroads to mitigate some of the risks they face, with the goal of increasing the level of investment and accelerating its current pace. On the other hand, some contend that the railroads ought to make a greater financial commitment to solving problems where they impose high external costs, such as places where rail operations contribute significantly to highway congestion. For example, in 2002, northeastern Illinois was estimated to have about 1,700 highway-rail grade crossings that caused nearly 11,000 hours of motorist delay on a typical weekday. Contributions by the railroads to highway-rail grade crossing improvements, such as grade separation projects, however, tend to be a relatively small share of the overall cost. A final consideration in the rationing of resources is what might be called the costs of debate, review, and approval. Some argue that the costs of complying with federal, state, and local regulation stemming from the multitude of planning, environmental, and community involvement laws have substantially increased project costs since the 1960s. These costs include the direct compliance costs of staff time and the indirect costs of project delay that results in foregone opportunities in terms of improved mobility, safety, and the like. Most agree that these laws serve an important purpose and have several benefits. Nevertheless, many would like to reduce the delay caused by the unnecessary duplication of effort and coordination problems among the different parties. In the early years of the century, before the mass production of motor vehicles, congestion generally referred to overcrowded trolley lines and trolley cars in major cities and downtown streets filled with pedestrians and horse-drawn passenger and goods vehicles. For most of the 20 th century, however, transportation congestion meant road traffic congestion. The rapid rise of motor vehicle ownership, particularly with the introduction of Ford's Model T in 1908, together with rudimentary road and traffic control systems, made urban road traffic congestion a major transportation problem by the 1920s. Federal, state, and local governments responded with a significant road-building effort in this period, although road traffic congestion was largely "solved" by the Great Depression and the Second World War. During the Second World War, with the massive diversion of resources to the war effort, automobile use was widely discouraged. Public transit ridership boomed again during this period, reaching an all-time high in the United States in 1946 of 23.4 billion trips. However, car ownership and motor vehicle travel rose rapidly after the war causing another bout of concern with road traffic congestion, particularly in and around cities. Congestion and the threat of future congestion were among the reasons cited by President Eisenhower in his push to create the Interstate Highway Program, although he was against the idea of urban interstates, preferring instead bypasses that would allow through traffic to avoid the central cities. Nevertheless, the cities themselves were insistent that urban interstates were needed to solve urban congestion problems, and Congress obliged in the Federal-Aid Highway Act of 1956 and the Highway Revenue Act of 1956 (P.L. 84-627). Road capacity expanded rapidly following the passage of the 1956 acts that also created the Highway Trust Fund. Less than 20 years later, by the end of 1974, about 36,000 miles of the 42,500 mile system were complete, with another 2,800 miles under construction. Together with the improvement of other urban and rural road networks, road capacity (measured by paved centerline miles of highways and streets ) grew at about the same rate as motor vehicle travel from the mid-1940s to the mid-1960s ( Figure 1 ). The problem of road traffic congestion never disappeared in major cities, but in the 1970s, the most vexing highway transportation problems were energy, air quality and other environmental issues, and highway safety. The growth in road capacity and motor vehicle travel began to diverge in a major way during the 1970s, as shown in Figure 1 . Except for slight dips associated with the oil shocks of 1974 and 1979, motor vehicle travel continued to grow apace. At the same time, growth in road capacity slowed as the interstate system neared completion, maintenance requirements began to absorb more resources, and building new capacity became more expensive and time-consuming as a result of new environmental laws. Consequently, road traffic congestion began to climb quickly again in the 1980s and has continued to rise ever since. Public transportation congestion has not been a major issue since the end of the Second World War, when transit ridership was at an all-time high. On the contrary, the major issue, particularly through the 1950s and 1960s, was the overall lack of riders resulting from increases in motor vehicle ownership, suburbanization, and other changes in work and leisure. By the early 1970s, transit ridership was only a quarter of what it had been at its peak in 1946, dropping from a high of 23.4 billion trips to a low of 6.5 billion trips. In response, many streetcar systems were abandoned in favor of diesel buses, and privately owned and operated transit systems were taken over by public authorities. Public transportation has undergone something of a resurgence since the mid-1970s with the building of a number of new rail systems, particularly light rail, but also heavy rail and commuter rail. Since then, transit ridership has increased modestly to about 10 billion trips in 2005. To put this in context, however, the proportion of all trips made on transit declined by half between 1969 and 2001, as trips by other modes, particularly in personal motor vehicles, increased to a much greater extent. Although not as widespread as road traffic congestion, peak-period transit overcrowding has become an issue in some cities with large numbers of transit commuters and heavily congested roads and railways, such as New York; Chicago; San Francisco; Washington, DC; and Boston. Peak-period overcrowding on the subway in Washington, DC, for instance, has led to proposals for substantially higher fares at the most heavily used times and stations. In addition, because most transit buses do not run on roads with controlled access (e.g., high-occupancy vehicle [HOV] and bus lanes), road traffic congestion also affects bus riders. Until relatively recently, congestion has not been a major issue in freight transportation. The building of the interstates, together with the existing rail, water, and pipeline systems, provided adequate surface freight capacity from the 1960s through the 1980s. According to many analysts, the biggest problem at this time was antiquated federal regulation from laws dating to the late 19 th and early 20 th centuries. Administered mainly by the now defunct Interstate Commerce Commission (ICC), these regulations controlled prices and competition, leading to some major inefficiencies in the transportation of goods. Deregulation beginning in the late 1970s sparked a major reorganization within and across modes that overall has provided shippers with cheaper, more efficient freight transportation and much greater choice. In railroading, for instance, federal regulation made it difficult to abandon little-used or unprofitable lines. Thus, although railroad mileage peaked as early as 1916, it changed little for the next 60 years. Overcapacity was a significant contributor to the financial difficulties of the railroads that reached crisis proportions in the 1970s and subsequently led to deregulation of the industry through the Staggers Rail Act of 1980 ( P.L. 96-448 ). The Staggers Act made it much easier for major railroads to abandon lines or to sell or lease them to non-Class I railroads. Since then, the miles of track owned and operated by Class I railroads have dropped precipitously from 271,000 in 1980 to 162,000 in 2006. Non-Class I railroad mileage consequently has grown, although modestly. Despite less track, railroads today are able to move more freight because technological changes allow them to run heavier, longer, and faster trains. Indeed, freight rail ton-miles increased by 93% between 1980 and 2006. This has also been accomplished with relatively fewer locomotives, freight cars, and employees, marking huge productivity gains since deregulation. Deregulation also played a major role in the reorganization and growth of the trucking industry. New laws such as the Motor Carrier Act of 1980 ( P.L. 96-296 ) and other changes freed up trucking companies to more directly compete against each other, allowed the entry of new firms, and encouraged the development of efficient truck operation and routing. The results have been generally lower prices and higher-quality and more reliable service. Among other things, deregulation played an important role in the shift toward what has been called "coordinated logistics," defined as "the integration of distinct logistics activities, such as cross-modal coordination or the bundling of transportation and inventory control." Deregulation helped remove many of the modal and jurisdictional barriers between carriers. Moreover, with industry consolidation and improvements in productivity and profitability, carriers were able to introduce new technologies and develop innovative services. For instance, over the past few decades, trucking and railroad companies have created networks of trailer-on-flatcar service that combine the advantages of rail and truck transportation. With cheaper and more timely deliveries of goods, shippers have been able to save production and distribution costs by developing longer and more complex supply chains and by cutting back on their inventories of goods. Coordinated logistics, therefore, has raised the importance of transportation in the logistics process and has placed greater emphasis on seamless networks of multiple transportation modes. Coordinated logistics has also been spurred on by extraordinary growth in foreign trade. Foreign trade as a percentage of U.S. Gross Domestic Product (GDP) has grown from 11% in 1970 to 26% in 2005. Consequently, the amount of goods moving through foreign trade gateways—ports, border crossings, and airports—has skyrocketed. For instance, waterborne merchandise trade almost tripled between 1970 and 2006, from 581 to 1,565 million tons. This growth has placed great pressure on the gateways themselves, but also on the transportation networks that serve them—primarily roads and rail lines—and the connection between modes. Among other problems, most of these gateways are located in large urban centers that suffer from high levels of road traffic congestion and have limited space for facility expansion. Many experts now believe the efficiency gains resulting from deregulation and other changes have largely run their course. After declining for years, the cost of logistics to U.S. businesses appears to be increasing, partly because of congestion (see Figure 2 ). In railroading, many lines and terminals are running at or near full capacity. With little or no slack in the system, railroads have become more susceptible to disruptive incidents, such as late loadings and unloadings, breakdowns, and poor weather. Another problem as rail lines reach capacity is the growing conflict between freight and passenger trains (Amtrak and commuter) that, for the most part, use the same lines. As a result, delays are multiplying for both freight and passenger trains, particularly in major urban areas that generate a lot of freight and passenger traffic. In trucking, productivity is now largely dependent on road congestion, the supply of qualified truck drivers, and fuel costs. In line with the rapid growth of motor vehicle ownership and travel, federal surface transportation policy for most of the 20 th century focused on road connectivity and capacity, particularly with a view to providing basic access in rural areas and then intercounty and interstate roads. Urban road traffic congestion warranted a certain amount of attention in the early Federal-Aid Highway Acts, including the Federal-Aid Highway Act of 1956. Federal transit funding, beginning in the 1960s, was also partly predicated on the argument that it would relieve road traffic congestion. As the interstate building program neared completion in the 1980s and road traffic congestion was growing apace, federal policy makers began a fundamental reassessment of surface transportation policy. The result was the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA), P.L. 102-240 . In the deliberations of the congressional committees that culminated in the passage of Intermodal Surface Transportation Efficiency Act (ISTEA), there was recognition that urban road traffic congestion was a major problem. Unlike in the past, however, some viewed road capacity building as a flawed strategy for dealing with the issue. This view was summed up by Senator Daniel Moynihan in the introductory statement of the Senate report. Talking about the building of the interstate system, he argued the following: [T]he plain fact is that traffic congestion has grown during this period of massive highway construction. We have to face the fact that even if we had greater resources than we do, adding to highway capacity does not any longer seem a promising road to increased highway efficiency. Congressional leaders also expressed the concern that solutions to transportation problems that encouraged more driving would lead to more air pollution, thereby undermining the provisions of the recently enacted Clean Air Act Amendments of 1990 (CAAA), P.L. 101-549 . A third major concern was that scarce resources should be used first and foremost to maintain and improve the current highway system over system expansion. Rather than design a new road-building program, leaders in both the House and the Senate sought to fashion a program to enhance the efficiency of a transportation system that was largely in place. This new program would be based on highway system maintenance; more transit funding; greater funding flexibility; intermodalism; enhanced state and metropolitan planning; improved operations, including development and deployment of advanced technologies (e.g., technologies to improve roadway monitoring, enhance traveler information, and enable the electronic payment of tolls); and efforts to improve safety, energy efficiency, and pollution control. The new surface transportation bill also required the designation of a new National Highway System (NHS) to prioritize federal help for the most heavily traveled routes of the Interstate Highway System, the Strategic Highway Network, and Federal-Aid Primary System. A fundamental theme in the development of ISTEA was that states and localities should be free to fashion their own solutions to local problems, a tenet that became known as "flexibility." While recognizing that congestion was a problem, the committees understood that it was not a problem everywhere, hence the need for flexibility. In this regard, the House Public Works and Transportation Committee report noted, "The new system reflects the Committee's recognition of the need to relieve congestion in urban and suburban America, while at the same time addressing the mobility and access needs of Rural America." In reworking the surface programs, the large Surface Transportation Program (STP), authorized at $24 billion over the life of the bill, was at the core of the flexibility provisions. STP funds were made available for highway capital projects but could be "flexed" to transit if desired and if certain other conditions were met. As the House Committee noted, "For those with congested urban areas, flexibility may mean more transit solutions, while for rural areas or those experiencing economic growth, flexibility may mean more highways." Within certain parameters, flexibility was also provided for switching funds between the different parts of the highway system, as projects could be on any part of the system except local and rural minor collectors. Moreover, STP funds could be used for a bridge project on any public road, not just those on the federal-aid system. ISTEA also authorized a substantial increase in federal transit funding over previous authorizations, nearly $32 billion over the life of the bill. Many expected that additional funding would be devoted to transit from flexed STP funds and another new program, the $6 billion Congestion Mitigation and Air Quality program (CMAQ), which was authorized to provide new funds for projects to help states and localities meet the requirements of the Clean Air Act Amendments (CAAA) of 1990. Funding was aimed primarily at reducing pollutants emitted by reducing motor vehicle travel, particularly single-occupant vehicle travel. Because the most polluted places tend to have the worst road traffic congestion, it was believed that many projects funded under CMAQ to reduce pollution would reduce road traffic congestion as well. However, CMAQ prohibited spending on more traditional congestion relief projects, such as new road capacity that would be primarily used by single-occupant drivers. In addition, building new capacity could violate the requirements in the Clean Air Act and ISTEA that state and metropolitan plans "conform" to the emissions levels set forth in the air quality State Implementation Plan (SIP) as required by CAAA. A 10-year assessment of the program found that about 44% of CMAQ funds were spent on transit projects and another 33% on traffic flow improvement projects such as incident management, HOV lanes, and traffic signal improvements. ISTEA also advanced a few other congestion-related programs that were federal program innovations. First was the idea of intermodalism—planning and financing projects that enhance the links between modes. In this regard, states and metropolitan areas were required to consider the transportation systems as whole in the planning process and to include participation from all stakeholders, including the freight community. Funds were also made available for highway projects to accommodate other transportation modes and for carpool projects, such as fringe and corridor parking facilities and programs, and bicycle transportation and pedestrian walkways. Second, ISTEA placed more emphasis on funding highway operations, including the establishment of a new program to fund the development and deployment of advanced technology in transportation, known as the Intelligent Vehicle/Highway Systems Program (IVHS). Now known as Intelligent Transportation Systems (ITS), the program was originally authorized with $660 million over the six year life of the act. Third, to enhance the ability of metropolitan areas to coordinate and fund the development of their transportation systems, ISTEA increased the responsibilities of metropolitan planning organization (MPOs) and required the development of congestion management systems at both the metropolitan and state level. The requirement for a congestion management system at the state level was subsequently dropped in the National Highway System Designation Act of 1995 ( P.L. 104-59 ). Fourth, ISTEA provided funding for up to five projects in the Congestion Pricing Pilot Program and allowed greater use of federal funds on toll roads than in the past. ISTEA required the designation of a new category of highways, the National Highway System (NHS), to be worked out in consultations between the USDOT and the states. The designation of the 155,000-mile NHS system was the primary purpose of the NHS Act. However, the NHS Act included several other provisions amending the federal programs, some with relevance to the issue of mobility and congestion. Among them were the authorization of two new financing mechanisms: the State Infrastructure Bank (SIB) pilot program and what became known as Grant Anticipation Revenue Vehicle (GARVEE) bonds. The SIB pilot project allowed a handful of states to use some of their highway and transit funds to capitalize a revolving fund. The GARVEE bonds were developed from Section 311 of the NHS Act that expanded the use of federal-aid highway funds for bond financing. A number of intermodal projects, including the Alameda Corridor project, were advanced because of these new provisions. The Transportation Equity Act for the 21 st Century (TEA-21), as amended ( P.L. 105-178 ; P.L. 105-206 ), enacted June 9, 1998, maintained the essential structure of the programs created in ISTEA with an increase in funding (in nominal terms) of 40%. Of the total $218 billion authorized, $177 billion was allocated for highways and $41 billion for transit, although TEA-21 continued and enhanced the flexing of monies between modes as introduced by ISTEA in 1991. Several programs begun in ISTEA were retained and expanded under TEA-21. CMAQ was retained with more funding ($8.1 billion) and expanded eligibility criteria. ITS funding was raised to $1.282 billion, and a new ITS program, the Commercial Vehicle Information Systems and Networks (CVISN) Program, was established and funded at $184 million. With the ultimate goal of improving the efficiency and safety of commercial motor vehicle operations, the CVISN program was created to make use of information systems and communications networks by developing industry standards and demonstrating potential benefits. Three areas were initially targeted under the CVISN program: safety information exchange, credentials administration, and electronic screening. The Congestion Pricing Pilot Program was renamed the Value Pricing Pilot Program and funded at a higher, though still very modest, level ($51 million). TEA-21 also created a few new programs. Some of these came under the banner of innovative financing, including the Transportation Infrastructure Finance and Innovation Act (TIFIA) and the Railroad Rehabilitation and Improvement Financing (RRIF) program. TIFIA was to provide up to $10.6 billion in credit assistance to large projects of national significance (generally projects over $100 million). The RRIF program was set up to provide loan and loan guarantees up to $3.5 billion, of which not less than $1 billion was to be available to non-Class I railroads. Two new infrastructure grant programs—the National Corridor Planning and Development Program and the Coordinated Border and Infrastructure Program—were also created and jointly funded at $140 million per year for FY1999 through FY2003. The first was conceived primarily as an economic development tool (although congestion costs were one factor to be used in determining projects) and the second was intended to alleviate congestion and improve mobility at the borders. Since FY2000, nearly all the funds in this program have been earmarked in appropriation bills. After a number of hearings prior to reauthorization of TEA-21 in which transportation congestion was a major focus, the initial legislative proposal from the House of Representatives ( H.R. 3550 ) in the 108 th Congress included a number of new provisions in Subtitle B, entitled "Congestion Relief." Two provisions were seen as being particularly innovative. The first was the Motor Vehicle Congestion Relief Program, which would require states with an urbanized area over 200,000 to set aside apportioned funds under several existing programs to be spent on projects that enhance capacity and relieve congestion. The proposed set-aside was 10% of a state's total apportionments multiplied by the percentage of the state's population in urbanized areas of 200,000 or more. The second innovative proposal was to fund ITS technologies at a much higher level and to speed up their deployment. H.R. 3550 would have authorized about $4 billion during FY2004-FY2009, with about $3 billion of this amount for expedited deployment. This was up from about $230 million per year toward the end of TEA-21 (not including federal-aid highway funds allocated by the states to deploy ITS). H.R. 3550 proposed a new $6.6 billion allocated program called Projects of National and Regional Significance to fund important high-cost facilities ($500 million or more or greater than 75% of a state's annual apportionment), including freight rail projects eligible under Title 23 U.S.C. Also included in the bill was a new Freight Intermodal Connectors program to be funded by formula at the level of $1.37 billion over six years and a Freight Intermodal Distribution Pilot Grant Program funded at $30 million over five years as a takedown from the Freight Intermodal Connectors authorization. This latter program was intended to provide grants to facilitate intermodal freight transportation initiatives at the state and local levels to relieve congestion and improve safety, and to provide capital funding to address infrastructure and freight distribution needs at inland ports and intermodal freight facilities. As passed by the House, two tolling provisions were also included in H.R. 3550 , one to permit states to allow drivers to pay to use HOV facilities as part of a variable toll-pricing program and the other to permit the construction of new lanes on interstates to be funded by tolls. The reauthorization of the surface transportation programs was not passed in the 108 th Congress but was eventually completed in the 109 th Congress and signed into law by the President on August 10, 2005. The Safe, Accountable, Flexible, Efficient Transportation Equity Act—A Legacy for Users (SAFETEA) provides a general increase in transportation funding with a six-year total of $286.4 billion for programs from FY2004 through FY2009. This represents a 31% increase in nominal terms over the $218 billion provided over the six years of TEA-21 (FY1998-FY2003). As enacted, SAFETEA largely retains the structure of the surface transportation programs begun under ISTEA, with a large proportion of funding going to the established "core" highway programs (such as the Surface Transportation Program, the National Highway System, the Interstate Maintenance Program, and the Bridge Program) and public transportation. The Congestion Relief subtitle of SAFETEA contains just one program, the new Real-Time System Management Information Program. This program, with no separate funds of its own, is designed to encourage states to develop a real-time traffic information system to improve highway operations and reduce congestion. The rest of the Congestion Relief programs, as proposed in H.R. 3550 , were either shifted elsewhere in the act or deleted. ITS funding was not retained as a separate program but was "mainstreamed" as an eligible category in the core programs. CMAQ continues at a higher funding level, and project eligibility is expanded to include projects that might have a more direct impact on congestion. Table 1 shows the authorization levels of SAFETEA's titles and some selected programs for FY2005 through FY2009. SAFETEA does provide states with slightly more latitude in using tolls to build or expand interstate capacity and to improve operational efficiency to reduce congestion. The Value Pricing Pilot Program was reauthorized at a higher level: $11 million for FY2005 and $12 million annually for FY2006-FY2009. In addition, SAFETEA includes provisions for a limited number of pilot projects to test the viability of the use of tolling on existing facilities including HOV facilities and for tolling to fund new interstate capacity. SAFETEA also created the new Projects of National or Regional Significance program, but with funding set at $1.779 billion for FY2005 through FY2009, not $6.6 billion as proposed in H.R. 3550 , and all the funds earmarked in the act. The new Freight Intermodal Connectors program was dropped before final passage of the bill, but the Freight Intermodal Distribution Pilot Program remained with $30 million authorized through FY2009. Again, this $30 million was earmarked in the bill. SAFETEA also reauthorized the Coordinated Border Infrastructure Program as a new apportioned program, with funding set at $833 million from FY2005 though FY2009. Existing innovative funding provisions were extended and modified to some degree in SAFETEA. For instance, the minimum project size for TIFIA projects was reduced from $100 million to $50 million for most projects and from $30 million to $15 million for ITS projects. SAFETEA also allowed for broadened use of SIBs and Private Activity bonds. The RRIF was expanded tenfold under SAFETEA, from $3.5 billion to $35 billion in loans. Of this, $7 billion is reserved for non-Class I railroads. The legislation also added to the list of priorities in using such loans "enhancing rail infrastructure capacity and alleviating rail bottlenecks." SAFETEA also added a new federal grant program for relocating rail track that interferes with motor vehicle traffic. Transportation congestion exists when demand for a transportation facility or vehicle is greater than its capacity and the excess demand causes a significant drop in service quality, such as speed, cost, and comfort, depending on the mode and specific situation. For example, when too many drivers compete for road space, the result is usually a significant drop in traffic speed but also higher vehicle operating costs and, with bumper-to-bumper, stop-and-go conditions, an increase in driver stress. In freight railroad transportation, train speeds may suffer when demand begins to reach capacity, and because shippers directly pay for access to rail infrastructure, higher rates theoretically may be another indicator of congestion. Depending on the situation, congestion in public transit may result in vehicle overcrowding—possibly resulting in service denial and reduced passenger comfort—slower vehicle speeds, and higher peak-period fares. From the viewpoint of a multi-modal passenger trip or freight shipment, the possibility for congestion exists not only within each mode but also in the connections between modes. Poor or overstretched intermodal connections are another part of the transportation system that may damage service quality. Moreover, inefficient intermodal connections may cause problems within a mode as unexpected delays interfere with other trips and shipments farther down the line. For example, a delayed ship-to-truck transfer in a major metropolitan area may result in the truck traveling during peak-period traffic. Ideally, transportation congestion should be defined and measured from the perspective of the end user—a traveler or a freight shipment. Congestion, therefore, could be measured by the extent to which excess demand slows or otherwise harms a passenger trip or freight shipment from the origin to the destination. In some situations, such as the transportation of packages by an express carrier, such as UPS and FedEx, it may be possible for the carrier to collect data and monitor movements for business purposes. However, in most situations, for public policy purposes, because measuring trips from origin to destination is difficult to accomplish in a large scale and meaningful way, measures of congestion typically focus on service problems within a mode. Moreover, within each mode, many measures of congestion are limited to a specific transportation facility. This is especially the case in highway transportation. For example, highway engineers typically refer to speed or level of service (LOS) on a particular road segment. Measurements on these segments are then sometimes aggregated to develop systemwide measures of highway congestion. Mode-specific and facility-specific measures of congestion are not wholly satisfactory indicators of capacity problems in transportation service because they fail to measure aggregate impacts across the whole system. On the other hand, some transportation experts have noted that the focus on facility congestion instead of the effect of congestion on passenger and freight trips may also overstate its importance. For instance, freeway congestion may not be as bad as it seems if seen in the context of an entire automobile commute trip, including the time it takes to park and walk to the office. Similarly, it might be true that the effect of freight bottlenecks might not be as bad as is generally believed if seen from the perspective of the entire supply chain. Whether facility-based or trip-based, another criticism of transportation-based congestion measures is that they ignore the land-use context within which travel is taking place. In transportation planning parlance, they measure mobility but not accessibility. Accessibility explains the seeming paradox of why the most congested places are also the most economically vibrant, even when the congestion is long lived. Manhattan, for example, may be one of the most congested places on earth, but it also provides access to an enormous number of opportunities in terms of homes, jobs, retail outlets, restaurants, recreation, etc. A study of accessibility in Minneapolis, MN, for example, found that while traffic congestion more than doubled between 1990 and 2000 (measured in annual delay per person), access to opportunities by car, in this case the number of jobs, increased more quickly. Seen from this perspective, the performance of the transportation system, in concert with land-use, actually improved in the 1990s rather than deteriorated, as congestion data alone would suggest. Unfortunately, as it stands today, national data do not exist to examine the effects of congestion on accessibility as opposed to mobility. Nor do we have the means to examine the effects of congestion on passenger trips and freight shipments from end-to-end, including the efficiency of intermodal connections. The transportation congestion measures employed in most instances, including in this report, are both facility- and modally-based, with the inadequacies this entails. Several measures of congestion, particularly in freight rail and public transit, are gross indicators of capacity utilization using aggregate measures across the whole system. Moreover, no measures of intermodal terminal congestion per se exist. The measures of congestion presented here, nonetheless, represent the best available information today using publicly available data. Efforts to define and measure road traffic congestion have increased over the past few decades as congestion itself has grown. Still, congestion has proven difficult to measure at the national level because of the size and diversity of the highway system and because traffic problems can occur anywhere at any time of the day or night for a number of different reasons. Moreover, what constitutes a "congestion problem" is highly subjective. One frequently cited national road traffic research effort is the Urban Mobility Program at the Texas Transportation Institute (TTI). TTI defines traffic congestion as an excess of demand in relation to supply (or capacity) such that travel speeds are slower than normal, where normal is defined as free-flow speed. TTI derives travel speeds by relating the theoretical capacity of a roadway segment to the average number and type of vehicles traveling the segment. Speed estimates are then used to calculate travel delay. TTI uses data from FHWA's Highway Performance Monitoring System. Travel delay measures the extra time it takes to make a trip and can be expressed in several different ways, such as total delay, delay per traveler, and as a travel time index. The travel time index measures the ratio of travel time in the peak period to travel time at free-flow conditions. Thus, a Travel Time Index of 1.35 indicates a 20-minute free-flow trip takes 27 minutes in the peak-period. In related research, TTI is developing measures of travel time reliability. Travel time reliability measures the variability of travel times. When the highway system is unreliable, travelers and shippers must build in extra time to avoid being late. TTI measures travel time reliability via its Buffer Time Index (BTI). The BTI measures the extra time needed to ensure that a traveler or freight shipment will arrive on time according to a predetermined standard, typically 95% of trips. A BTI of 43%, for instance, indicates that a traveler needs to add an extra 43% to the average travel time of a trip to arrive on time 19 out of 20 times (95% of trips). Some suggest that reliability is more important to both travelers and shippers than average delay. It seems reasonable to propose that most commuters would prefer to spend an extra 5 minutes to and from work each day than to endure an unexpected delay of 50 minutes on just one journey a week, a delay causing problems with arriving at work on time or picking up a child from school or daycare. Similarly, shippers often place greater value on being able to predict reliably when a shipment will arrive than on the speed with which it got there. In some cases, such as just-in-time manufacturing and distribution operations, shippers and carriers can face penalties for making late or, in some cases, early deliveries. In its annual Urban Mobility Report, TTI aggregates road segment estimates for an entire urban area system of freeways and arterials. The same methodology has been used by other researchers to identify and measure delay and, in some cases, reliability at specific places, such as bottlenecks, truck bottlenecks, and border crossings, as well as roads on the federally adopted National Highway System. The FHWA is using similar measures to examine congestion on major travel corridors defined by Interstate routes, such as I-5 traversing California, Oregon, and Washington. However, in this research program, FHWA is using data collected from trucks themselves using Global Positioning System (GPS) technology. One of the main criticisms of TTI's work on urban road traffic congestion is that it does not directly measure congestion in any urban area, but relies instead on estimates of congestion based on a number of theoretical relationships. For a time, this meant that TTI was unable to account for improvements in speeds resulting from operational improvements—such as freeway entrance ramp metering, incident management programs, and traffic signal coordination programs—nor the effects of public transit. TTI has since begun including these variables in its models, but the overall criticism that its estimates of congestion are not direct empirical measurements still stands. Another major criticism has to do with the estimation of congestion by comparing traffic speeds to free-flow conditions. A number of experts point out that such models can never fully account for induced traffic and that, as problematic as this may be theoretically, as a practical matter, eliminating congestion for all peak-period travelers is wholly unrealistic because the costs would be overwhelming. Thus, congestion-free peak-period travel in major metropolitan areas "is a purely notional idea, not a conceivable description of the world we might choose to provide for." Moreover, using free-flow speed in the calculation of congestion can lead to some results that do not square with reality. For instance, if widening a road improves the peak-period average speed but is accompanied by a proportionally greater increase in the speed limit, the calculated amount of congestion will increase after the improvement. In addition, a small change in average conditions, such as a decrease of a few miles an hour, may appear to be a significant congestion problem when measured over a large number of drivers. Empirical research on the relationship between freeway speed and vehicle flow shows maximum vehicle throughput at something less than free-flow speed, about 50 miles an hour. This too brings into question a congestion calculation based on free-flow speed. As Figure 3 shows, when there are few vehicles traveling on a freeway segment, as might be the case very early in the morning, average speeds are high, at about 60 miles per hour (mph), but overall throughput is low, at around 300 vehicles per lane per hour. As volumes build, vehicle throughput increases to around 1,800 vehicles per lane per hour and average speeds decline by about 10 to 15 mph. At this point, as the number of vehicles coming onto the road continues to increase, the volume of vehicles begins to overwhelm capacity and speeds decline precipitously. As speeds decline in this instance, vehicle throughput declines. Overall, this line of criticism concludes that estimating congestion using the unattainable ideal of free-flow conditions, and with it the costs of congestion (see below), tends to overstate its impact on society. This and other criticisms notwithstanding, the TTI estimates of urban road traffic congestion are widely used because they provide the only national picture of road traffic congestion on an annual basis and, hence, are useful for monitoring changes in congestion over time. Nevertheless, figures purporting to quantify the billions of hours of time lost (and their associated monetary value), numbers often used in newspaper headlines to dramatize the problem, ought to be viewed somewhat skeptically. A very important finding from the work by TTI and others is that both roadway demand and roadway capacity are subject to short-term and long-term variations. Demand varies by day of week, time of day, and season, and in response to planned special events, such as professional football games, music festivals, and the like. Most road traffic congestion occurs on weekday mornings and evenings because of trips associated with jobs and school. Roadway capacity, on the other hand, is defined by the type of facility (number of lanes, access, etc.), its condition, and by events that may temporarily reduce capacity, such as traffic incidents, work zones, weather, railroad crossings, toll facilities, and commercial truck pickup and delivery in urban areas. According to the current research, about 40% of urban road traffic congestion is caused by capacity problems and another 5% is caused by poor signal timing ( Figure 4 ). About 55% of congestion is the result of a temporary loss of capacity, with incidents (crashes, disabled vehicles, etc.) accounting for 25%, weather 15%, work zones 10%, and other events 5%. Most experts agree that urban road traffic congestion has intensified and become more widespread during the past quarter century. TTI data from 437 urban areas covering the period 1982 through 2005 indicate that total travel delay has increased five-fold and delay per peak-period traveler has nearly tripled. On average, delay increases with city size, but delay in small urban areas (those with a population of less than 500,000) has grown more quickly during this time period. Figure 5 demonstrates this in the 85 urban areas for which TTI provides detailed data. In addition, the morning and evening rush periods have lengthened and a greater share of roadways are congested. For instance, in the Louisville metropolitan area—a medium-sized urban area with a population of about 900,000 that covers parts of Kentucky and Indiana—the share of the road system congested has risen from 35% in 1982 to 52% in 2005. Moreover, the number of "rush hours" has increased from 4.2 hours per day to 7.2 hours. Despite becoming more widespread, road traffic congestion is still heavily concentrated in a few of America's largest urban places. The 10 largest urban areas by population account for nearly one-half of total delay, though only about one-quarter of the U.S. population and the top 20 account for two-thirds of total delay and one-third of the population. Los Angeles suffered the most delay in 2005, with 72 hours of annual delay per peak-period traveler and a Travel Time Index of 1.5. Urban road traffic congestion has increased because motor vehicle travel has grown rapidly, outstripping the existing road capacity and efforts to add new capacity and improve throughput with operational treatments. In the 437 urban areas studied by TTI, daily vehicle miles traveled on freeways grew by 128% between 1982 and 2005 and by 77% on arterials, while freeway and arterial lane-miles increased by only 41% and 37% respectively. Nationally, lane-miles grew by 4% and VMT by 87% during this period. Motor vehicle travel has grown rapidly for a number of reasons, including substantial growth in population, jobs, and national income; increased vehicle availability; and growth in metropolitan areas, particularly the suburbs. Between 1980 and 2005, the United States added 69 million people (a 30% increase), 42 million to the ranks of the employed (a 43% increase), 86 million motor vehicles (a 53% increase), and gross domestic product (GDP) grew by 113% in real terms. Both population and job growth have been concentrated in metropolitan areas, most especially in low-density suburban rings that are difficult to serve with public transit. A metropolitan suburb-to-suburb commute is today, by far, the most common type of commute. As result, most people drive alone to work—77% in 2005, up from 64% in 1980. Over the same period, the share of commuters using transit hovered around 5%. These trends have been bolstered by an increase in the number and widespread availability of motor vehicles. The number of personal motor vehicles (cars, sport-utility vehicles, pickups, and minivans) per licensed driver passed 1.0 some years ago and continues to climb. In 2005, the average number of personal motor vehicles per driver was 1.16. That same year, only about 8% of households were without a vehicle. The low price of gasoline has also contributed to enhancing the attractiveness of motor vehicles as a transportation option. For about 20 years beginning in the mid-1980s, the pump price of gasoline was below $2.00 per gallon (in 2006 dollars) in real terms, lower than at any time from 1918 on. Many of these same factors—population and income growth—together with economic complexity and globalization have led to more demand for commercial truck transportation. Since 1980, truck traffic has grown slightly faster than passenger traffic. Although a lot of truck milage is made on long intercity trips, about half of truck VMT is made in urban areas, contributing significantly to urban traffic congestion, particularly near urban-based industrial facilities, ports, and border crossings. Many of the same factors generating vehicle travel and congestion are expected to continue growing. The Census Bureau expects the population to reach 364 million by 2030, an increase of about 20% from 2007. Two-thirds of this population growth, and with it a significant portion of new road traffic, is expected to occur in just seven states: Florida, California, Texas, Arizona, North Carolina, Georgia, and Virginia. Over the same period, the CBO projects that GDP will increase by about 70% (in real terms). FHWA's Highway Performance Monitoring System includes state-based estimates of future VMT growth. The annual growth rate is projected to be 1.92%, with rural VMT growing somewhat faster than urban areas (2.15% average annual versus 1.79%). The Freight Analysis Framework projects that freight tonnage by truck will double between 2002 and 2035. None of this is inevitable, and a few counter trends may slow the growth in VMT and peak-period travel. For example, although the age at which people are retiring from the workforce has begun to tick upwards over the past few years, baby boomers will begin retiring in large numbers in a few years. This may slow the growth in the number of workers. Some have suggested that as baby boomers age, they may begin to favor denser neighborhoods that are easier to serve with transit, thereby reducing the growth in VMT. Others believe there may be a reduction in work travel associated with flexible schedules, such as a compressed work week and telecommuting. Most, though not all, road traffic congestion is experienced in urban areas. An FHWA study of truck travel in freight-significant corridors—Interstate routes that span urban and rural areas—showed that a good deal of delay and reliability problems derive from the urban portion of trips. Nevertheless, rural travel has grown faster than urban travel during the past 25 years. Between 1980 and 2005, rural VMT per lane mile grew by 65%, whereas urban VMT per lane mile grew 41%. Estimates by FHWA of peak-period congestion on the federally adopted National Highway System in 2002 and a projection to 2035 suggest a much more widespread congestion problem. In 2002, FHWA's analysis of congestion found that it was largely confined to highway links in large urban areas. However, by 2035, assuming no change in physical road capacity or operational improvement, FHWA expects congestion to intensify in those areas and to spread to intercity corridors throughout the country. A number of studies have attempted to locate, characterize, and quantify bottlenecks in the highway system. TTI defines bottlenecks as "locations where the physical capacity is restricted, with flows from upstream sections (with higher capacities) being funneled into them." One study found 233 major highway bottlenecks in 2002, defined as places with 700,000 hours of delay annually. This was a 40% increase in major bottlenecks from the 167 bottlenecks found in 1999. Of the 233 major bottlenecks in 2004, 24 had more than 10 million hours of delay in a year. Freeway to freeway interchanges account for most bottleneck delay. According to another study, highway bottlenecks affecting large volumes of trucks accounted for 243 million hours of truck delay in 2004. A third study on bottlenecks associated with summer vacation travel ranked the top 25 destinations likely to suffer the worst traffic delay in 2005. Other potential bottlenecks in the transportation system are foreign trade gateways. Rapid growth in international trade over the past few decades has placed enormous pressure on these gateways—land border crossings, certain airports, and water ports—and the road and rail infrastructure that supports them. By value, in inflation-adjusted terms, international merchandise trade increased by 160% between 1980 and 2005. Growth in value terms has been particularly rapid on the Mexican and Canadian borders and on the Pacific Coast, although the Atlantic Coast continues to handle the most trade ( Figure 6 ). These trends are likely to continue with the growing globalization of production and consumption. Indeed, the FHWA expects foreign trade tonnage to more than double between 2002 and 2035. Although no comprehensive time-series data for congestion at land gateways nationwide exist, numerous studies have found delay and unreliable travel times at certain heavily used crossings. In 2004, daytime (8:00 a.m. to 6:00 p.m.) wait times for trucks entering the United States from Canada averaged 8.5 minutes, and those from Mexico averaged 7.3 minutes. However, daytime wait times at Laredo, TX, averaged nearly 21 minutes, and at Port Huron, MI, the average was 25 minutes. Although they provide a basis of comparison, these averages mask the variability of delays that are probably more important. At land border crossings, congestion is caused by three main problems: inadequate transportation infrastructure to handle the volume of cars and trucks, import and security processing, and general urban road traffic congestion. Some studies have suggested that border delay and reliability problems have more to with institutional and staff issues, such as inspection staffing levels at periods of high demand, than infrastructure problems, although this may depend on the specific crossing. Similarly, delays at water ports may be caused by inadequate road and rail infrastructure, general road congestion, and customs and security requirements. Indeed, one of the big challenges at international gateways in the past few years has been balancing passenger and freight mobility with the need for heightened security in the wake of the terrorist attacks of 2001. The main public transit modes in the United States—bus, commuter rail, heavy rail, and light rail—have different but overlapping characteristics that influence the causes and impacts of congestion. All public transit modes have the potential for vehicle overcrowding, but they differ in terms of system congestion. Transit buses typically run on roads in the general traffic stream and, therefore, are affected by road traffic congestion. In many cities, light rail systems have their own rights of way, but running at grade with limited separation can cause conflicts between rail and road traffic. Commuter rail service runs over rail lines that also carry freight and intercity passenger trains and, therefore, is subject to many of the same causes of delay and unreliability. Heavy rail (subway) systems have their own rights of way and, thus, are not subject to conflicts with other modes. However, subway system congestion is theoretically possible at peak periods when the number of trains running on the track begins to reach the design maximum, known as line capacity, and passenger loads affect station dwell times. When running at full capacity, the lack of redundancy in the system also magnifies the effect of incidents such as a train breakdown. Transit ridership grew 15% between 1980 and 2005. Over that time, bus ridership was virtually unchanged, while commuter rail and heavy rail grew by 51% and 33%, respectively. Light rail ridership almost tripled during these years because of the construction of several new systems. Although all urban areas and many rural areas provide some sort of transit service, transit usage is heavily concentrated in a few large urban areas. Bus transit is widely provided, but only 34 metropolitan areas have one or more major forms of rail transit (defined here as commuter rail, heavy rail, and light rail). In 2004, 10 metropolitan areas accounted for 75% of all urban transit trips in the United States (see Table 2 ). The New York metropolitan area alone accounted for nearly 40% of all urban transit trips. There are no direct measures of public transportation congestion available regularly on a national basis. Two indirect measures of congestion are average vehicle utilization, as a measure of vehicle overcrowding, and average operating speeds, as a measure of system congestion. Vehicle utilization, as measured by the USDOT, is "calculated as the ratio of the total number of passenger miles traveled annually on each mode to total number of vehicles operated in maximum scheduled service in each mode, adjusted for the passenger-carrying capacity of the mode in relation to the average capacity of the Nation's motorbus fleet." The USDOT notes that these two variables are related as "changes in the capacity utilization of rail vehicles have influenced these vehicles' operating speeds through changes in dwell times. As vehicles become more crowded, they take longer to unload and load, increasing wait at stations and hence passengers' total travel time." Average vehicle utilization data for urban transit systems show that passenger volumes in relation to service capacity are greatest on rail, particularly commuter rail. The higher level of commuter rail utilization is due to the longer average trip lengths with seating capacity only and to the limited time service is available. According to the FTA, utilization rates have generally declined since 2000/2001 ( Figure 7 ). These data are bolstered by data on average speed that show little change in the average speed of non-rail modes, mainly buses, but a slight decline in speeds for rail transit. Non-rail speeds averaged 13.7 miles per hour in 1995 and 14.0 mph in 2004, but rail speeds declined from 26.6 to 25.0 mph over this period. Nevertheless, anecdotal evidence points to overcrowding problems on some rail transit systems, such as Washington's Metro and Boston's T. This suggests that these national average utilization data, which average over time and across place, may not fully capture rail transit overcrowding and system congestion in certain cities at certain times. The rail network is made up of a system of mainlines, spurs, sidings, yards, intermodal terminals, and places where the lines of different railroad companies come together (known as interchanges). Complexity is added by the physical characteristics of the thousands of tunnels, bridges, and overpasses with different clearances, the number and type of highway-rail grade crossings, and the thousands of miles of track with different load-bearing capacity and parallel lines. For the most part, this railroad infrastructure is owned and operated by private companies engaged in the transportation of freight. However, in some places, freight trains share space with passenger trains belonging to Amtrak and, in some urban areas, commuter rail operators. In contrast to the way highway transportation works, decisions about accessing the rail system are controlled by a central authority—each railroad—that determines when a shipment will be transported and for what price. Thus, capacity problems tend to appear in a different form than they do on the highways and must be measured in different ways. Moreover, because the rail system is primarily private, the government has chosen not to collect and publicly disclose detailed data related to congestion. As a result, some indications of congestion problems are impressionistic and anecdotal. In a free-market, when demand outstrips supply for a good or service, the price rises until an equilibrium between the two is found. One indicator of congestion in the rail industry, therefore, is freight rates. Unfortunately, understanding the relationship between capacity and prices is difficult as best. Rates are affected by any number of other variables, including the competition of other modes. Morever, rates can be regulated after the fact to protect "captive shippers." Capacity problems may also result in deterioration in service quality or no service at all. For example, in some cases, there may be a promise to transport a shipment at a certain price, but this shipment may be delayed as the operating railroad waits for space on the network. In other cases, some shipments may be denied access to the system completely and will have to travel by another means of transportation. In theory, centrally controlled access to the rail system should avoid the queuing seen on highways; however, in practice, delay and unreliability do tend to increase as the number of trains on the system reaches maximum capacity. This derives from the complexity of determining the timing and routing of trains with different dimensions, such as single- or double-stacked containers, carrying different commodities over long distances, and the rules that must be followed to ensure that trains do not collide, particularly in places that are not signal-controlled. In addition, tight schedules can be upset by unforeseen incidents such as accidents, bad weather, and breakdowns and by interference with passenger trains that, by federal law, are supposed to have priority over freight trains. Publicly available measures of freight rail congestion are traffic density, speed, and freight rates. None of these conclusively proves that congestion is a problem because they are all influenced by other things, such as efficiency gains derived from improved technology. Traffic density, as the Association of American Railroads (AAR) notes, "measures the average system-wide freight carrying utilization of the railroad track infrastructure. A higher figure indicates greater utilization efficiency, but can signal the risk of congestion." Speed can be measured by average train speed or by net ton-miles per train hour (freight speed). Again, slower speeds might be an indication of a congestion problem, but they might also be related to other factors, such as the mix of commodities being transported and length of haul. Average cost is measured by freight revenue per ton-mile. TRB notes that this has been declining for years because of productivity growth, excess capacity, and deregulation. It notes a slowing of the rate of decline or even a pronounced increase might be indicative of a congestion problem. The three measures of capacity utilization—traffic density, average freight speed, and freight rates—all suggest a growing congestion problem in the industry. This is supported by anecdotal evidence of trip times and bottlenecks. Since rail deregulation in 1980, Class I rail freight ton-miles have increased 93%, from 919 billion to 1,772 billion, while miles of track have decreased 40%. Traffic density measured by millions of revenue ton-miles per mile of track, therefore, has increased from 3.4 in 1980 to 10.9 in 2006 ( Figure 8 ). Moreover, these data exclude demands placed on the system by intercity and commuter passenger rail operations. The average speed of freight moved by rail, measured by net ton-miles per train hour, grew substantially in the 1980s but has since declined ( Figure 9 ). Consequently, as CBO notes, the average speed is "now lower than it has been since the early 1980s, except for the turbulent 1997-1998 period following the merger of Union Pacific and Southern Pacific." Another expert estimates that over the past 10 years, trip times have increased by about 25%-50% for general merchandise rail traffic. Average freight rates, measured by freight revenue per ton-mile, have declined substantially since deregulation from 5.3 cents per revenue ton-mile to 2.4 cents (in constant 2000 dollars). However, over the past decade the decline in rates slowed, and in the past few years rates have increased. Rates in 2006 were 14% higher in real terms than they were in 2003 (see Figure 10 ). It is not clear, however, if this is indicative of a new upward trend in rates, nor is it clear how this relates to capacity problems in the industry. Like road traffic congestion, freight rail congestion is generally limited to a few key locations. Research completed for the Association of American Railroads indicates that about 3% of the freight rail network has demand at or above capacity, with another 9% near capacity. Some major bottlenecks include, among others, the network in and around Chicago, Kansas City, Atlanta, and Memphis as well as the rail corridors from San Francisco to Los Angeles and Los Angeles to Tucson, Arizona. In the Chicago region, congestion is compounded by the lack of connectivity between the several different railroads serving the area whose route systems are focused on states east and west of the Mississippi River. Congestion problems in intercity passenger train travel—trains operated by the National Railroad Passenger Corporation, known as Amtrak—are somewhat akin to those of the freight railroads discussed above. Except for the 500 miles it owns in the Northeast Corridor (NEC), intercity passenger trains operated by Amtrak run on rail lines that are owned and operated by freight railroads. As freight movements have grown, so too have the conflicts between freight and passenger trains, even though under existing federal law, passenger trains are supposed to have priority over freight trains. Other issues for Amtrak include the condition of the privately owned rail lines that can result in a local speed restriction below the track's normal speed, train breakdowns, and other incidents. Measures of these types of congestion problems are train on-time performance, amount of delay, and average speed. In addition, as a type of passenger service, congestion problems with Amtrak theoretically may be manifest in ticket availability, ticket prices, and train overcrowding. Systemwide, these are generally not issues that Amtrak has to worry about. These problems may occur on certain routes at certain times, such as the NEC around major holidays, but realistically, the system cannot be designed to handle demand that only occurs a few times a year. Load factor, a metric tracked by Amtrak, is a measure of train utilization and possible overcrowding. The data appear to show that, in general, rail system congestion, including freight, commuter, and Amtrak operations, is something of a problem and is getting worse, but that train overcrowding is not a problem. Amtrak delays per 10,000 miles have trended upward from FY2001 through FY2006. Delays resulting from Amtrak itself have remained relatively constant during that period, at about 400 minutes per 10,000 train miles. Most of the delays are due to freight operations, rising from about 1,700 minutes in FY2001 to about 2,300 minutes in FY2006. Overall on-time performance was 67.8% in FY2006, down from 69.8% in FY2005, 70.7% in FY2004, and 74.1% in FY2003. Load factors, on the other hand, are quite low, suggesting little train overcrowding. For all Amtrak routes, the load factor in FY2006 was 48%. The average load factor in FY2006 was 45% in the NEC, 41% in state-supported and other corridors, and 55% on long distance routes. The negative effects of transportation congestion are primarily economic. Transportation congestion, particularly road traffic congestion, also causes a good deal of stress in some of those that experience it, as well as a certain amount of environmental damage because of the extra fuel that is used. Congestion may also have a negative effect on road traffic safety, although it is not clear from the available evidence if the damage done as a result of slowing or stopped vehicles outweighs the reduction in crash severity due to lower speeds. However, the main effects are an increase in direct user costs, particularly the extra time and fuel expended, and a number of economic distortions that decrease productivity and hurt competitiveness. Most of the available evidence on the costs associated with transportation congestion is limited to the effects of road traffic congestion. Little is known about the national costs associated with rail, transit, and intermodal congestion. Hence, if accurate, existing estimates focusing exclusively on the costs of road traffic congestion understate the total cost of transportation congestion to the national economy. It must also be borne in mind that estimates of the cost of congestion are based on assumptions that are somewhat arbitrary. Time, an important variable in transportation evaluation studies, can be especially hard to value. The direct user costs of road traffic congestion are the extra time and fuel expended to complete a trip. In its study of 437 cities, TTI estimates that drivers lost 4.2 billion hours to road traffic congestion and wasted an extra 2.9 billion gallons of fuel, at a cost of $78.2 billion. Most of the cost is due to the time lost by travelers. Per traveler, the cost is $710 annually or approximately $3 per work day. In inflation-adjusted terms, the cost of congestion has risen from $14.9 billion in 1982 (in constant 2005 dollars). These estimates, however, do not include the cost of unreliability, in that travelers will often budget extra time to make sure they arrive on time, even if it means arriving early. In addition to direct user costs, there are at least three other types of economic costs associated with congestion : Logistics costs—the extra costs associated with businesses having to carry extra inventory as a result of slower and more unreliable transportation. Market scale and accessibility costs—as congestion reduces the area that can be served by a production facility, the reduced demand results in higher unit costs because of lower-scale efficiencies and lower access to specialized inputs. Business cost of worker commuting—the costs associated with attracting and retaining workers and compensating them for higher commuting costs. There may also be lower labor productivity resulting from the stress of longer or more unreliable commutes. Although not quantified, congestion in other modes also has costs. As demand for space on the rail system increases, rates may begin to rise, increasing shipper costs. In addition, railroads have been keen to accommodate generally more lucrative intermodal shipments over bulk shipments. This is beginning to create significant problems for the movement of bulk shippers in some markets at certain times, as they often have no alternative to moving their goods by rail. Congestion on the rail system may also force more freight to move by truck. Some contend that there are a number of public benefits associated with moving freight by rail, such as less air pollution per ton-mile of freight than trucking. Similarly, congestion and overcrowding in passenger rail transportation and public transportation may divert travelers to other modes. In urban areas, congested transit service may lead to more single-occupant driving during the peak period, causing more road congestion. Likewise, congested intercity rail transportation might shift a few travelers onto the roads, although it may shift them to intercity buses or airplanes, depending on the situation. It is commonplace these days to attempt to quantify the costs of congestion and add them together to arrive at a total cost of congestion to the economy, sometimes expressed as a share of GDP. This approach is particularly common in accounting for the costs of road traffic congestion, as TTI does in terms of extra time and fuel, and other researchers have attempted to calculate more comprehensively. There are, however, some problems with this approach. These cost estimates are often based on the premise of "free-flowing traffic," which, as discussed above, tends to exaggerate the amount of congestion experienced. Furthermore, total cost estimates suggest that there is a monetary windfall waiting to be distributed to every household, when in reality, eliminating congestion, if it were possible, would only save most travelers a few minutes on peak-period trips. Consequently, a number of experts question the calculation of total costs and suggest that what matters in practical terms is the change in the cost of congestion brought about by a specific feasible projects or act of policy.... As economists would say, we need to change our thinking from total costs to marginal costs. Transportation engineers and planners have devised a large number of potential remedies for congestion. Although it is beyond the scope of this report to evaluate all of these, it is worthwhile discussing some of the major remedies as a basic guide for policy makers. The many different remedies form three basic strategies for reducing congestion: adding new capacity, operating the existing capacity more efficiently, and managing demand. This section discusses these strategies and the institutional issues that affect the implementation of congestion remedies. This is followed by a discussion of rail congestion remedies and intermodalism in freight transportation. Building new roads, or expanding existing ones, is one approach to reducing congestion. Proponents of road building point out that since the completion of the interstate system, road construction has generally lagged behind the growth in motor vehicle travel. Moreover, these proponents argue that in some places, lack of capacity is a major contributor to road congestion. TTI's analysis of congestion found that adding to road capacity slowed the growth in travel delay. New capacity can range from major new freeways to major bottleneck reduction projects and much smaller projects, such as widening arterial roads and improving street connectivity. Few deny that highway travel has grown more than highway capacity during the past few decades. There is, however, a major disagreement about whether new road capacity, in the absence of tolling pricing, can solve congestion because of the problem of induced demand (see earlier discussion). Other concerns about major expansions of road capacity have to do with the costs in labor and raw materials, rights-of-way acquisition in heavily developed urban areas, and social and environmental disruptions. Over the past few years, the cost of raw materials has increased dramatically, making this a greater concern than just a few years ago. An added difficulty is the time it takes to plan, design, and build major new facilities. Consequently, some experts argue that once congestion has developed, it is very hard for an area to build its way out of the problem because of the time it takes to add new capacity. Some suggest that road congestion is a problem because other viable means of transportation are not widely available. In this view, new or expanded public transportation service is seen as a major solution to urban road traffic congestion. TTI points out that if public transit service disappeared and everyone used private vehicles, delay in the 437 urban areas it studied would increase by 541 million hours, about a 13% increase. By its estimates, almost all of this extra delay (about 80%) would occur in very large urban areas (population of 3 million or more). This is because, as noted above, transit service is heavily concentrated in just a few major metropolitan areas. Currently, about 5% of workers commute by transit and in only the New York and Chicago metropolitan areas do more than 10% of commuters use transit. Nevertheless, much higher proportions of transit users are found for certain types of commute, particularly those from suburb to central city. It is probably in these sorts of situations—where the density of origins and destinations is high enough to make transit an attractive mode of travel—in which new or expanded transit options are likely to contribute to a reduction in road traffic congestion. Morever, because buses can be caught up in road traffic congestion, only dedicated bus lanes or non-highway modes of transit provide effective solutions. Generally speaking, transit is not likely to reduce congestion in smaller urban areas or in the suburbs of large urban areas because the areas to be covered are too large and the densities of residences and jobs too low. According to some experts, new or expanded transit systems have improved travel options but have not noticeably reduced road traffic congestion. To some extent, this is because most new major transit systems are built in fast-growing regions in which the growth in travel demand tends to swamp the extra capacity. However, some contend that peak-period road traffic congestion is not reduced because if some people switch from road to rail others are induced to travel by car at the most convenient times, or because many rail riders are not former drivers but former bus riders. Morever, even though, theoretically, with more transit service, a greater number of people are able to travel at the most convenient times, the new capacity may not serve the greatest needs, such as suburb-to-suburb commutes. Like new highway capacity, new transit capacity is costly in terms of labor, materials, and, in some cases, right-of-way acquisition. However, transit can have positive social and environmental benefits, such as potentially greater mobility for the poor and non-drivers, as well as lower air pollutant emissions per trip. New rail systems are the most costly, although light rail can be a cheaper alternative than heavy rail. The cost of new commuter rail capacity depends largely on whether or not the existing freight rail network is available for use by passenger trains. Because of the large start-up costs, some proponents of expanded transit capacity argue that new forms of bus transit, such as bus rapid transit (BRT), are a more viable alternative. Operational improvements on highways and transit have become a much more important concern of state and local DOTs as congestion has increased. Operations include a host of strategies for improving the flow of road traffic and improving transit trips. These include, among others, transportation management center operations, incident management techniques, event management techniques, ramp metering, real-time traveler information, road weather information systems, work zone management, signal retiming, and transit priority at signals. Many of these strategies rely on the deployment of Intelligent Transportation Systems (ITS) technologies. In general, operational strategies for reducing congestion can be quicker to implement and relatively low-cost. For instance, with a large share of road traffic congestion caused by incidents and other non-recurring forms of delay, many areas have created transportation management centers to improve the response of state and local agencies to problems that can arise at any time or place in the transportation system. Evaluations have shown that in many cases, the benefits of these centers greatly outweigh the costs. Another advantage of these types of programs is that they typically cause minimal disruptions, unlike major construction projects. On the downside, operational strategies require a much greater ongoing commitment from local and state DOTs. This has been a problem in some places because, historically, DOTs have functioned as road construction and maintenance agencies and have struggled to redefine their mission. Operational strategies reduce congestion on the supply side of the transportation equation. There are a range of strategies that exist on the demand side, known as demand management strategies. Among others, these include congestion (or value) pricing, high-occupancy vehicle (HOV) lanes, alternative work schedule and telecommuting programs, and land-use strategies. Proponents of demand management strategies argue that just as adding a few extra cars on a roadway can make a big difference in terms of extra delay, removing a few cars can make a big difference in terms of reducing delay. For example, an evaluation of the congestion charge in London, described below, suggests that while traffic has been reduced by about 15%, congestion has been reduced by about 30%. Schemes to charge drivers a fee to travel on congested facilities or in congested areas are known generally as "congestion" or "value" pricing. Economists generally believe that congestion pricing is the single most viable way, though not necessarily most popular way, to reduce highway congestion. With the use of advanced technologies, the fee can be varied to ensure the most efficient use of the facility. There are four main forms of road congestion pricing: variably priced lanes, variable tolls on entire roadways, cordon charges, and variable areawide charge pricing. Cordon pricing, like the one instituted in London in 2003, charges a fee for entering an area at certain times. Facility-based pricing charges a fee to use a specific facility—usually a freeway or freeway lane—depending on the time of day and the amount of traffic on the facility. Variable areawide pricing would use some sort of vehicle tracking technology to charge for the amount of travel and the types of facilities used over an entire area. The main advantage of congestion pricing is that demand can be managed to offer travel that is less likely to be subject to delay, especially unpredictable delay. Another advantage is that on existing roadways, congestion pricing can be implemented relatively quickly. Moreover, with congestion pricing, the negative external effects are minimal and the effects may even be positive, such as a reduction in air pollutant emissions from idling vehicles. For state and local governments, congestion pricing provides a revenue stream to pay for building and operating transportation facilities. Congestion pricing schemes are often unpopular and have been criticized in a number of ways. One criticism is that they discriminate against low-income drivers. Although it is true that the toll will represent a greater burden for drivers with lower incomes, research has shown that low-income drivers do use tolled facilities, suggesting that they often value the time saved. Others propose that pricing facilities ought to be reserved for new capacity, particularly when it is made available alongside a typically congested but free alternative. Another criticism of congestion pricing is that by making it more expensive to travel downtown, the types of areas or facilities most likely to be tolled, businesses and consumers are likely to seek out locations away from the tolled areas, resulting in more sprawl. Some contend that, depending on how it is implemented, traffic may be diverted from the newly tolled facility to other roads that may be less well-equipped to deal with heavy volumes. Finally, some have argued that charging new tolls on an existing roadway is a form of double taxation because users have already financed the construction of the road through the gas tax and other user fees. It is often asserted that low density, suburban growth in housing and employment has contributed to road traffic congestion. Hence, some have suggested that one approach to congestion is to encourage different types of land use development that will reduce reliance on single-occupant vehicle travel. The two main types of land use strategies that are commonly proposed are (1) to encourage increased housing and employment density and (2) to improve the jobs/housing balance. The first often comes under the rubric of transit-oriented development, whereby more density will make transit, walking, and cycling more attractive transportation options. The second type of strategy does not necessarily entail alternatives to driving, but driving can be reduced when people live closer to where they work. Although these are desirable strategies in many ways, experts point out one of the main disadvantages of them is that land-use patterns take decades to evolve, hence decisions taken today will take years to make a difference in the overall transportation/land-use system. Experience with increasing land-use densities shows that such strategies are not likely to reduce congestion per se, although they are likely to increase accessibility. In addition, some have suggested that such policies may raise the costs of developing housing, offices, and other types of facilities primarily by making land more expensive. Another disadvantage is that land-use decision making tends to be highly fragmented, so that policies to slow growth in one jurisdiction may lead to "leapfrog" development in another jurisdiction, causing more travel and more congestion. Research on improving the jobs/housing balance shows that it is unlikely to reduce congestion because, for a number of reasons, it is very difficult to get people to live near where they work. The problem of transportation congestion is compounded by the highly fragmented planning and operation of the transportation system. Most urban areas comprise numerous local governments, and some span multiple states. Important interstate corridors, like I-95, by definition suffer jurisdictional fragmentation. Even in a single jurisdiction, multiple agencies are responsible for different aspects of the system. Transit systems, for example, are often operated independently of local and state departments of transportation. Highway incidents may involve a whole host of agencies, including state police, local police, ambulance, fire, and state and local DOTs. In some cases, fragmentation involves a public-versus-private dimension. The rail system is mostly privately owed and operated, which can make it challenging to institute new passenger rail service, for example. Because of this fragmentation many anti-congestion strategies require coordination and collaboration functionally, jurisdictionally, and across the public/private divide. Efforts to promote voluntary coordination and collaboration between agencies and jurisdictions are typically uncontroversial. More controversial are solutions that affect the funding and authority of different jurisdictions in the planning and programming of transportation improvements. For instance, some have suggested that because congestion tends to occur on the regional scale, regional authorities, such as the Georgia Regional Transportation Authority, and metropolitan planning organizations should be given more power over the planning and operation of the transportation system vis-à-vis states and localities. Building new capacity in freight rail is seen as a way of dealing with congestion issues, particularly as a host of technological changes that have improved operational throughput appear to have run their course. In reasonable financial health today, freight railroads are investing to increase capacity. However, there are concerns that this investment is not keeping up with demand. A number of reasons have been proposed for this, many having to do with the uniqueness of freight railroading as an industry. To begin with, many note that because track and the accompanying operational systems are so costly, freight railroading is one of the most capital-intensive industries in America. Also, once constructed, railroad track is fixed in space, representing a huge wager on future patterns of freight movement. It has been argued that similar risks are borne by the public sector in the trucking, air, and waterborne freight industries. Furthermore, like most infrastructure improvements, it takes a relatively long time to respond to market signals that may change quickly. Another issue is whether or not railroads can be a solution to road traffic congestion by taking truck traffic off the highways. Clearly, rail will not be a solution to roadway congestion if there is insufficient rail capacity. But should public involvement for building rail capacity be predicated on relieving road congestion? As it stands today, there are a host of significant barriers to rail relieving road congestion, including the fact that many industrial facilities are no longer served by rail spurs, either because they have been built away from them or because the spurs were taken out during the downsizing of rail capacity. However, the main reason that rail is unlikely to reduce urban road congestion is that in most places, trucks make up a small part of the traffic stream. Nationally, trucks account for 8% of highway VMT, although the effect of a truck on the traffic stream is greater than a passenger car. On a multilane highway with no grade, a large truck represents 1.7 cars and at intersections between 3 and 4 cars. Nevertheless, many support the idea of public funding for expanding rail capacity because it will improve the speed and efficiency of the freight system by allowing shipments to bypass urban road congestion. Moreover, many point out there are a range of public benefits to moving freight by rail, including less wear and tear on the roads and a possible reduction in air pollutant emissions. A corollary is that improved rail system capacity may also reduce the conflicts between freight and passenger trains, improving the speed and efficiency of both systems. Many of the solutions for intermodal problems in freight transportation revolve around the connections to truck and rail transportation at water ports. The issues in these areas are particularly thorny because most ports are located in already congested urban areas with very limited space for expansion and because, as very large facilities in the freight system, they have a major impact on their physical and social environment in terms of pollution and noise, etc. Moreover, ports involve a complex mix of public and private organizations, blurring lines of responsibility and public and private benefits. In this context, a number of improvements have been proposed to increase the speed with which freight moves through the system at these critical nodes without unduly affecting nearby residents. These improvements include extended truck gate hours, congestion pricing of dock facilities, truck appointment systems, expanded "on-dock" rail connections, truck-only lanes, and the development of inland ports connected by fast rail shuttles. Like a number of other public policy issues, transportation congestion can be viewed as a collection of interrelated problems with severe constraints set in a context of continual change. These types of issues, sometimes called "wicked problems" in some, mostly non-transportation, public policy circles, often seem intractable and typically engender a good deal of frustration that nothing is being done or that what is being done is ineffectual at best or counterproductive at worst. Among other things, these types of problems typically have other characteristics such as no definitive definition; a wide variety of potential solutions, but intense disagreements about the preferred ones and about what constitutes success; and, because of intended and unintended consequences, a situation where each solution tends to modify the problem in such a way as to make it manifest in a different form or in a different time or place. When tackling these types of problems, public policy experts advise that the traditional linear approach, in which data are gathered, analyzed, and a solution formulated and implemented, is not workable. By contrast, they suggest that "solving" wicked problems is usually an ongoing, complex, and chaotic struggle that often requires incorporating multiple viewpoints and approaches at once. Moreover, these experts note that when working on solutions, policy makers and planners often encounter new dimensions of the problem and, therefore, they must be creative and opportunity-driven. In terms of transportation congestion, this suggests a few key ideas for policy makers to keep in mind as solutions to this problem are crafted and pursued in the future. To begin with, there is no one solution that will ever fully solve transportation congestion and that, paradoxically, fully solving the problem may be undesirable because congestion can be a good problem to have in some circumstances and may also be a choice about how to distribute scarce resources. Another key idea is that each solution applied to a dimension of transportation congestion might create other unintended problems along other dimensions that require new creative solutions. As such, multiple, iterative strategies likely will be needed, including supply-side and demand-side approaches; approaches that focus on passenger systems and those that focus on freight, highway strategies, and transit strategies; and those that promise short-term results and some that promise improvement in the long-term. Possibly and most importantly, policy makers and planners should consider that the ultimate goal may not be to reduce or eliminate transportation congestion per se, but to focus instead on improving passenger and freight mobility and accessibility. | Surface transportation congestion most likely will be a major issue for Congress as it considers reauthorization of the Safe, Accountable, Flexible, Efficient Transportation Equity Act—A Legacy for Users (SAFETEA), P.L. 109-59, which is set to expire on September 30, 2009. By many accounts, congestion on the nation's road and railroad networks, at seaports and airports, and on some major transit systems is a significant problem for many transportation users, especially commuters, freight shippers, and carriers. Indeed, some observers believe congestion has already reached crisis proportions. Others are less worried, believing congestion to be a minor impediment to mobility, the by-product of prosperity and accessibility in economically vibrant places, or the unfortunate consequence of over reliance on cars and trucks that causes more important problems such as air pollution and urban sprawl. Trends underlying the demand for freight and passenger travel—population and economic growth, the urban and regional distribution of homes and businesses, and international trade—suggest that pressures on the transportation system are likely to grow substantially over the next 30 years. Although transportation congestion continues to grow and intensify, the problem is still geographically concentrated in major metropolitan areas, at international trade gateways, and on some intercity trade routes. Because of this geographical concentration, most places and people in America are not directly affected by transportation congestion. Consequently, in recent federal law, Congress, for the most part, has allowed states and localities to decide the relative importance of congestion mitigation vis-à-vis other transportation priorities. This has been accompanied by a sizeable boost in funding for public transit and a more moderate boost in funding for traffic reduction measures as part of a patchwork of relatively modest federally directed congestion programs. Congress may decide to continue with funding flexibility in its reauthorization of the surface transportation programs. States and localities that suffer major transportation congestion would be free to devote federal and local resources to congestion mitigation if they wish. Similarly, congestion-free locales would be able to focus on other transportation-related problems, such as connectivity, system access, safety, and economic development. Alternatively, Congress may want to more clearly establish congestion abatement as a national policy objective, given its economic development impact, and take a less flexible and, in other ways, more aggressive approach to congestion mitigation. Three basic elements that Congress may consider are (1) the overall level of transportation spending, (2) the prioritization of transportation spending, and (3) congestion pricing and other alternative ways to ration transportation resources with limited government spending. Congress also may want to consider the advantages and disadvantages of specific transportation congestion remedies. Hence, this report discusses the three basic types of congestion remedies proposed by engineers and planners: adding new capacity, operating the existing capacity more efficiently, and managing demand. |
The price of crude oil rose sharply in 2007 and the first half of 2008, sparking widespread concern about energy prices, their effect on the world economy, and consequences for household consumption. Prices then fell sharply between July and December, from a peak of $145 per barrel to just over $30. To some observers, fundamentals of the oil market and macroeconomic conditions provide an adequate explanation for these price movements—the financial crisis deepened in the summer of 2008, leading to sharply reduced estimates of economic growth in much of the world and lowered projections of energy demand. Others, however, doubt that supply and demand conditions justified an 80% price plunge and argue that financial speculators had created artificially high prices. Figure 1 shows trends in U.S. regular retail gasoline prices since 1990, as well as a predicted price based on the price of Brent crude oil, a key benchmark in petroleum markets. In 2011 and 2012, crude oil prices again rose sharply, reviving the debate on whether oil price trends are mostly driven by speculation or by changes in supply and demand fundamentals. Economists and market regulators have not reached a consensus as to the causes of oil price movements in recent years. A number of studies attribute volatility to such supply and demand factors as turmoil in oil-producing countries, reduced production in some major oil fields, and the growth of demand from China, India, and industrializing middle-income countries. An interagency task force led by the Commodity Futures Trading Commission (CFTC) found that "the increase in oil prices between January 2003 and June 2008 [was] largely due to fundamental supply and demand factors" and that "analysis to date does not support the proposition that speculative activity has systematically driven changes in oil prices." Others, such as CFTC Commissioner Bart Chilton, have contended that oil price gyrations are likely the result of speculative trading. A frequent argument has been that increasing investment flows from financial investors have affected prices. Some analysts have sharply criticized those claims. One econometric analysis that incorporated oil supply and energy demand effects concluded that speculation did not explain increases in oil prices in the 2003-2008 period, although the study suggested that speculation may have played some role in previous oil price spikes. On June 20, 2011, Senator Maria Cantwell announced that the Federal Trade Commission (FTC) had notified her that it had opened an investigation of anticompetitive practices in crude oil and petroleum product markets. The FTC has conducted several prior analyses of oil, gas, and petroleum markets. The Energy Independence and Security Act of 2007 (EISA; P.L. 110-140 ) gave FTC broader powers to prevent market manipulation in the wholesale petroleum industry. In August 2009, FTC issued a Final Rule on Prohibitions on Market Manipulation, which became effective on November 4, 2009. Legislation before the 112 th Congress ( S. 1200 ) would authorize and direct the CFTC to take certain actions to reduce the volume of speculation in oil and related energy commodities. This report provides background on futures and options markets for crude oil and presents data analysis of a possible relationship between market activities of speculative traders and oil prices. The data presented in this report cannot explain causes of oil price movements, but are intended to provide a context for evaluating arguments about the impact of speculation. A crude oil futures contract is an agreement to buy or sell 1,000 barrels of oil at some future date at a price set today. Thus, the contract gains or loses value as prices fluctuate. A contract to buy oil (called a long contract) gains value if the price rises, because the holder is entitled to buy at the old, lower price. Conversely, a short contract requires the holder to sell at today's price, and gains value if prices fall, because the holder may sell at above the market price. A long position in futures may be described as a bet that prices will rise; a short position is a bet that they will fall. Each futures contract has a long and a short side—whatever one trader gains, the other loses. Hedgers use futures not to bet on the price, but to avoid price risk. For example, a long contract in effect provides insurance to an oil refinery against an increase in the price of crude oil; if prices rise, the firm will pay more for oil on the physical (or "spot") market, but appreciation in the futures position offsets the price increase. Thus, the firm can use futures to lock in the price that prevailed when it entered into its position. Futures contracts and options on futures are traded on a number of exchanges around the world, linked to several different grades of crude oil. The most popular crude oil contract is traded on the New York Mercantile Exchange (or Nymex, now part of the CME Group, Inc.). The contract represents 1,000 barrels of West Texas Intermediate (WTI) grade crude oil, deliverable at Cushing, Oklahoma. Although Nymex WTI contracts call for physical delivery of 1,000 barrels at the time the contract expires, in practice nearly all contracts are settled for cash, without either party taking or making delivery. A trader may exit the market at any time by simply purchasing an offsetting position. That is, the holder of a long contract purchases a short contract with the same expiration date—since his obligation is then to buy and sell the same commodity at the same time, his net exposure is zero, and he is said to be "evened up," or out of the market. Nymex offers an oil contract expiring each month through the end of 2016. Most trading is in the contract expiring soonest, called the "near month." An identical WTI crude contract trades on the ICE Futures Europe exchange in London. Most trading on the futures exchanges is short-term. Many traders prefer to even out their positions before the close of trading each day in order to avoid overnight price risk. Some traders, however, take longer-term positions, either to hedge transactions expected to take place months or years in the future, or to speculate on long-term price movements. The number of contracts outstanding at the end of the trading session is called the "open interest." The Commitments of Traders (COT) report published by the Commodity Futures Trading Commission (CFTC) shows the open interest in futures and options on futures, broken down by several classes of market participant, distinguishing between commercial hedgers and speculators. These data, though limited in important ways (discussed below), are the best public source of information on the activity of speculators in the crude oil market. COT data, usually published each Friday in the late afternoon, reflect the open interest, or the number of contracts outstanding, as of close of trading on the previous Tuesday. Thus, comparing week-to-week COT figures shows whether classes of traders have increased or decreased the size of their long, short, or spread positions. The COT figures do not show how much trading has gone on during the week, or whether a position has been liquidated and then built back up, but simply offer a snapshot of positions at the market close on Tuesday. Another significant limitation of COT data is that they do not cover swap contracts—another form of oil derivative contract not traded on exchanges. Thus, COT figures arguably cover only a subset of oil derivatives, all of which play a role in setting prices. The Dodd-Frank Wall Street Reform and Consumer Protection Act ( P.L. 111-203 ) gave the CFTC new regulatory authority over the swaps market. In the future, COT reports may reflect swap positions, but the data surveyed in this report cover only exchange-traded futures and options on futures. COT data show the aggregate positions of hedgers and several classes of speculators, as follows: Producer/Merchant/Processor/User . These are entities that predominantly engage in the production, processing, packing, or handling of crude oil and use the futures markets to manage or hedge risks associated with those activities. Swap Dealers are entities that deal primarily in swaps for a commodity and use the futures markets to manage or hedge the risk associated with those swap transactions. The swap dealer's counterparties may be speculative traders, like hedge funds, or traditional commercial clients that are hedging risk arising from their dealings in the physical commodity. Thus, swap dealer positions represent both hedging and speculation. Money Managers , for the purposes of the COT reports, are registered commodity trading advisors (CTAs), registered commodity pool operators (CPOs), or unregistered funds identified by the CFTC. These traders, which include hedge funds, manage and conduct futures trading on behalf of clients. Other Reportables. Every other reportable trader not placed into one of three categories above is put into the "other reportables" category. These may include floor traders and exchange members who trade for their own accounts. Nonreportable positions include all traders whose holdings are below the 350-contract reporting threshold. These may be hedgers or speculators. Table 1 shows the breakdown of open interest in crude oil futures and options, for Nymex and ICE Futures Europe WTI crude contracts, as of May 24, 2011. The data in Table 1 suggest that speculators account for most of the open interest in crude oil contracts . The long and short hedging positions of the "Producer/Merchant" category accounted for only 27.1% of open interest. Some observers believe that the limited presence of commercial hedgers itself indicates excessive speculation in the market. The proportions by themselves, however, do not appear to explain recent oil price changes because they have been relatively constant since mid-2006, when the disaggregated COT data series begins. Indeed, the total level of open interest has been relatively constant since 2006, as the data in Figure 2 and Figure 3 indicate. Thus, the data do not appear to support an argument that recent oil price spikes are the result of large, sudden inflows of speculative funds. Figure 2 and Figure 3 plot total crude oil open interest against the price of oil between August 2007 (when oil prices began to rise to their 2008 peak) and May 2011. Figure 2 ends on July 28, 2009; Figure 3 begins the following week. Figure 2 reports only Nymex positions, whereas Figure 3 shows the sum of Nymex and ICE Futures Europe positions (which the CFTC did not report earlier). As noted above, the ICE and Nymex contracts are identical, so positions on the two exchanges have been added together. While the total level of open interest appears to be more stable than the price of oil, the aggregate figures mask significant fluctuations in the size of positions held by different classes of traders. Figure 4 and Figure 5 break down open interest positions for the various types of traders holding reportable positions. The time periods covered are the same as in Figure 2 and Figure 3 . Figure 4 shows Nymex positions; Figure 5 shows Nymex plus ICE. Even though the aggregate open interest fluctuates within fairly narrow bounds, the number of contracts held by particular classes of traders may change significantly, as Figure 4 and Figure 5 indicate. For example, commercial hedgers' positions (both long and short) shrank significantly beginning in June 2008, when oil prices neared their peak. Between June 10 and August 26, 2008, combined long and short positions of commercial hedgers fell by 49.7%. Meanwhile, the price of oil peaked at $145.32 per barrel on July 3, 2008, stood at $116.31 on August 26 (when the size of hedgers' positions reached a low point), and ultimately bottomed out at $30.28 on December 23, 2008. In another example, money managers' long positions averaged 211,000 contracts during the second quarter of 2010, but increased by 46.4% to an average of 309,000 during the first quarter of 2011, when there was a significant upswing in the price of oil. Are changes in futures positions statistically related to price changes? Is the relationship the same for different classes of traders? The next section of this report examines how changes in crude oil futures and options positions correlate with changes in price. Analysis of COT data suggests that week-to-week changes in managed money long positions are positively correlated with changes in oil prices. Figure 6 shows a scatter plot between week-to-week changes in managed money long positions and weekly changes in oil prices. Each point in the figure represents a single week's data: changes over the previous week in the size of the long position are shown on the X-axis, price changes on the Y-axis. Points below zero on the Y-axis represent weeks when the price has fallen, while points to the right of zero on the X-axis show weeks when positions have increased. Thus, points in the lower left quadrant of the graph represent weeks when the price fell and money managers reduced their short positions. Points in the upper right indicate that prices rose that week and money managers increased their long positions. The distribution of the points in Figure 6 suggests a trendline rising from left to right. In other words, price rises are positively correlated with increased long positions, price falls with smaller positions. Figure 7 shows a similar scatter plot for managed money short positions. Week-to-week changes in managed money short positions show a weaker negative correlation with changes in oil prices. In other words, money managers tended to increase short positions, which gain value as prices fall, when prices did fall, although the trend is not as clear as on the long side shown in Figure 6 . Figure 8 shows a scatter plot with changes in swap dealers' long positions, and Figure 9 shows a scatter plot with changes in producer/merchant long positions. Note that while the changes in producer/merchant long positions are generally much larger than for managed money long positions, changes in producer/merchant long positions are not correlated with oil price changes. Scatter plots make visible the relationship between two variables and are especially useful in identifying outlier observations, which can have disproportionate influence on statistical models. For example, outliers seen in Figure 6 and Figure 7 include the week following the Lehman Brothers bankruptcy in September 2008 and the weeks just after oil prices reached their lowest level in years in late December 2008. One limitation of scatter plots is that the effects of control variables are not shown. An evident correlation between two variables could result from the influence of a unseen third, confounding variable. Alternatively, a relationship between two variables might only emerge after appropriate control variables were added. Correlations evident in Figures 5 and 6 , however, also appear in regressions that account for the time-series nature of the data and control for seasonal variations, interest rates, and other financial variables. This section presents results from a time-series regression, reported in the Appendix , used to investigate possible effects of trading positions on the price of oil. This analysis uses the same weekly COT data discussed in the report, along with monthly seasonal controls and other financial controls. Correlations between changes in managed money positions and percentage changes in oil prices are robust, and appear in a variety of specifications. While this analysis addresses some statistical issues associated with time-series data, a more thorough investigation would be required to disentangle the relationship between trading positions, prices, and macroeconomic conditions. Control variables include a measure of bond yields and the euro/dollar exchange rate. The Corporate AAA Bond index may signal changes in market expectations of long-term economic growth. Oil investments may have been used as hedges against exchange rate risks for the U.S. dollar. In addition, fluctuations in the euro/dollar exchange rate affect the relative price of oil in Europe. Percentage changes in the euro/U.S. dollar exchange rate are therefore included as a control. Control variables are measured as changes or as percentage changes. Results show a statistically significant positive correlation between managed money long positions and oil prices. The negative correlation between managed money short positions and oil prices is about as large, although less precisely estimated. Swap dealers' positions show a similar pattern, although the estimated size of the effects are about two-thirds smaller and are less precisely estimated. While changes in long and short positions of swap dealers and producer/merchant hedgers are not correlated with price changes when considered individually, controlling for changes in short positions does produce positive correlations between long positions and prices for swap dealers and producer/merchants, as well as for money managers. When controlling for long position changes, short position changes appear to be correlated to prices, and vice versa. These statistical relationships are discussed further in the Appendix . The correlations between managed money long and short positions and oil prices, as estimated with these controls, are about twice as strong as those for producer/merchant traders. That is, an increase in managed money traders' long or short positions is associated with a percentage price change twice as large as for a change in producer/merchant positions. For swap dealers' position changes, the effect on prices is about 30% larger than for producer/merchant trades. While all of the position changes are estimated to have statistically significant effects, those for managed money positions, which are those held by professionally managed investment vehicles such as commodity pools and hedge funds, are more precisely measured. Coefficients for corporate bond yields and the euro/dollar exchange rate are also statistically significant and have the expected signs. Correlation between changes in managed money positions and oil price movements, even with the introduction of control variables, does not show causation. Prices might rise because money managers buy, or trading decisions by money managers may reflect price changes. To use the terminology of a classic study on hedging and speculation, are money managers driving the price of oil, or are they hitchhikers along for the ride? Interpretations on either side of the question are plausible. The argument that money managers cause price movements faces certain difficulties. Any increase in a long position is equivalent to a purchase of the underlying commodity and thus tends to raise the price. However, money market long positions are a fairly small fraction of the total open interest positions. That adjustments to this small market share would trigger discernible price movements might be considered surprising, especially when comparable or larger position changes by other market participants are not correlated with price swings. One hypothesis is that money managers' trades may have a unique impact on intraday trading, which the weekly open interest data fail to capture. Short-term traders might observe and seek to copy the strategies of certain money managers who are regarded as especially capable of identifying new information that might be expected to move prices, or who simply have achieved superior returns in the past. If significant numbers of short-term speculators copy money manager trades, the impact of those trades on prices would be magnified. In effect, under this scenario, money managers may have market power beyond what the size of their positions would suggest. Under this interpretation of the data, it would not matter whether hedge funds trade based on relevant fundamental information or not. If their trades trigger a significant number of similar transactions by others, they become a kind of self-fulfilling prophecy. Such "herding behavior" among speculators, if it exists, would support arguments that the oil price often includes a "speculative premium" above and beyond the price justified by the fundamentals. An alternative explanation is that money managers do trade on fundamental information and that they are more adept than others at identifying information that is going to move prices. If money managers are consistent in their ability to identify new and relevant information that will affect prices (and trade on that information before others do), one result would be the observed correlation. A potential objection to this explanation is that it implies that some financial speculators are better analysts of the oil market than actual producers and end-users of oil, who also trade in the futures market. Money managers might also profit by following price trends. Rather than cause price changes, they may buy when prices are rising and sell when they fall. But why would money managers' trading patterns, and not those of other market participants, be correlated with price changes in this way? Other market participants may have longer investment time horizons or be less sensitive to price changes. Hedgers, for example, are generally less affected by price changes, because whatever they may lose on their futures positions, they make back in the spot market (because, for example, the physical commodity they produce will have gone up in price). Similarly, swap dealer positions may reflect long-term index investments by pension funds and other institutional investors who are seeking to allocate part of their portfolio to an asset class that is not correlated to other assets they hold, such as stocks and bonds. Since the object of such investment is portfolio diversification, such investors are less likely to buy or sell in reaction to short-term price movements. Hedge funds, by contrast, are known for taking aggressive positions in search of high yields and for seeking to extract the maximum return from any price trend. A 2008 CFTC study referred to speculators "who take positions based on price expectations over a period of days, weeks, or months" as "trend followers." Trading with this time horizon would be captured by the weekly COT reports, and may be more typical of money managers than other traders in oil futures and options. Another possibility is that swap dealer COT data may represent the net of proprietary and customer positions, potentially masking the relationship between positions and price. It may be that swap dealers' trading for their own accounts would be correlated with prices, just as managed money positions are, but their trading on behalf of customers may follow a different pattern. Money managers may follow prices in other ways. Some hedge funds apparently use "momentum trading" strategies to identify pricing blips that signal market activities of traders who are informed but lack the backing of major financial resources. For example, a scientist may understand the implications of a new technology, but may lack the ability to capture the full value of that information in markets. If that scientist bought shares of a company based on that knowledge, a hedge fund might infer something about that scientist's realization. The hedge fund, however, would be able to harness substantial financial leverage to exploit that information. Certain hedge funds trading in oil markets might thus bootstrap information gleaned from trades of specialist traders who lack the financial resources to take full advantage of their informational advantages. Some contend that hedge funds and other sophisticated traders have used advantages in trade execution to benefit from slow-footed rivals. The potential of money managers' trades to move prices does not necessarily raise any policy issue. If some commodity trading advisors or hedge funds are better or faster than others at trading on new information, the effect should be to make pricing more efficient. If too much "copycat" trading occurs, the market price may overshoot, but it is not clear why any such overshooting would not soon correct itself. One study found that open interest positions are highly correlated with macroeconomic activity. This might suggest that traders with better information on macroeconomic trends, which strongly influence energy demand, take more aggressive positions, which would then influence oil prices. This interpretation suggests that speculative traders may have better information about market fundamentals, such as expectations of future economic growth, and thus help channel the effects of changes in current and future energy demand into market prices. Some argue that money managers who are not involved in the physical oil business trade on information that is not fundamental and that this distorts prices. This effect would be exacerbated by copycat trading. Specifying which information is fundamental and which is irrelevant noise, however, is difficult. Experts may express opinions about what the fundamental price should be, given current supply and demand conditions, but a basic axiom of classical economics is that free markets do a better job of weighing information and determining prices than any group of experts. On the other hand, asset markets can be susceptible to price bubbles, in which rising prices convince some traders that future prospects are rosier than previously thought. Some have contended that identifying asset bubbles before a readjustment to fundamental levels (i.e., a crash) may be difficult. Even if some traders understood that asset values exceeded fundamental values, it might be impossible given financing constraints to exploit that information to a degree sufficient to prevent the formation of bubbles. Policy tools to address speculation that is viewed as excessive or destabilizing are generally blunt instruments. It is possible to prohibit trading in derivative instruments based on oil (or other energy commodities). With the Onion Futures Act (P.L. 85-39), Congress enacted a ban on onion futures, which remains in force, although it is not clear that onion prices have become more stable as a result. Other policy options (included in S. 1200 ) are steps to reduce the size of speculative positions, either by raising the costs of speculative trading or by limiting the number of contracts that speculators can hold. These measures could certainly reduce the volume of speculative trading in oil, but it is not clear that the effect would be to lower prices, for two reasons. First, the curbs would fall on short as well as long traders, making the net effect unpredictable. Second, oil is a global commodity, and a parallel futures market exists in London. ICE Futures Europe trades contracts based on U.S. oil, suggesting that oil speculation would continue despite any U.S. restrictions. The regression results presented below show the correlation between changes in long and short positions held by money managers, swaps dealers, and commercial hedgers (producer/merchants). While producer/merchant long and short positions are uncorrelated with price changes when considered individually, they are jointly correlated with price changes. Moreover, producer/merchant traders' long and short positions strongly correlate with each other, as Figure A-1 shows. This result is counterintuitive, since long and short hedgers face opposite price risks. That is, when prices are rising, or expected to rise, long hedgers such as airlines or utilities would appear to have greater incentives to hedge the risk of further price rises, while short hedgers, such as oil companies, might be expected to reduce their hedging position to reap the full benefits of higher prices. But in fact, long and short hedgers appear to change their positions in tandem, whatever the prevailing price trend. (An example is discussed in the text: when oil prices peaked and began to fall in mid-2008, both long and short hedgers reduced the size of their positions.) Long and short positions for swap dealers and managed money traders, by contrast, are not strongly correlated. The coefficient ("Coef." in Column 2) shows the marginal (i.e., incremental) effect of independent (control) variables on the dependent variable (here, changes in the log crude oil price). Changes in logs are one way to calculate variables in percentage change terms. For example, the regression results suggest that a 1% change in the Euro/U.S. dollar exchange rate results in a 1.08% increase in the oil price. Results for month variables, included as seasonal controls, and a constant term are not reported. (See text for variable definitions and notes.) | Dramatic swings in crude oil prices have led Congress to examine the functioning of the markets where prices are set. A particular concern is that financial speculators may at times drive prices above the level justified by supply and demand. Most oil speculators produce no commercial quantities of oil and take no deliveries; rather, they trade financial contracts whose value is linked to the price of oil. These derivative contracts—futures, options, and swaps—allow speculators to profit if they can forecast price trends or exploit new arbitrage opportunities. Derivatives also permit oil companies, airlines, utilities, and other energy-consuming or energy-producing firms to reduce or "hedge" price risk by locking in today's price for transactions that will occur in the future. Hedgers and speculators trade on regulated futures exchanges in a continuous auction market. Prices set there serve as benchmarks for many physical oil transactions. Some contend that oil speculators do not always trade on fundamental information related to supply and demand, but are nonetheless able to drive up prices by flooding the market with cash and overwhelming the influence of commercial hedgers who actually deal in physical oil. On the other hand, most empirical studies suggest that speculation does not generally increase price volatility, although the occasional emergence of speculative "bubbles," when market prices may diverge significantly from fundamental values, is well known. Neither economists nor regulators have reached a consensus as to the causes of oil price movements in recent years—some point to the fundamentals (where both demand and supply are inelastic in the short run, and questions exist about the capacity to meet growing global demand in the long run), while others focus on financial markets. Both are possible sources of price volatility. This report examines the relationship between the price of oil and the positions of various classes of traders in crude oil futures and options. Position data come from the Commitments of Traders report, published weekly by the Commodity Futures Trading Commission (CFTC). A statistically significant correlation is evident between changes in positions held by "money managers" (a category of speculators that includes hedge funds) and the price of oil. In other words, during weeks when money managers have been net buyers of oil futures and options (or increased the size of their long positions), the price has tended to rise. Price falls, conversely, have tended to coincide with reductions in money managers' long positions. This statistical relationship is weaker for other classes of speculators and for commercial hedgers. There are several possible explanations for why money managers' trades might be more closely linked to prices. Money managers might identify information that will affect prices (and trade on that information) more quickly or accurately than other market participants. Other traders might copy the trades of certain hedge funds viewed as market leaders, driving prices further in the same direction. In this way, money managers' trades could move the price, even though their positions account for a relatively small share of the total market. Causation could also run in the opposite direction—perhaps on average money managers chase price trends rather than set them. Other traders whose positions appear in the Commitments of Traders data, such as commercial hedgers or swap dealers, may be less price-sensitive than hedge funds and react more slowly to price changes. Data presented in this report cannot explain causes of oil price movements, but are intended to provide a context for evaluating arguments about the impact of speculation. This report will be updated as events warrant. |
More than 80 benefit programs provide cash and noncash aid that is directedprimarily to persons with limited income. These benefit programs cost $522.2 billionin FY2002, a record high. This sum was up $45.3 billion (9.5%) from the previouspeak of FY2001, and it equaled 5% of the gross domestic product (GDP). Federalfunds provided 71.5% of the total. Higher medical spending accounted for $32.8billion of the year's net increase, and 54 cents out of every welfare dollar went formedical benefits. Federal welfare outlays represented 18.6% of the federal budget,with 8% attributed to medical assistance. See Table 1 for FY2000-FY2002summary. After adjustment for price inflation, 2002 welfare spending was up $38.2 billion (7.9%) from that of 2001, the previous peak. Real spending increases (2002 dollars)were dominated by medical assistance (up $29.1 billion). Other increases were:education benefits,$ 4.1 billion; food benefits, $3.3 billion; housing, $2.3 billion; andservices, $1.2 billion. Outlays for cash aid dropped by $1.2 billion; and for jobs andtraining, by $0.5 billion. Spending for "human capital" programs (ones providing education and employment and training activities) accounted for 7.3% of all welfare dollars(compared with 19.6% for cash assistance). This report consists of a catalog of 85 need-based programs. (1) For each programthe report provides the funding formula, eligibility requirements, and benefit levels. At the back of the report, summary Table 14 gives expenditure data (federal andstate/local) and recipient data for FY2000-FY2002 by program. Two programs arenew to this series of reports: farmers' market nutrition programs (formerly treatedas a component of the food stamp program) and housing assistance for specialpopulations -- elderly and disabled. Historical tables have been revised to accountfor these additions. Most of these programs base eligibility on individual, household, or family income, but some use group or area income tests (see Table 7 -- page 16); and afew 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 whomake no payment and render no service in return. However, in the case of the joband training programs and some educational benefits, recipients must work or studyfor wages, training allowances, stipends, grants, or loans. Further, the TANF blockgrant program requires adults to commence work (defined by the state) after a periodof 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-transferprograms. Thus, it excludes Social Security cash benefits, unemploymentcompensation, and Medicare. Outlays for the Old-Age, Survivors, and DisabilityInsurance programs (Social Security cash benefit programs) in FY2002 totaled $456billion, financed primarily from payroll tax collections. The report also excludespayments, even though financed with general revenues, that may be regarded as"deferred compensation," such as veterans' housing benefits and medical care forveterans 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 ofworking families with gross income below specified limits and makes directpayments ("refunds") to those whose income is below the tax threshold or whose taxliability is smaller than their credit. Before the 2001 tax law, the child tax credit wasrefundable only to some taxpayers with three or more children, but it now isrefundable (up to certain limits) for those with earnings above $10,000. This reporttreats the direct payment component of these credits, but not the reduction in taxliability, as a welfare expenditure. Other tax benefits are excluded from the reportbecause they are not refundable (make no direct payments). Further, in most casesthey impose no income test for eligibility. Examples of these other tax benefits arethe deductibility of mortgage interest and property taxes on owner-occupied homes(equivalent to outlays of $63.3 billion and $21.8 billion, respectively, in 2002). These tax transfers increase families' disposable income by reducing their taxliability and are known as "tax expenditures." (The standard deduction and personalexemption in the income tax code also decrease families' taxable income.) Table 1. Expenditures of Major Need-Tested Benefit Programs,by Form of Benefit and Level of Government,FY2000-FY2002 (millions of current dollars) Source: Table prepared by the Congressional Research Service (CRS). Note: Program data on which this table is based are found in summary table ( Table 14 ) at the back of the report. Total expenditures on cash and noncash welfare programs multiplied many times between 1968 and 2002 ( Table 2 ). Even after allowance for price inflation,spending sextupled (rising 523%) over the 34 years, a period when the U.S.population rose by an estimated 43%. (2) Measuredin constant 2002 dollars, (3) theannual rate of growth in spending over the whole period was 5.5%. However, thegrowth pattern was uneven. Real spending almost tripled in the first 10 years,declined in some years (1982, 1996. and 1997), and in the last 5 years rose at anannual rate of 3.9%. Total per capita welfare spending grew in real terms (constantFY2002 dollars) from $416 in FY1968 to a peak above $1,800 in FY2002. Table 2. Total Expenditures for Need-Based Benefits, FY1968-FY2002 (in millions of dollars) Source: Table prepared by the Congressional Research Service (CRS). FY1968 and FY1973 data are from: Income Security for Americans: Recommendations of thePublic Welfare Study . Report of the Subcommittee on Fiscal Policy of the JointEconomic Committee. December 5, 1974. Table 4 , p. 28 of Joint EconomicCommittee study, (1968 federal total has been increased by $54 million to correct atypographical error in that table, and the 1973 federal total has been increased by$101 million to include Title X family planning, previously omitted from this reportseries). Data for FY1975-FY1999 are from previous editions of this report (revisedto incorporate public housing capital fund costs, to account for new estimates ofsome program outlays, and to provide historical data for some newly added programs). Data for FY2000-FY2002 are from Table 1 of this report. Figure 1 shows the course of expenditures for income-tested benefits from FY1975-FY2002. The upper line shows total real spending (federal and state-localspending); the bottom line shows state-local spending alone; the space betweenrepresents federal spending. Throughout this period federal expenditures accountedfor more than 70% of the total. The federal share rose above 76% in 1978-1980, thenbegan a general decline. In the 1993-2002 decade it averaged 71.4%. Major Welfare Policy Changes (1968-2002). During 1968-1976, Congress liberalized some oldwelfare programs and established new ones. Some of the major expansions follow. Effective in 1969, Congress gave a work incentive bonus to all mothers who receivedAid to Families with Dependent Children (AFDC) checks; the bonus, virtuallyrepealed in late 1981, was the right to a welfare supplement even after their earningsrose above the state standard of need. In 1969, minimum rents for public housingwere abolished (reinstituted, at a lower level, in 1974). By 1970 amendment, theFood Stamp program was converted into a federal income guarantee in participatingcounties. By 1972 amendment, basic educational opportunity grants were adoptedfor all needy college students (extended to "middle - income" students by 1978 lawand renamed Pell grants in 1980). In 1972, effective in 1974, a federal cash incomeguarantee -- Supplemental Security Income (SSI) -- was enacted for the aged,blind, and disabled, and Congress established the Special Supplemental FoodProgram for Women, Infants, and Children (WIC). Effective in 1974, food stampswere extended to all counties, providing a national income guarantee in the form offood stamps. In 1975, a rebatable tax credit was adopted for low-income workerswith children. In 1981, Congress moved to restrict eligibility for some programs and to lower some benefits. For example, it imposed gross income eligibility limits for AFDC andfood stamps, reduced AFDC and food stamp benefits for families with earnings,raised public housing rents, and reduced subsidies for school lunches. Effective inFY1983, it temporarily reduced the food stamp guarantee. Thereafter, Congressrestored food stamp benefit rules for workers (1985), expanded Medicaid eligibilityfor some needy persons not enrolled in cash welfare, sharply expanded the EITC (andgave it inflation protection) (1986), and required all states to offer AFDC to needytwo-parent families in which the primary earner is unemployed or underemployed(1988). It also established the Job Opportunities and Basic Skills (JOBS) programfor AFDC recipients and expanded federal matching funds for work and training andfor related child care. In 1993 ( P.L. 103-66 ), Congress again expanded the EITC,with the goal of ending poverty for a family of four with a parent who works full timeat the minimum wage (counting food stamps toward the antipoverty goal). At thesame time, it established a small EITC for childless workers. In 1996, effective July 1, 1997 at the latest, Congress repealed AFDC, JOBS, and Emergency Assistance, replacing them with a fixed annual block grant forTemporary Assistance for Needy Families (TANF), through FY2002. It specifiedthat state TANF programs must condition eligibility on work, impose a lifetime limit(5 years at most) on federally funded basic ongoing aid (traditional cash aid), andachieve prescribed work participation rates for full funding. The 1996 law ( P.L.104-193 ) also ended eligibility for most welfare benefits for non-citizens, added tothe Food Stamp program a stringent work requirement for childless persons aged18-50, and sharply expanded federal funding for child care, consolidating the fundsin the Child Care and Development Block Grant. In 1997, Congress added specialwelfare-to-work grants to TANF (for FY1998 and FY1999 years only), moderatedsome of the rules affecting non-citizens (see later section on Non-Citizen Eligibilityfor Major Federal Benefits ), established a new program of State-Children's HealthInsurance (S-CHIP), and created a child tax credit (made refundable, by the 2001 taxact) for taxpayers with more than $10,000 in annual earnings. Spending Trends by Level ofGovernment. Tables 3, 4, and 5 present 1968-2002 welfarespending in constant 2002 dollars, by form of benefit; Table 3 displays federaloutlays, Table 4 , corresponding state-local data, and Table 5, total welfarespendingamounts. Measured in constant 2002 dollars, federal spending for income-testedbenefits climbed from $59.4 billion in FY1968 to $373.2 billion in FY2002, anincrease of 529%. State-local welfare spending (constant dollars) rose from $24.5billion to $149 billion over the same period, an increase of 508%. Total welfareoutlays increased from $83.9 billion to $522.2 billion in these years, an increase of523%. Cash aid was the leading form of federal welfare until 1980, when it was overtaken by medical benefits. Two years later, in 1982, federal welfare spendingdeclined for all forms of aid except subsidized housing, in which case outlaysreflected earlier commitments, and education benefits. However, beginning in 1983,real federal welfare outlays climbed steadily before declining in FY1996 andFY1997. After 1979, state-local outlays rose in all years except 1993 and 1996. Both federal and state-local outlays set successive new record highs inFY1998-FY2002. Medical Benefits. Since 1979, medical spending has accounted for more than 50 cents out of every welfare dollarspent by state-local governments. In 1989, the share climbed to 60%, and since 1979it has exceeded 70%. Medical assistance has accounted for a much smaller share offederal welfare outlays: about 25% until the mid-80s, above 30% in the 1990s, andan average of 43% in 2000-2002. Welfare Share of Federal Budget. As a component of the federal budget, welfare spending averaged 13% from1975-1979, dropped to 12% in the 1980s, and since 1994 has equaled or exceeded17% each year. In 2001 it rose above 18%, and in 2002 reached 18.6%. Refundable Income Tax Credits. The earned income tax credit has become the nation's largest program ofincome-tested cash benefits for families with children. In FY2002, the U.S. Treasurypaid out $27.8 billion in refundable earned income tax credits (chiefly for earnerswith children) and $5.7 billion in child tax credits. The total almost equaled federalSSI payments for the aged, blind and disabled ($33.9 billion) and was five times asmuch as cash assistance from TANF federal dollars ($6.5 billion). (TANFexpenditures for work activities, child care, and other services exceeded TANF cashaid. See Table 14 -- page 227.) Table 3. Federal Spending for Income-Tested Benefits by Form of Benefit, FY1968-FY2002 (millions of constant FY2002 dollars) Source : Table prepared by the Congressional Research Service (CRS). a. Rows may not add to total shown because of rounding. Table 4. State-Local Spending for Income-Tested Benefits byForm of Benefit, FY1968-FY2002 (millions of constant FY2002 dollars) Source : Table prepared by the Congressional Research Services (CRS). a. Rows may not add to total shown because of rounding. na=not available Table 5. Total Spending for Income-Tested Benefits by Form of Benefit, FY1968-FY2002 (millions of constant FY2002 dollars) Source : Table prepared by the Congressional Research Services (CRS). a. Rows may not add to total shown because of rounding. The dramatic change since 1978 in the composition of total spending forincome-tested benefits is shown in Figure 2 and in Table 6 . In FY1978spending forcash relief and medical aid was about equal. Each accounted for 29% of total welfarespending covered by this report. Thereafter, outlays for medical benefits rapidlyovertook cash aid, topping 50% in FY2000 and reaching 54% in 2002. Table 6. Outlay Trends by Form of Benefits, FY1978-FY2002 (billions of constant 2002 dollars) Source : Table prepared by the Congressional Research Service (CRS). The eligibility of noncitizens for major federal means-tested benefit programslargely depends on their immigration status and whether they arrived in the UnitedStates, or were enrolled in a benefit program, before enactment of the 1996 welfarelaw ( P.L. 104-193 ) on August 22, 1996. That law sharply restricted welfareeligibility for noncitizens, though it has since been modified. For noncitizensentering after August 22, 1996, many of the restrictions imposed by the 1996 lawremain essentially unchanged. However, for persons who legally resided in theUnited States before enactment of the new law, provisions have been significantlyrevised by 1997, 1998, and 2002 amendments. The most significant recent change(made in the 2002 farm bill, P.L. 107-171 ) opened up food stamp eligibility to alllegal permanent resident (LPR) children, regardless of date of entry or length ofresidence, and to legal permanent residents (LPRs) who meet a 5-year residence test. Those LPRs who were admitted to the United States as refugees and asylees are treated differently from other LPRs, as follows: Refugees and asylees . Eligible for SSI benefits, Medicaid, and food stamps for 7 years after arrival, and for 5 years for TANF. After this term, they generally areineligible for SSI, but states may extend federally aided TANF and Medicaid to them. Legal permanent residents (LPRs) Who have a work history or military connection. If they have (a) a substantial work history, generally 10 years (40 quarters) of work documentedby Social Security or other employment records, or (b) a military connection (activeduty military personnel, veterans, and their families), LPRs are eligible for majorbenefits; Who were legally resident as of August 22, 1996. If theyreceived SSI as of August 22, 1996, these LPRs continue to be eligible for SSI. Ifthey are disabled, they are eligible for SSI and, as a result, for food stamps (regardlessof the date of disability). If they were elderly (65+) as of August 22, 1996, they areeligible for food stamps. If they were children (under 18) as of August 22, 1996, theyare eligible for food stamps until they become 18; Who are qualified SSI recipients. If they meet SSI noncitizeneligibility tests, these LPRs must receive Medicaid; and Who entered the United States after August 22, 1996. TheseLPRs are barred from TANF, food stamps, and Medicaid for 5 years. Thereafter, thestate may extend federally-aided TANF, food stamps, and Medicaid to them. (Anotable exception is that LPR children are eligible for food stamps no matter whenthey entered the country or how long they have lived here.) The Census Bureau reports that 7.2 million families (including 5.4 million withchildren) in 2002 had total pre-tax money income -- after counting any cash from thewelfare programs of TANF, Supplemental Security Income (SSI), and GeneralAssistance (GA) -- that was below their poverty threshold. (4) The Bureau found thatthe money income poverty rate among related children in families was 16.3%, thehighest since 1999 (16.6%). Overall, 34.6 million persons were classified as poor on the basis of 2002 pre-tax money income (compared with 31.1 millions in 2000). Of these persons,66.6% were in households that received means-tested aid from at least one of eightprograms (TANF, SSI, GA, school lunch, food stamps, Medicaid, subsidizedhousing, low-income home energy assistance). By race and ethnicity, the followingpercentages of poor persons were in households that received pre-tax aid from oneor more of the eight programs: non Hispanic whites, 53.5%, blacks, 80%, andpersons of Hispanic origin, 78.6%. 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 2002, thesefamilies totaled 5.7 million (compared with 5.1 million in 2000): 3.4 million witha female householder and 2.3 million with a male householder (chiefly two-parentfamilies). These numbers, based on CRS estimates, include unrelated subfamilies(the Bureau excludes these subfamilies from its "family" counts). As the chartshows, all but 8.9% of the female-headed families and 11.8% of the male-presentfamilies whose pre-tax, pre-welfare money income fell short of the poverty thresholdreceived means-tested aid. For male-present families, the EITC, which goes only topersons with earnings, was the dominant form of aid. In all, 71.7% of male-presentfamilies who were poor before transfers received the EITC (compared with 75.2%in 2000); for 25.4% it was the only aid. Among female-headed families who werepoor before transfers, 53.7% received the EITC (compared with 59.6% in 2000); for11.7% it was the only aid. Various combinations of cash assistance (TANF, GA,EITC) and noncash aid (food stamps, housing subsidies, Medicaid or coverage underthe State Children's Health Insurance Program (S-CHIP), went to 23.5% offemale-headed families and to 10.6% of male-present families. (5) 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 welfareprogram, or other factors that presume need. The explicit income tests are of fivekinds: Income ceiling related to (1) one of the federal government's official povertymeasures (federal poverty income guidelines or Census Bureau poverty thresholds);(2) state or area median income; (3) the lower living standard income level of theBureau of Labor Statistics; (4) an absolute dollar standard; (5) level deemed toindicate "need." Table 7 classifies the programs in this report by type of income test. Tables 8-11 present, respectively, Census Bureau poverty thresholds for 2002,federal poverty income guidelines for 2003, income eligibility limits for subsidizedmeals, July 2003-July 2004, and lower living standard income levels, effective inMay 2003. Table 7. Income Eligibility Tests Used by Benefit Programs * Short titles and abbreviations are used in this table. See table of contents for full titles. a. States must extend Medicaid to certain persons whose income is below the federal poverty income guideline (or a multiple of it) but who do not receivecash aid. These persons are pregnant women, children born since September 30, 1983, the aged, the blind, and thedisabled. b. Need is decided by state, locality, Indian tribe (or Alaskan Native village). c. Eligible for Medicaid, foster care, and adoption assistance are persons who do not qualify for TANFcash assistance but who would be income-eligiblefor AFDC under the terms of July 16, 1996 (with some modifications allowed) if that program had not been replacedby TANF. Also eligible forMedicaid in most states are persons eligible for SSI. d. Veterans receiving veterans' pensions or eligible for Medicaid are automatically eligible for free VA medicalcare. e. If a state's Medicaid limit for children is at or above 200% of the poverty guideline, it may give S-CHIPto children whose family income is within150% of the Medicaid limit (thus, up to 50% above the Medicaid limit). f. The stated purpose of the Maternal and Child Health (MCH) Services Block Grant law is to enablestates to assure access to quality MCH services tomothers and children, particularly those with low income (or limited availability of health services). The law defineslow income in terms of thefederal poverty income guidelines. This block grant, which took effect in FY1981, includes funding for crippledchildren's services. g. The law limits free care to those below the federal poverty income guidelines. h. All residents of the area served are eligible, but fees must be charged the nonpoor. i. For basic federal SSI payment. j. States decide need for an optional state supplement to SSI. k. A blind or disabled child who is eligible for SSI also is eligible for adoption assistance. l. Households composed wholly of recipients of SSI or GA or of recipients of TANF cash or services automatically meet food stamp assets and incometests but their benefits must be calculated by food stamp rules. m. Food stamp eligibility is accepted as documentation of eligibility for the free school lunch and free schoolbreakfast programs. n. States may give automatic eligibility to public assistance recipients. o. The law requires preference for those with greatest economic or social need. p. Need is decided by a system known as the federal needs analysis methodology, which is set forth inPart F of Title IV of the Higher Education Act(HEA) as amended. q. There is no income test. Migratory children are presumed to be needy. r. For forgiveness of loans made to needy students who fail to complete studies. s. Need for loans is decided by the educational institution, by use of a needs analysis system approvedby the Secretary of Education "in combinationwith other information" about the student's finances. For all health professional scholarships and for loans tostudents of medicine and osteopathy,federal regulations define the required "exceptional financial need." t. Regulations require the educational institution to determine that migratory students need the financialassistance provided. u. Law makes eligible middle school and secondary students who are "economically disadvantaged." v. Federal income ceiling is 85% of state median for family of same size w. Under the law, at least 70% of entitlement Child Care Development Block Grant(CCDBG) funds must be used for families receiving TANF, tryingto leave welfare through work, or at risk of becoming eligible for TANF. x. Applies to families aided with TANF dollars transferred to Title XX (their income cannot exceed 200% of the federal poverty guidelines). y. Need is decided by agencies administering the benefits. z. The federal poverty income guideline is used if higher than 70% of the lower living standard incomelevel of the Department of Labor. aa. The law requires preference for "low-income" persons if funds are limited. bb. States have the option of setting limits below outer federal ceilings (but cannot set a ceiling below110% of the federal poverty income guideline). Table 8. Bureau of the Census PovertyThresholds for 2002 Source: U.S. Department of Commerce, Bureau of the Census (Jan. 23, 2003). Table 9. 2003 Federal Poverty Income Guidelines Source: Federal Register , v. 68, no. 26, Feb. 7, 2003, pp. 6456-6458. Table 10. Eligibility Levels for Free and ReducedPrice Meals for the Period of July 1, 2003-June 30, 2004 Source: Federal Register , v. 68, no. 49, Mar. 13, 2003. P. 12030. Table 11. Lower Living Standard Income Level (LLSIL) for a Family of Foura -- Effective May 30, 2003 (Foruse in programs under the Workforce Investment Act and the b Source: Federal Register , v. 68, no. 104, May 30, 2003. PP. 32552-32554. a. For LLSILs for other family sizes, see Federal Register entry noted above. b. The LLSIL is used for several purposes under the Workforce Investment Act(WIA). WIA defines "low income individual" for eligibility purposes in termsof the LLSIL or the poverty line. For purposes of state formula allotments, itdefines the terms "disadvantaged adult" or "disadvantaged youth" in terms ofthe LLSIL or the poverty line. c. To assess whether employment will lead to "self-sufficiency," WIA sets 100% ofthe LLSIL as the minimum pay needed. d. WIA provides that the terms "low-income" person and "disadvantaged adult" maybe defined as a member of a family that received total family income that, inrelation to family size, does not exceed 70% of the LLSIL. Further, the InternalRevenue Code provides that the term "economically disadvantaged" may bedefined as 70% of the LLSIL for purposes of the Work Opportunity Tax Credit(WOTC). Note: Effective on July 1, 1997 (earlier in most states), P. L. 104-193 endedAid to Families with Dependent Children (AFDC), a cash assistance program underwhich recipients were automatically eligible for Medicaid. The replacement blockgrant program of Temporary Assistance for Needy Families (TANF) does not entitleall TANF recipients to Medicaid coverage. However, those who meet the income,resource, and categorical eligibility criteria of the former AFDC program, as in effectin their state on July 16, 1996 (and subsequently modified, if applicable), are entitledto Medicaid. The description below summarizes Medicaid as it operated after AFDCwas replaced by TANF. 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 capitaincome and is adjusted annually. For FY2000-FY2002, the federal matching rate forservices averaged about 57% for the Nation as a whole. The federal share ofadministrative costs generally is 50%, but as high as 100% for certain items. Preliminary data indicate that federal outlays in FY2002 totaled $146.2 billion. 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 lowerper capita incomes and lower for states with higher per capita incomes. If a state'sper capita income is equal to the national average per capita income, its FMAP wouldbe 55%. The law establishes a minimum FMAP of 50% and a maximum of 83% (7) (though the highest rate in FY2003 was 76.62% for Mississippi). Federal matchingfor the territories is set at 50%, but a dollar ceiling also applies. The statutoryformula for determining the FMAP follows: FMAP = 100% -- state share (with a minimum of 50% and a maximum of 83%) State share = (state per capital 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 dataare 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) arefederally 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 FY2003and the first three quarters of FY2004. For these 5 quarters, the federal matching ratefor each state is held harmless for declines from the prior fiscal year, and then isincreased by 2.95 percentage points. A state is eligible for an increase in its FMAPfor any of the specified quarters only if eligibility under Medicaid in effect for thatquarter is no more restrictive than eligibility in effect on September 2, 2003. Program costs totaled $258 billion in FY2002, with $147 billion (57%) from federalfunds. The requirements of federal law, coupled with the decisions of individual states in structuring their Medicaid programs, determine who is actually eligible forMedicaid in a given state. Some groups are mandatory, meaning all states must coverthem; others are optional. In general, federal law places limitations on the categoriesof individuals that can be covered and establishes specific eligibility rules for groupswithin those broad categories. Traditionally, Medicaid eligibility was limited to thefollowing categories: low-income families with dependent children (in which oneparent was absent, incapacitated or unemployed), low-income persons withdisabilities, and low-income elderly. In addition, certain individuals with higherincome, especially those facing large costs for medical care, were eligible as"medically needy." Beginning in the 1980s, additional coverage groups were addedto Medicaid for higher income children and pregnant women. Other coverage groupsare identified in statute as needing special protection against the high cost of medicalcare. (8) Over 50 distinct population groups areidentified in federal law. Some aremandatory groups that all states must cover; some are optional eligibility groups. Contributing to the complexity of the Medicaid program are financial criteria. Medicaid is a means-tested entitlement program. To qualify, applicants' income andresources (9) must be within certain limits, most ofwhich are determined by states,again within federal statutory parameters. States have flexibility in definingcountable income and assets. Consequently, income and resource standards varyconsiderably among states, and different standards apply to different populationgroups within a state. In general, individuals in similar circumstances may beautomatically eligible for coverage in one state, but required to assume a certainportion of their medical expenses before they can obtain coverage in another state,and not eligible at all in a third state. Families, Pregnant Women, and Children. Medicaid-eligible families, pregnant women, and childrenfall into two basic groups: those meeting AFDC standards as of July 16, 1996, andthose qualifying under a series of targeted Medicaid expansions that began in the1980s. AFDC-Related Groups. Medicaid eligibility for AFDC-related groups was affected significantly by both the PersonalResponsibility and Work Opportunities Reconciliation Act of 1996 (PRWORA, P.L.104-193 ), which replaced the AFDC cash assistance program with the TemporaryAssistance for Needy Families (TANF) block grant program, and the BalancedBudget 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, 1996must be covered under Medicaid. States may modify their rules governing incomeand resource standards for such AFDC-related groups. These modifications can bemade by raising income/resource standards up to the percentage increase in theConsumer Price Index (CPI) after July 16, 1996, or by lowering income standards toapplicable levels no lower than those in effect on May 1, 1988, or by usingincome/resource methodologies that are less restrictive than those in effect on July16, 1996. States must provide Medicaid assistance for recipients of adoption assistance and foster care under Title IV-E of the Social Security Act. Transitional or extendedbenefits are available to families who lose Medicaid eligibility because of increasedhours of employment, increased earnings, loss of a time-limited earned incomedisregard, or increased child or spousal support payments. If the family losesMedicaid eligibility because of increased earnings or hours of employment, Medicaidcoverage is extended for 6 to 12 months. (10) (During the second 6 months, a premiumcan be imposed, the scope of benefits might be limited, or alternate delivery systemsmight be used.) If the family loses Medicaid because of increased child or spousalsupport, coverage is extended for 4 months. Pregnant women and children areexempt 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 recipientsages 18, 19 and 20, and can limit such coverage to those eligible for Title IV-E beforeturning 18. States may also extend Medicaid to children up to age 21 in familieswhose income and resources are within AFDC standards (as of July 16, 1996), butwho do not meet the definition of a dependent child (also known as Ribicoffchildren), and may limit this coverage to reasonable subgroups, such as children intwo-parent families, those in privately subsidized foster care, or those who live incertain institutional settings. (11) Finally, states maydeny Medicaid benefits tononpregnant adults and heads of households who lose TANF benefits because ofrefusal to work. Poverty-Related (12) Pregnant Women andChildren. Beginning in 1984, Congress gradually extendedMedicaid coverage to groups of pregnant women and children who are defined interms of family income and resources, rather than in terms of their ties to cashwelfare programs. Mandatory. States must cover pregnant women and children under age 6 with family incomes below 133% of the federal poverty incomeguidelines. (The state may impose a resource standard that is no more restrictive thanthat for SSI, in the case of pregnant women, or AFDC as of July 16, 1996, in the caseof children.) Coverage for pregnant women is limited to services related to thepregnancy or complications of the pregnancy through 60 days postpartum. Childrenreceive full Medicaid coverage. States are also required to cover all children under age 19 who were born after September 30, 1983, and whose family income is below 100% of the federal povertylevel. Optional. States may cover pregnant women and infants under age 1 with family incomes up to 185% of the federal poverty level (FPL). Inaddition, through other provisions of Medicaid law, states are permitted to coveradditional pregnant women and children with incomes above applicable federalmandatory minimum levels. Such key provisions include waivers of eligibility rules(through Section 1115), use of more liberal methods for calculating income andresources for some categories of eligibles (through Section 1902(r)(2)), as well asthrough Medicaid expansions under the State Children's Health Insurance Program(SCHIP; program no. 3 in this report). For example, under SCHIP, most states nowcover at least some groups of children under age 19 in families with income at orabove 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 childrenunder 19 years of age on the basis of "presumptive" eligibility until formaldeterminations are completed. Aged and Disabled Persons. In general, Medicaid provides coverage to certain groups of individuals receiving (orqualifying 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 othertypes of long-term care services. SSI-Related Groups. The SSI program was established in 1972, replacing previous federal-state cash assistance programsfor the aged, blind, and disabled. Income and resource standards are defined infederal law. For 2003, individuals applying for SSI could not have countablemonthly income in excess of $552, and their countable resources could not exceed$2,000. Similar criteria for couples were $829 in monthly income and $3,000 inresources. However, states have the option of supplementing SSI payments (SSP)for aged persons living independently, and using the resulting higher income levelsas 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 restrictiveeligibility standards for Medicaid than those for SSI if they were using thosestandards on January 1, 1972 (before the implementation of SSI), as authorized underSection 209(b) of the Social Security Act. There were 11 such Section 209(b) statesin 2001. (13) States using more restrictive incomestandards must allow applicants to"spend down" -- deduct incurred medical expenses from income before determiningeligibility. For example, if an applicant has a monthly income of $600 (not includingany SSI or state supplement payment) and the state's maximum allowable income is$500, the applicant would become eligible for Medicaid after incurring $100 inmedical 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" aredisabled persons who return to work and lose SSI eligibility because of earnings, butstill have the condition that originally rendered them disabled and who meet allnondisability criteria for SSI except income. Medicaid must be continued for thesepersons if they need on-going medical assistance to continue working and theirearnings are not sufficient to provide the equivalent of SSI, Medicaid, and attendantcare benefits for which they would qualify in the absence of earnings. States mustalso continue Medicaid coverage for persons who were once eligible for both SSI andSocial Security payments and who lose SSI because of a cost-of-living adjustment(COLA) in their Social Security benefits. Similar Medicaid continuations have beenprovided for certain other persons who lose SSI as a result of eligibility for orincreases in Social Security or veterans' benefits. Finally, states must continueMedicaid for certain SSI-related groups who received benefits in 1973, including"essential persons" (persons who care for a disabled individual). Optional. States are permitted to provide Medicaid to individuals who are not receiving SSI but are receiving state-only supplementary cashpayments. Effective in August of 1997, under provisions of the Balanced Budget Actof 1997 (BBA 97), states may make Medicaid available to disabled SSI beneficiarieswith incomes up to 250% of the FPL. These individuals may "buy into" Medicaidby paying a premium based on income as determined by the state. The 1999 Ticketto Work legislation ( P.L. 106-170 ) further allows states to cover employed, disabledpersons at higher income and resource levels (i.e., income over 250% of the FPL andresources exceeding $2,000 for an individual or $3,000 for a couple). States mayalso cover financially eligible working individuals whose medical condition hasimproved such that they no longer meet the SSI definition of disability. Suchindividuals may have to buy into Medicaid by paying premiums or other cost-sharingcharges 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 or disabledpersons. These include individuals eligible for SSI but not receiving it, and elderlyand disabled persons whose income does not exceed 100% of the FPL and whoseresources do not exceed the SSI standard. Qualified Medicare Beneficiaries and Related Groups. Certain low-income individuals who are aged orhave disabilities as defined under SSI and who are eligible for Medicare are alsoeligible 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 greaterthan 100% of the FPL and assets no greater than $4,000 for an individual and $6,000for a couple. States are required to cover, under their Medicaid programs, the costsof Medicare premiums, deductibles, and coinsurance for Medicare covered benefitsfor such persons. Other Medicaid covered services, such as nursing facility care,prescription drugs and primary and acute care services, are not covered for theseindividuals unless they qualify for Medicaid through other eligibility pathways (e.g.,via SSI, medically needy, or the special income rule for institutionalized personsdescribed below). Specified Low-Income Medicare Beneficiaries (SLMB) . Specified low-income Medicare beneficiaries meet QMB criteria, except that theirincome 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 MedicarePart B premium. Other Medicaid services are not covered for these individualsunless they qualify for Medicaid through other eligibilitypathways. Qualifying Individuals (QI-1) . The QI-1 eligibility pathway (14) 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 monthlyMedicare Part B premium, only until the federal allotment for this purpose isdepleted. (15) These individuals are not otherwiseeligible forMedicaid. Qualified Disabled and Working Individuals (QDWIs) . Statesare required to pay the Medicare Part A premiums for persons who were previouslyentitled to Medicare on the basis of a disability, who lost their entitlement based onearnings from work, but who continue to have a disabling condition. Such personsmay only qualify if their incomes are below 200% of the FPL, their resources arebelow 200% of the SSI limit ($4,000), and they are not otherwise eligible forMedicaid. Persons Receiving Institutional or Other Long-Term Care and Related Groups (all optional). States may provide Medicaidto certain otherwise ineligible groups of persons who are in nursing facilities (NFs)or other institutions, or who would require institutional care if they were notreceiving 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 livingat home and with no other resources ($1,656 per month in 2003). In states withouta medically needy program (described below), this "300% rule" is an alternative wayof providing NF coverage to persons with incomes above SSI or State SupplementaryPayment (SSP) levels. (16) Both the medically needy and those becoming eligible under the "300% rule" must contribute their available income to the costs of their care. Medicaid hasdistinct post-eligibility rules to determine how much of a beneficiary's income mustbe applied to the cost of care before Medicaid makes its payment. Special rules existfor the treatment of income and resources of married couples when one of thespouses requires nursing home care and the other remains in the community. Theserules are referred to as the "spousal impoverishment" protections of Medicaid law,because they are intended to prevent the impoverishment of the spouse remaining inthe community. A state may obtain a waiver under Section 1915(c) of the Act to provide home and community-based services to a defined group of individuals who wouldotherwise require institutional care. The waiver coverage may include persons whowould be eligible under the "300%" rule if they were in an institution, or thoseeligible 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 aninstitution. These include children who are being cared for at home, persons of anyage who are ventilator-dependent, and persons receiving hospice benefits in lieu ofother covered services. States electing these options must cover all persons who arein the class and living in the state. The Medically Needy. In 2002, 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 standardsfor inclusion in one of the groups covered by Medicaid, but who do not meet theincome or resource requirements for such coverage. Under medically needyprograms, individuals can spend down to the medically needy standard set by thestate by incurring medical expenses, in the same way that SSI recipients in Section209(b) states may spend down to Medicaid eligibility. Under medically needy programs, states may set income standards at any level up to 133 and 1/3% of the standard used for the most closely related cash assistanceprogram. For families with children, the maximum applicable medically needyincome standard would be up to one-third more than that which was in effect for asimilar family under the state's former AFDC program. For individuals who havea disability or are elderly, it would be up to one-third more than the SSI incomestandard. States may limit the groups of individuals who receive medically needycoverage. If the state provides any medically needy coverage, however, it mustinclude all children under 18 who would qualify under one of the welfare-relatedgroups, and all pregnant women who would qualify under either a mandatory oroptional group, if their income or resources were lower. Individuals Qualifying Under Demonstration Waivers. Demonstration waivers available under the authority ofSection 1115 (of the Social Security Act) enable states to experiment with newapproaches for providing health care coverage that promote the objectives of theMedicaid program. Section 1115 allows the Secretary of HHS to waive a number ofMedicaid rules -- including many of the federal rules relating to Medicaid eligibility. The Health Insurance Flexibility and Accountability (HIFA) Initiative, introduced bythe Bush Administration in 2001, is an explicit effort to encourage states to seekSection 1115 waivers to extend Medicaid and SCHIP to the uninsured, with aparticular emphasis on statewide approaches that maximize private health insurancecoverage options and target populations with incomes below 200% of the FPL. Some states have used such waivers to enact broad-based and sometimes statewidehealth reforms although demonstrations under Section 1115 need not be statewide. Some states have extended comprehensive health insurance coverage to low-incomechildren and families who would not otherwise be eligible for Medicaid. Aliens. Legal immigrants arriving in the United States after August 22, 1996 are ineligible for Medicaid for their first5 years in this country. Coverage of these persons after the 5-year ban is a stateoption. States are required to provide Medicaid to legal immigrants who resided inthe country and were receiving benefits on August 22, 1996 (and who continue tomeet the criteria) and to those residing in the country as of that date who becomedisabled in the future. States are also required to provide coverage to: (1) refugees for the first 7 years after entry into the United States, (2) asylees for the first 7 years after asylum isgranted, (3) individuals whose deportation is being withheld by the Immigration andNaturalization Service (INS) for the first 7 years after grant of deportationwithholding, (4) lawful permanent aliens after they have been credited with 40quarters of coverage under Social Security, and (5) lawful permanent aliens who arehonorably discharged U.S. military veterans or active duty military personnel, andtheir spouses and unmarried dependent children who otherwise meet the state'sfinancial eligibility criteria. States are required to provide emergency Medicaid services to all legal and undocumented non-citizens who meet the financial and categorical eligibilityrequirements for Medicaid. Medicaid Purchase of COBRA Coverage. COBRA (17) provides thatemployees or dependents wholeave an employee health insurance group in a firm with 20 or more employees mustbe offered an opportunity to continue buying insurance through the group for 18 to36 months (depending on the reason for leaving the group). The employer maycharge a premium of no more than 102% of the average plan cost (150% for months19 to 29 for certain disabled persons). Under OBRA 90, state Medicaid programsmay pay the premiums for COBRA continuation coverage when it is cost-effectiveto do so, and the individual otherwise meets the state's eligibility requirements. States are required to offer the following services to most groups of recipients: inpatient and outpatient hospital services; rural health clinic services; laboratory andX-ray services; nursing facility services for those over age 21; home health servicesfor those over age 21 and to those under 21 if entitled to nursing facility care; theearly and periodic screening, diagnostic and treatment program (EPSDT) for thoseunder age 21; family planning services and supplies; federally qualified health centerservices; nurse-midwife, certified family and pediatric nurse-practitioner services;and physicians' services and medical and surgical dental services furnished by adentist. States must also assure transportation of any Medicaid-eligible individualto 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 provideambulatory services to children under 18 and individuals entitled to institutionalservices, prenatal and delivery services for pregnant women (as well as 60 days ofpostpartum care for those eligible for and receiving pregnancy-related services), andhome health services to individuals entitled to nursing facility services. Second, ifthe state provides medically needy coverage for persons in institutions for mentaldiseases or intermediate care facilities for the mentally retarded (ICFs/MR), it mustoffer to all groups covered in its medically needy program all of the mandatoryservices required for the categorically needy (except services provided by pediatricand family nurse practitioners), or alternatively, any of seven categories of care andservices 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 ofcovered hospital care or number of physical therapy visits). Federal law permitsstates to impose nominal cost-sharing charges on some Medicaid beneficiaries andfor some services. In FY2000, the most recent year for which enrollment data are available, 44.3 million persons were covered by Medicaid. The aged, blind and disabled represented25% of Medicaid enrollment but accounted for 70% of program spending. Non-disabled children and adults, in contrast, comprised 67% of enrollment but only26% of spending. Between FY2000 and FY2002, total federal and state Medicaidspending increased by about 25% from $206.1 billion to $258.2 billion. In FY2002,Medicaid outlays from federal funds totaled $146.2 billion. Total FY2003 Medicaidexpenditures are expected to reach roughly $278 billion, with federal outlaysestimated at $158 billion. Note: For more information, see CRS Report RS20245, Medicaid: A Fact Sheet , CRS Report RS21071 , Medicaid Expenditures, FY2000 and FY2001 , and 2003 Green Book, Section 15: Other Programs , U.S. House of Representatives,Committee on Ways and Means (forthcoming). Medical care from the Department of Veterans Affairs (VA) is funded by the federal government. VA medical services are defined as discretionary in the federalbudget. Appropriations requests are guided by estimates of the expected caseload,and for FY2003, Congress provided $23.9 billion, for an expected caseload of nearly4.9 million "unique" patients. VA is also authorized to use proceeds of the MedicalCare Collections Fund (MCCF) (18) for medical care,an amount estimated to be $1.836billion in FY2003. In addition to care provided in VA facilities and under contract, the VA provides per diem payments to states for care of eligible veterans in state facilities. The VAalso provides for medical care to certain spouses and children of certainservice-connected disabled and other veterans under the Civilian Health and MedicalProgram (CHAMPVA). The amount of FY2002 appropriations used to provide freecare to veterans who qualified because of having low income and/or low assets isestimated at $8.1 billion. (19) Unlike other medical benefit entitlements such as Medicare or Medicaid, eligibility for medical benefits from VA conveys varying degrees of rights. Inprinciple, all veterans are eligible to receive services from VA medical facilities,although the potential total amount of services available to all veterans is contingenton appropriations. Veterans with high-priority rights under VA law are generallyassured a full array of services, and those with lower-priority are provided servicesif space and resources are available. Highest priority for the full range of medicalservices is granted to veterans with severe, service-connected disabilities. Otherveterans have varying degrees of access for the different types of medical services,with distinctions based on the severity of the condition, whether or not it isservice-connected, level of income, and type of medical service provided. In practice, there is no evidence that any veterans were denied services at any VA facility in FY2002, and no denials are expected during FY2003 (except fornursing home care, which is provided only on a space-available basis, regardless ofpriority status). As a general rule, no veteran is denied medical services uponpresenting a health complaint to qualified personnel at a VA medical facility. Foradministrative purposes, and to best manage the medical needs of individual patients,veterans are encouraged to enroll in regional VA health care plans (enrollment forveterans who do not have a service-connection, whose enrollments are above thethreshold for means-tested services, or who are not already enrolled has beentemporarily halted). There are 23 of these Veterans Integrated Service Networks(VISNs) nationwide. The largest category of veterans provided free medical care by VA consists of persons who qualify for that care because their assets and income are below certainannually adjusted standards (in 2003: single person, $24,644; with one dependent,$29,576; for each additional dependent, $1,586), with possible additional adjustmentsfor regional differences in medical costs. VA estimates that out of 25 millionveterans, about 7 million would qualify for free care because they meet thelow-income standards. Veterans whose incomes in the previous calendar year wereno higher than the pension of a veteran in need of regular aid and attendance (in2003: single person, $16,169; with one dependent, $19,167; for each additionaldependent, $1,653) are also eligible for free medications; others pay copayments of$7 monthly for prescriptions filled in VA pharmacies, up to a maximum of $840 peryear. A veteran applying for care under the low-income eligibility test is advised thatreported income is subject to verification by matching the amount shown on theapplication with income reported to the Internal Revenue Service (IRS). Onceeligible under the income rules, a veteran remains eligible until determined upon(annual) reevaluation to no longer meet the income standard. VA has estimated thatabout 38% of the applications for medical services are from veterans entitled to freecare because of meeting the income standards. (21) Benefits in VA facilities include inpatient hospital care, nursing home care, domiciliary care, and outpatient care. The VA contracts with other facilities toprovide care to veterans in areas where VA medical facilities are unavailable. VAis the largest provider of inpatient psychiatric services, specializes in treatments forspinal injuries and prosthetics, and conducts or sponsors research in numerousmedical fields, with special emphasis on conditions traceable to a period of militaryservice. The VA offers medical care to the nation's 25 million veterans, although arelatively few (about 15%) of those eligible avail themselves of the services. InFY2002, the VA provided care for 4.7 million persons, through 732 thousandinpatient episodes and 47 million outpatient visits. During FY2003, the Veterans Health Administration (VHA) operated 172 hospitals, 137 nursing homes, 843 outpatient clinics, 43 domiciliaries, and anextensive pharmaceutical supply apparatus. Veterans' medical care appropriationswere $21.3 billion in FY2002, $23.5 billion in FY2003 and are projected to reach$24.8 billion in FY2004. 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 SecurityAct. (22) The program offers federal matching fundsfor states and territories to providehealth insurance to targeted low-income children. In the original law, Congressappropriated $39.7 billion in SCHIP federal matching grants for 10 years, FY1998through FY2007. (23) For each year from FY1998through FY2001, total federalfunding available to states and territories was approximately $4.3 billion. For eachof FY2002, FY2003, and FY2004, federal funding equals $3.2 billion. Statematching funds for FY2002 are estimated at $1.6 billion. 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 andlow-income, uninsured children in the state, and includes a cost factor that representsaverage health service industry wages in the state compared to the national average. All states have submitted SCHIP program plans to the Centers for Medicare andMedicaid Services (CMS) (formerly known as the Health Care FinancingAdministration). States have 3 fiscal years in which to draw down a given year'sfunding. Under SCHIP law as enacted in 1997, allotments not spent by the end ofthe applicable 3-year period will be redistributed -- by a method to be determinedby the Secretary of Health and Human Services (HHS) -- to states that have fullyspent their original allotments for that year. Redistributed funds not spent by the endof the fiscal year in which they are reallocated will officially expire. (24) 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'sallotment. The state's share of program spending is equal to 100% minus theenhanced federal medical assistance percentage (the enhanced FMAP). Theenhanced FMAP is equal to the state's Medicaid FMAP (for the regular FMAPformula, see program no. 1 of this report), increased by the number of percentagepoints that is equal to 30% multiplied by the number of percentage points by whichthe FMAP is less than 100%. (25) There is a limit on spending for SCHIP administrative expenses, which include activities such as data collection and reporting, as well as outreach and education. For federal matching purposes, a 10% cap applies to state administrative expenses. It is imposed on the dollar amount that the state actually draws down from itsallotment to cover benefits under SCHIP, as opposed to 10% of its total allotment fora given year. Each state defines the group of targeted low-income children who may enroll in SCHIP. The law allows states to use these factors in determining eligibility:geography, age, income and resources, residency, disability status, access to otherhealth insurance and duration of eligibility for SCHIP. In general, funds cannot beused for children who are eligible for the state's Medicaid program or for childrencovered 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 effectin the state on March 31, 1997, but less than 200% of the federal poverty guideline, (27) or (2) in states with Medicaid income levels for children already at or above 200%of the poverty line, within 50 percentage points over the state's Medicaid incomeeligibility limit for children. Many states cover at least some groups of children infamilies with income at or above 200% FPL. In addition, several states have sought approval for special waivers of SCHIP rules to use SCHIP funds to cover new groups, including some categories of adults. Under Section 1115 of the Social Security Act, the Secretary of HHS has broadstatutory authority to conduct research and demonstration projects under sixprograms, including Medicaid and SCHIP. Using waiver authority, the HealthInsurance Flexibility and Accountability (HIFA) Initiative, announced by the BushAdministration in August 2001, encourages states to develop statewide projects thatcoordinate Medicaid and SCHIP with private health insurance coverage and targetsuninsured individuals with income below 200% of the federal poverty level, just asSCHIP does. Later, the Administration indicated that unspent SCHIP funds couldbe used to finance the HIFA initiative. (28) As ofJune 12, 2003, CMS approved 14SCHIP 1115 waivers (6 others were in review). Seven of the 14 approved waiversare SCHIP HIFA demonstrations. (29) Several ofthe approvals allow states to useSCHIP funds to cover new groups of individuals such as pregnant women, parentsof SCHIP and Medicaid-eligible children, and childless adults. States may choose from three options when designing their SCHIP programs. They may expand their existing Medicaid program, (30) create a new "separate state"insurance program, or devise a combination of both approaches. As of July 8, 2003,20 jurisdictions implemented Medicaid expansions (ME), 19 created separate stateprograms (SSP), and the remaining 17 developed a combination approach(COMBO). (31) States that choose to cover targeted low-income children under Medicaid must provide the full range of mandatory Medicaid benefits, as well as all optional servicesspecified in their state Medicaid plans. In creating a new separate state insuranceprogram, states may choose any of three benefit options: (1) a benchmark benefitpackage, (2) benchmark equivalent coverage, or (3) any other health benefits planthat the Secretary determines will provide appropriate coverage to the targetedpopulation 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 theFederal Employees Health Benefits Program (FEHBP), (2) the health coverage thatis offered and generally available to state employees in the state involved, or (3) thehealth 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 toprovide benchmark equivalent coverage must cover each of the benefits in the "basicbenefits category." The benefits in the basic benefits category are inpatient andoutpatient hospital services, physicians' surgical and medical services, lab and x-rayservices, and well-baby and well-child care, including age-appropriateimmunizations. Benchmark equivalent coverage must also include at least 75% ofthe actuarial value of coverage under the benchmark plan for each of the benefits inthe "additional service category." These additional services include prescriptiondrugs, mental health services, vision services, and hearing services. States areencouraged to cover other categories of services not listed above. Abortions may notbe covered, except in the case of a pregnancy resulting from rape or incest, or whenan abortion is necessary to save the mother's life. Title XXI gives states 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 chooseas long as the entire package is certified to be an actuarial equivalent of thebenchmark 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-incomechildren under Medicaid must follow the cost-sharing rules of the Medicaid program. Generally, Medicaid does not allow cost sharing for medical services (e.g.,deductibles, co-payments, and co-insurance), and cost sharing associated withprogram participation (e.g., enrollment fees, and premiums) is limited to nominalamounts. If the state implements SCHIP through a separate state program, premiumsor enrollment fees may be imposed, but they are subject to limits. Under separate state programs, for families with incomes under 150% of the federal poverty line, income-related charges (i.e., enrollment fees, premiums, orsimilar charges tied to the total gross family income) may not exceed the amounts setforth in federal Medicaid regulations. (32) Forchildren whose family income is at orbelow 100% FPL, service-related cost-sharing is limited to nominal amounts asdefined in Medicaid regulations. (33) For childrenwhose family income is between101% and 150% FPL, service-related cost-sharing must meet "adjusted nominalamounts." (34) These adjusted amounts reflect theenrollees' increased ability to pay. Cumulative cost-sharing maximums for each 12-month enrollment period must notexceed 5% of the family's annual income. (35) For families with income above 150% of the federal poverty line, service-related cost sharing may be imposed in any amount, provided cost-sharing for higher incomechildren is not lower than cost-sharing for lower income children. However, the totalannual aggregate cost-sharing (including premiums, deductibles, co-payments andany other charges) for all targeted low-income children in the family may not exceed5% of total family income for the year. Regardless of the family's cumulativecost-sharing maximum, states must: (1) inform families of these limits; (2) providea mechanism for families to stop paying once the cost-sharing limits have beenreached; and (3) provide reasonable notice of any missed payments prior todisenrollment. Early in the program, enrollment rates were low, but by FY2002, the pace of enrollment had increased. Estimates from CMS (36) indicated that as of December1998, nearly 1 million children (982,000) were enrolled in SCHIP under 43operational state programs, and by the end of FY1999, nearly 2 million children(1,979,459) were enrolled under 53 operational state programs. (37) Preliminary datashow that total SCHIP enrollment reached 5.3 million children in FY2002. Of thistotal, 1.3 million were targeted low-income children covered under Medicaidexpansions, and 4.0 million children were covered in separate state programs. (38) Preliminary data show that total SCHIP enrollment for adults reached 349,118 inFY2002. SCHIP spending during the first 4 years of the program, (FY1998-FY2001), was well below federal appropriations, but has increased over time. (39) For FY1998,SCHIP program federal expenditures totaled $122 million; for FY1999, $922million; for FY2000, $1.93 billion, and for FY2001 federal expenditures increasedto $2.62 billion. In FY2002, federal SCHIP expenditures equaled $3.78 billion. FY2002 is the first fiscal year in which state spending of available SCHIP funds exceeded the SCHIP program appropriations for that year. This trend is likely tocontinue as additional states spend all of their available funds and are eligible forredistributions of unspent funds from earlier annual allotments. However, whilemore states will be eligible for redistributions there will be fewer funds available forredistribution to such states. In the absence of statutory changes to SCHIP financingprovisions, CMS projects shortfalls for some states over the second half of theprogram (FY2003-FY2006). In its March 2003 baseline, CBO projected that totalfederal SCHIP spending will grow to $5.0 billion in FY2007. Note : For more information about SCHIP, see CRS Report RL30473 , The State Children's Health Insurance Program (SCHIP): A Brief Overview; CRS Report RL30642, The State Children's Health Insurance Program: Eligibility, Enrollment,and Program Funding; and CRS Report RL31977, SCHIP Financing Issues for the108th Congress. No federal funds are available for this program. As of mid-1998, medical assistance for recipients of non-federally funded cash aid (generally known as General Assistance (GA)) and for other persons ineligiblefor Medicaid (41) was offered in 32 states, includingthe District of Columbia (D.C.). In 13 jurisdictions, this aid was fully state funded; (42) in seven states, costs generallywere paid by a combination of state and local funds; (43) in seven states, medicalbenefits were wholly paid with local funds. (44) Infive states, even though they werenot in categories usually eligible for federally-funded medical assistance, recipientsof GA cash received Medicaid. (45) This aid wasallowed under waivers from Medicaidlaw, and costs were paid by federal and state funds. In the remaining 19 states,ongoing medical benefits generally were not offered to persons ineligible forfederally-funded aid. (46) Estimated GA medicalpayments (state-only dollars) inFY2002 totaled $5 billion. To receive GA medical assistance, a person generally must be deemed needy and live where the program is available. In 1998, most of the 32 states offering thisaid made eligible all recipients of GA cash payments, but several specified thatpersons had to be in medical need and some imposed special medical incomeeligibility requirements. Thus, Ohio offered medical assistance to all GA recipientsand to needy able-bodied persons who would become incapacitated withoutmedication. However, some jurisdictions set more liberal eligibility rules for GAmedical and than for GA cash benefits. Using waivers from federal law, some states in mid-1998 made all GA recipients eligible for Medicaid and its comprehensive services: Delaware (for itsDiamond State Health Plan), Hawaii (for QUEST), and Oregon (for the OregonHealth Plan). D.C. and Massachusetts also offered Medicaid to all GA cashrecipients. Among the other 27 states with medical assistance for recipients of GAcash, benefits generally were less comprehensive than those of Medicaid. Fivestates (47) offered inpatient and outpatient hospitalcare, physician services, andprescription drugs; another six (48) added nursinghome care to the foregoing list ofbenefits. Some restricted GA medical benefits to physician services and prescriptiondrugs, and some offered aid only in emergencies. Maryland's programs of PrimaryCare for the Medically Indigent and Maryland Pharmacy Assistance (for GA disabledadults and others who meet medical income eligibility limits) provided only basicphysician services and a limited list of prescription drugs. The Urban Institute studynoted that most of the states and counties without a medical component in their GAprogram have alternative medical assistance available to at least some GA cashrecipients. Examples include indigent health care programs or charity hospitalsystems. Data from the Centers for Medicare and Medicaid Services (Office of the Actuary, National Health Statistics Group) indicate that state-local outlays for GAmedical assistance in FY2002 totaled $4,955.8 million, up 5% from FY2001, butdown 10.4% from the FY1992 record high of $5,531.7 million. These data excludepremiums paid by welfare agencies for Medicare and for health maintenanceorganizations (HMOs) and health insurance, which presumably are reimbursed byMedicaid. Composition of FY2002 GA medical spending: hospital care, 37.5%;prescription drugs, 43.4%; payments to medical professionals, 12.4% (physician andclinical services, 10.2%; dentists, 0.9%; and other professionals, 1.2%); nursinghomes, 3.9%; home health care, 0.5%; other care, 2%; and durable medicalequipment, 0.2%. The composition of GA medical outlays changed over the 1993-2003 decade. Spending on prescription drugs rose from $901 million to $2.2 billion; but outlaysfor hospitals dropped from $3.2 billion to $1.9 billion. The share of expendituresattributed to prescription drugs more than doubled; the hospital share dropped by40%. Indian Health Service (IHS) appropriations are allocated among its 12 service areas through a "historical," or "program continuity" basis, under which each areacan expect to receive its recurring base budget from the previous year, plus anincrease in certain mandatory cost categories. Using a Resource AllocationMethodology (RAM), the Service distributes a small portion of its appropriation toareas and tribes based on documented health deficiencies. Tribes may assume fromthe IHS the administration and operation of health services and programs in theircommunities, and about 52% of IHS funds are used by Indian tribes to deliver IHSservices to their own communities. The Service collects reimbursements from theMedicare and Medicaid programs for services that it provides to members of itseligible population who are also eligible for those programs. In FY2001, IHScollected $484 million in reimbursements, while in FY2002, this number increasedto $514 million. For FY2002, total program appropriations were $2.824 billion, up$135 million from the FY2001 appropriation of $2.689 billion. Eligible under Public Health Service regulations are persons of American Indian or Alaskan Native (AI/AN) descent who: (1) are members of a federally recognizedIndian 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 memberand reside within an IHS HSDA. The program imposes no income test; any eligibleAI/AN can receive health services. The program serves Indians living on federalreservations, Indian communities in Oklahoma and California, and Indian, Eskimo,and Aleut communities in Alaska. According to the 2000 census, more than 57% ofAI/AN reside in urban areas. Under the Indian Health Care Improvement Act of1976, P.L. 94-437 , as amended, the IHS contracts with 34 urban Indian organizationsto make health services more accessible to 605,000 urban Indians. Combined, allIHS programs serve between 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 mobileclinics and public health nurses, and preventive care, including immunizations andhealth examinations of special groups, such as school children. All services areprovided 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 155service units, 49 IHS hospitals, 5 school health centers, 231 health centers, and over309 smaller health stations and satellite clinics; Alaskan village clinics; contractswith non-federal hospitals, clinics, private physicians and dentists; and contractualarrangements with state and local health organizations. 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 programthrough FY2006. The health centers program includes community health centers,migrant health centers, health centers for the homeless, and health centers forresidents 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 assumepart 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 ofPrimary Health Care of the Health Resources and Services Administration (HRSA)of the U.S. Department of Health and Human Services (HHS). Centers are requiredto seek third-party reimbursement from other sources, such as Medicare andMedicaid. State and local governments may also contribute. Centers may receiveone or more of the following types of grants: (1) planning grants, to plan anddevelop health centers or a comprehensive service delivery network; (2) operatinggrants, to assist with operation costs of a center; and (3) infant mortality grants, toassist in the reduction of infant mortality and morbidity among children less than 3years of age and to develop and coordinate service and referral arrangements betweenhealth centers and other entities for the health management of pregnant women andchildren. FY2002 appropriations were $1.3 billion. A health center is an entity that provides health care services to a medically underserved population, or a special medically underserved population comprised ofmigratory and seasonal agricultural workers, the homeless, and residents of publichousing by providing required primary health services and additional health servicesas may be appropriate for particular centers. By regulation, medically underservedareas are designated by the HHS Secretary on the basis of such factors as: (1) ratioof primary care physicians to population, (2) infant mortality rate, (3) percentage ofpopulation aged 65 and over, and (4) percentage of population with family incomebelow the poverty level. Profit-making organizations are not eligible for healthcenter 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 2003 federal poverty income guideline in the 48contiguous states is $18,400 for a family of four. Nominal fees may be collectedfrom these individuals and families, under certain circumstances. Individuals andfamilies with annual incomes greater than the poverty guideline but below 200% ofit are required to pay for services from a fee schedule adjusted on the basis of thepatient's ability to pay. Full payment is required from those with income thatexceeds twice the poverty level. The centers provide a range of primary health services on an ambulatory basis, including diagnostic, treatment, preventive, emergency, transportation, andpreventive dental services. They can arrange and pay for hospital and othersupplemental services in certain circumstances if approved by the Secretary. Funding for the health centers for FY2003 was $1.5 billion (appropriations), and the annual service population was an estimated 9.6 million persons. Note: For more information, see CRS Report 97-757, Federal Health Centers Program . The Maternal and Child Health (MCH) Services Block Grant supports activities to improve the health status of mothers and children. Most of the funds aredistributed to state governments to pay for services; however, some funds are setaside for use by the federal government to finance special projects of regional andnational significance (SPRANS) and the community integrated service systemsprogram (CISS). State allocations are based on: (1) a state's share of FY1981 levelsof funding for programs that were combined into the block grant when it wasauthorized in 1981; and (2) the number of low-income children in the state. Statesmust contribute $3 for every $4 of federal funds awarded. States are required to useat least 30% of their block grant allocations for preventive and primary care servicesfor children and 30% for services for children with special needs. States may use theremaining 40% for services for either of these groups or for other appropriatematernal and child health services, including preventive and primary care services forpregnant 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, hemophiliaprograms, and maternal and child health improvement, especially infant mortality. When the appropriation for the block grant exceeds $600 million, the law authorizes that 12.75% of the amount over $600 million be set aside for CISSprojects. Funds from this set-aside are used for initiatives that include casemanagement, projects to increase the participation of obstetricians and pediatriciansin both the block grant program and Medicaid, integrated delivery systems, rural orhospital-based MCH projects, and community-based programs including day care forchildren who usually receive services on an inpatient basis. FY2002 appropriationswere $731 million, and non-federal matching funds were estimated at $548 million.(The FY2003 appropriation declined to $730 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 assuremothers and children (in particular those with low income or with limited availabilityof health services) access to quality maternal and child health services." Low-incomemothers and children are those with family income below 100% of federal povertyguidelines -- $18,400 per year for a family of four in 2003 (higher in Alaska andHawaii). States determine the level of services provided under the block grant. These services may include prenatal care, well-child care, dental care, immunization, familyplanning, and vision and hearing screening services. They may also include inpatientservices for children with special health care needs, screening services for lead-basedpoisoning, and counseling services for parents of sudden infant death syndromevictims. States are allowed to charge for services; however, they may not charge mothers and children whose family incomes are below federal poverty guidelines. Chargesmust be based on a sliding scale that reflects the income, resources, and family sizefor those with family incomes above poverty. In FY2002 Title V provided services to 2.2 million pregnant women, 3.7 million infants, almost 1 million children with special health care needs, and 2.2million other women of child-bearing age. Note: For more information, see CRS Report 97-350, Maternal and Child Health Block Grant . Grants are provided for voluntary family planning services through the family planning program, established by Title X of the Public Health Service Act. There isno requirement that grantees match federal funds at a specified rate, but regulationsspecify that no family planning clinic project may be fully supported by Title Xfunds. Congress has continued to appropriate money for the program even thoughTitle X has not been reauthorized since FY1985. Grants for family planning clinicsare made to states and territorial health departments, hospitals, universities and otherpublic and nonprofit agencies. Appropriations for FY2003 were $273 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 requestthem, but the priority target group has been women aged 15-44 from low-incomefamilies who are at risk of unplanned pregnancy. Clinics are required to encouragefamily 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 notexceed 100% of the federal poverty income guidelines ($18,400 for a family of fourin the 48 contiguous states in 2003). A sliding payment scale must be offered forthose 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 sexuallytransmitted diseases), infertility services, services for adolescents, pregnancy tests,periodic follow-up examinations, referral to and from other social and medicalservice agencies, and ancillary services. The law forbids use of any Title X funds inprograms where abortion is a method of family planning. In FY2002, approximately 4.8 million persons received family planning services through 4,600 clinic sites supported by 85 service grantees. The clinics administeredmore than 3 million cervical cancer screenings, 2.8 million breast cancer screenings,and 600,000 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 98-1048, The Title X Family Planning Program. The Immigration and Nationality Act (INA) authorizes 100% federally funded medical assistance for needy refugees and asylees during their first 3 years in theUnited States, and other legislation authorizes similar assistance for certain Cubanand Haitian entrants (54) and for certainAmerasians. (55) However, since FY1992,funding has been appropriated to provide medical care only for the first 8 monthsafter entry. These benefits are administered by the Department of Health and HumanService's Office of Refugee Resettlement (ORR). For refugee medical assistance(RMA), ORR expenditures amounted to an estimated $74 million in FY2002. (56) 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 orasylee under the Act, (b) be a Cuban or Haitian paroled into the United Statesbetween 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 toexclusion or deportation and against whom a final order of deportation has not beenissued, 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 state for Medicaid eligibility but does not otherwise qualify for thatprogram because of its categorical requirements, such as family composition, theperson is eligible for RMA. Under the Personal Responsibility and WorkOpportunity Reconciliation Act of 1996 ( P.L. 104-193 ), as amended by P.L. 105-33 ,these persons are now eligible for 7 years after entry (earlier law gave permanenteligibility). After 7 years their continued participation is at state option, as it is withother legal permanent residents. (58) Medical benefits consist of payments made on behalf of needy refugees to doctors, hospitals, and pharmacists. Federal law requires state Medicaid programsto offer certain basic services, but authorizes states to determine the scope of servicesand reimbursement rates, except for hospital care. Since its January 1974 beginning, Supplemental Security Income (SSI) has provided a minimum income floor, financed by U.S. general revenue andadministered by the Social Security Administration (SSA), to persons eligible underfederal rules. Some states chose to provide additional payments to SSI recipients attheir own expense. In addition, a "grandfather" clause requires states to providesupplements to a small number of persons, previously enrolled in the pre-SSIprograms of federal-state cash aid for needy aged persons and blind or disabledadults, whose income otherwise would fall below what it was in December 1973. (59) 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 andpay an administration fee to SSA for the service. (60) If states administer their ownsupplements, they are generally free to design their own supplementary programs andmay adopt more restrictive eligibility rules than those of SSI. As of January 2003,the federal government administered supplements for 15 jurisdictions. Total SSI outlays in FY2002 were $38.5 billion, with $33.9 billion (87% of the total) from federal funds. The federal share of maximum SSI benefits ranged from50% in Alaska to 100% in the seven jurisdictions where no recipient received asupplement (Arkansas, Georgia, Kansas, Mississippi, Tennessee, West Virginia, andthe Northern Mariana Islands). Title XVI of the Social Security Act entitles to SSI payments persons who are (1) aged 65 and over, blind or disabled (adults and children of any age); (2) whosecounted 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 MarianaIslands. Also eligible is a child who lives overseas with a parent who is on militaryassignment, provided the child received SSI before the parent reported for overseasduty. To be eligible for SSI on grounds of disability, an adult must be unable to engage in any "substantial gainful activity" (62) because of a medically determinedphysical or mental impairment expected to result in death or that has lasted, or canbe expected to last, for at least 12 months. Under terms of the 1996 welfare reformlaw ( P.L. 104-193 ) a child under age 18 may qualify as disabled if he or she has animpairment that results in "marked and severe" functional limitations. Previously achild could qualify if his impairment were of "comparable severity" to that of aneligible 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, 1996or 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, forfewer than 7 years, (c) a person who has worked long enough to be insured for SocialSecurity, usually 10 years (work test gives credit to work by spouse or parent of analien child); or (d) a veteran or active duty member of the armed forces (spouses orunmarried dependent children of veterans/military personnel also qualify). For basic federal benefits, countable income limits in 2003 are $582 monthly per individual and $829 per couple. These income ceilings equal maximum federalbenefits of the program (see below for benefit details and for rules about whatincome is disregarded). For states with supplementary SSI benefits, countableincome limits are higher, ranging in 2002 up to $907 monthly per individual (livingindependently) 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 valueof household goods and personal effects; the full value of an auto if needed foremployment 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 notexceeding $1,500 in cash surrender value and burial plots and funds, subject to alimit. P.L. 98-21 requires the Social Security Administration (SSA), when notifying Social Security beneficiaries aged 64 about their approaching eligibility for Medicare,to inform them also about SSI. The Social Security Act establishes benefit levels and requires that whenever Social Security benefits are increased because of an automatic cost-of-livingadjustment (COLA), SSI benefits be increased at the same time and by the samepercentage. SSI basic monthly guarantees: (63) From 1975 through 1982, COLAs were paid each July. In passing the Social Security Amendments of 1983, Congress accepted President Reagan's proposal todelay the 1983 COLA for 6 months, to January 1984, and thereafter to adjust benefitseach 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. (64) However, when Congress deferred the 1983COLA and instead enacted the $20 benefit increase (about 7%), it required states topass through only about half this amount (the 3.5% increase that the regular COLAwould have yielded). As of January 2002, state supplements for aged persons livingindependently were offered in 25 states and ranged from $1.70 in Oregon to $362 inAlaska. To assure some gain from work, SSI disregards a portion of recipients' earnings; namely, $65 per month, plus 50% of the balance. (65) Because of this rule, aged SSIrecipients without Social Security benefits or other unearned income who workremain eligible for a declining SSI payment until gross earnings equal double theirbasic benefit plus $85 monthly. (66) In a state thatdoes not supplement the basic federalbenefit, the gross income limit in 2003 for an aged SSI recipient with only wageincome is $1,189 monthly in earnings. The gross income limit is higher in states thatsupplement the federal benefit. In all but 11 states, (67) SSI recipients automatically are eligible for Medicaid. Inthe 11 states with more restrictive eligibility rules, states must deduct medicalexpenses of SSI recipients in determining their countable income. Disabled SSI recipients whose counted monthly earnings exceed the $800 "substantial gainful activity" test that determines disability status are eligible forspecial cash benefits (calculated as though they still had disability status), as long astheir gross earnings are below the regular SSI ceiling ($1,189 in 2003 in a statewithout supplementation). The special cash benefit preserves Medicaid eligibility forthe disabled worker. (68) In 1996 ( P.L. 104-121 ),Congress ended SSI (and SocialSecurity Disability Insurance) benefits for persons disabled because of their addictionto drugs or alcohol. In December 2002, federally administered SSI benefits went to 6,787,867 persons, (69) including 914,821 children. Benefitsaveraged $322 to aged recipients,$439 to the blind, $418 to the disabled (and $488 for children). About 36% of theNation's SSI recipients of federally administered payments also receive SocialSecurity, and 4.1% have earnings (December 2002 data). As of that date, SSI checkswere supplementary to Social Security benefits for 58% of aged SSI recipients, 34%of blind recipients, and 30% of disabled recipients. In December 2001, income wasearned by about 2% of aged recipients and by 7% and 5%, respectively, of blind anddisabled recipients. Social Security benefits of dual recipients averaged $414. Earnings of SSI recipients averaged $318 monthly. (70) FY2002 SSI expenditures totaled $38.5 billion (federal funds, $33.9 billion; state funds, $4.7 billion). Federal SSI spending represented 1.7% of all federaloutlays. Note: See also CRS Report 94-486 , Supplemental Security Income (SSI): A Fact Sheet . This benefit is 100% federally funded and is provided through the tax system. FY2002 outlays (tax year 2001) totaled $27.8 billion. (Another $4.5 billion in creditswas used to offset taxes and is not included in this report.) 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 mustapply for the credit by filing an income tax return at the end of the tax year. A personmay receive advance payment of the credit by filing an earned income eligibilitycertificate with his or her employer. (72) To beeligible for the EITC, married couplesgenerally must file a joint income tax return. The EITC is a percentage of theperson's earnings, based on the number of children, up to a maximum earned incomeamount. Beginning at the phase-out income level, the EITC is reduced by thephase-out percentage for every dollar of earnings (or adjusted gross income [AGI],whichever is greater) above the phase-out income level. Persons with earnings abovethe level at which the EITC is reduced to $0 are not eligible for the EITC. The Earned Income Tax Credit (EITC) is available to a parent (or parents) withearnings and a qualifying child. A qualifying child must be: (1) a son, daughter,grandson, granddaughter, stepson, stepdaughter or foster child of the tax filer; (2) beless than age 19 (24 if a full-time student); and reside with the tax filer for more thanone-half of the tax year (all year if a foster child). The tax filer does not have to meeta financial support test for the child and the child does not need to be claimed by thetax filer as a dependent to qualify for the earned income credit. The tax filer must bea U.S. citizen or resident alien and live in the United States for more than one-halfof 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 AGI is less than $11,060 ($12,060 for married couples) in taxyear 2002. (73) In 1995, Congress established a limit on investment income for EITC eligibility. (74) The 1996 welfare reform lawchanged filing procedures to make it lesslikely that undocumented workers could gain access to the EITC by requiring boththe tax filer and qualifying children to have social security numbers. In 1996 and1997, Congress broadened the definition of income used to phase out the EITC forfiling units above the phase-out income threshold. (75) In response to an Internal Revenue Service (IRS) study indicating a high incidence of unwarranted claims from tax filers, Congress enacted provisions againstfraud in the Taxpayer Relief Act of 1997 ( P.L. 105-34 ). A tax filer found to haveclaimed the credit fraudulently is barred from claiming the EITC for 10 years; onewho claimed the credit by reckless or intentional disregard of EITC rules is barredfor 2 years. The law also imposes a $100 penalty on paid preparers who fail to fulfill"due diligence requirements" (as specified by IRS) in filing EITC claims. 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 becamepermanent in 1978, with a maximum benefit of $500 and no adjustment for familysize. In the 1990s, Congress increased the credit, provided expansion of the creditbased 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 filingjointly. The law increased the beginning and ending of the EITC phase-out range formarried 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 (adjustedannually for inflation after 2008). The law also simplified the definition andcalculation of the credit: tax filers no longer must include nontaxable income fromemployment (for example, excludable dependent care or education assistancebenefits) and may use adjusted gross income (AGI - a prominent line on all taxreturns) rather than modified adjusted gross income (which required a number ofadditions and subtractions to AGI). EITC Treatment by Other Means TestedPrograms. Before 1996, the federal rules for treatment of theEITC in determining eligibility for means-tested programs varied by program andchanged several times. The Omnibus Reconciliation Act of 1990 (OBRA 1990, P.L.101-508 ) provided that EITC payments were not to be counted as income by the Aidto Families with Dependent Children (AFDC), Supplemental Security Income (SSI),Medicaid, Food Stamps, and certain low-income housing programs. The 1996welfare reform law ( P.L. 104-193 ), by repealing AFDC, ended federal rules for thetreatment of the EITC by the family welfare program; thus, states now may treat theEITC in any way they wish in their Temporary Assistance to Needy Families (TANF)programs. However, P.L. 105-34 disallowed TANF recipients engaged in workexperience or community service ("workfare") the EITC for TANF earnings to theextent the payments are subsidized. EITC Benefit Levels. The followingtable shows the parameters for the EITC for tax years 2001 through 2003. Table 12. EITC Parameters for Tax Years 2001-2003 Note: For more information about EITC, see CRS Report RL31768(pdf) , The Earned Income Tax Credit (EITC): An Overview . Note: This entry describes use of TANF block grant funds for cash aid. Federal plusstate expenditures in FY2002 for TANF cash aid (76) were estimated at $10.4 billion(excluding administrative costs). For TANF child care, TANF work programs andactivities, and TANF services, see separate entries in this report. Federal Funding. 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 the Basic Skills(JOBS) training program, and combined recent federal funding levels for the threeprograms into a block grant ($16.5 billion preappropriated annually through FY2002)for Temporary Assistance for Needy Families (TANF). (77) The law entitles each stateto an annual family assistance grant roughly equal to peak funding received for therepealed programs in FY1992-FY1995. It also entitles the territories to TANF grants,and it permits Indian tribes, defined to include Native Alaskan Organizations, tooperate their own tribal family assistance plans with a block grant (78) deducted fromtheir 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,compared with the national average, and/or high population growth ($800 million,FY1998-FY2001); (79) bonuses for up to five stateswith the greatest decline innon-marital birth ratios and a decline in abortion rates ($400 million,FY1999-FY2002); bonuses for states with "high performance" in meeting programgoals ($1 billion, FY1999-FY2003); matching grants (at the Medicaid matching rate)from a contingency fund for states with high unemployment and/or increased foodstamp caseloads ($1.96 billion, FY1997-FY2001); and Welfare-to-Work (WtW)grants (most of which required 33.3% state matching funds) for efforts, including jobcreation, to move into jobs long-term welfare recipients with barriers to employment($3 billion for FY1998-FY1999). (80) For adescription of the separate WtW program,which is administered by the Labor Department, see program no. 78 -- page 213. TANF law also established a $1.7 billion revolving loan fund for state use in TANFoperations. State-local Funding. To avoid penalties, states must spend a specified amount of their own funds on TANF-eligiblefamilies. (81) The required "maintenance-of-effort"(MOE) level is from 75% to 80%of the state's "historic" expenditures, defined as the state share of FY1994expenditures on AFDC, EA, JOBS, and AFDC-related child care. Nationally, the75% MOE level equals $10.4 billion annually; if a state fails to meet workparticipation minimums, the MOE level rises to 80%. Expenditures of state funds inseparate state programs (or in TANF programs that segregate state funds from federalfunds) are countable toward the general TANF MOE rule. However, for thecontingency fund (82) , a higher state spendingrequirement is imposed (100% of thehistoric level), and spending in separate state programs cannot be counted toward thisMOE. In FY2002, TANF outlays for cash assistance were estimated at $10.419 billion, with $4.848 billion (47%) from federal funds. Total administrative costs forthe TANF block grant (including those for child care services, work activities, andother services) were $2.6 billion, with $1.6 billion (62%) from federal funds. Basic Eligibility. TANF permits a state to give ongoing basic cash aid (84) to anyneedy family that includes (a) a minorchild who lives with his/her parent or other caretaker relative; or (b) a pregnantwoman. As under AFDC, states decide who is "needy." Unlike AFDC, TANFallows states to aid needy children with an able-bodied and employed second parentin the home. More than 30 states have expanded eligibility by adopting one of moreof these policies: treating needy two-parent families on the same basis as one-parentfamilies, liberalizing treatment of earnings as a work incentive, and increasing assetlimits. Most states also aid pregnant women, but many require them to be in the lasttrimester of pregnancy, as AFDC did. Many state policy choices tend to restrict thecaseload. They include benefit cutoff time limits shorter than the limit in federal law,tough sanctions, welfare avoidance (diversion) payments, and family caps (reducedor zero benefits for new babies born to TANF mothers). Some of these changes,expansive and restrictive, were first adopted by states under waivers from AFDC law. Ineligible Persons. Federal law makes ineligible for TANF-funded basic ongoing cash aid unwed mothers under 18(and their children) unless they live in an adult-supervised arrangement and, if theyare high school dropouts, attend school once their youngest child is 12 weeks old. Also ineligible: persons convicted of a drug-related felony for an offense occurringafter August 22, 1996 (date of enactment of TANF) unless the state exempts itselfby state law; aliens who enter the country after August 22, 1996 (barred from TANFfor 5 years after entry) and persons who fraudulently misrepresented residence toobtain TANF, food stamps, SSI, or Medicaid in more than one state. TANF may notbe paid to a person who fails to assign child support or spousal support rights to thestate. Except for limited "hardship" exemptions, (85) federal TANF funds may not beused for basic ongoing aid to a family that includes an adult who has received 60months of TANF "assistance" (86) while an adult,a minor household head, or a minormarried to a household head (benefit cutoff time limit). Seventeen jurisdictions haveadopted time limits shorter than the federal 60-month limit, and three others reducebenefits (by deducting the parent's share of the grant) before 60 months are reached. Twenty-five jurisdictions impose the federal time limit. Four continue aid (forchildren only) beyond 60 months, funding benefits with state dollars (California,District of Columbia, Rhode Island, and Washington). Five states continue fullfamily benefits with their own funds (Maine, Maryland, Michigan, New York --generally in noncash form -- and Vermont). (87) According to HHS calculations,767,241 TANF families (out of 1,825,239 families who had accrued fewer than 5years of TANF assistance in FY2002) were exempt from the time limit: 88%because they were child-only units; 6.4% because their programs were state-funded,5% because of approved welfare waivers, and 0.5% because they were in Indiancountry. In their TANF plans, more than half of the states said they would make"diversion" payments, usually one-time payments for immediate needs, in lieu ofongoing TANF aid. Work/conduct Requirements. States must require a parent or caretaker who receives federally funded TANF basicongoing aid to engage in work, as defined by the state, after a maximum of 24months of ongoing basic aid (work trigger limit); 25 out of the 54 TANF jurisdictionswith TANF have chosen a shorter work trigger limit. Adopting a work firstphilosophy, many states require immediate work, and some identify job search as theimmediate work activity. To enforce the work requirement, the law sets fiscalpenalties for states that fail to achieve minimum participation rates. (88) For thispurpose, only specified work activities are countable. (89) Furthermore, to be countedas a participant, a TANF recipient must work for a minimum average number ofhours weekly. The work week is 20 hours for single adults with a child under 6 yearsold (almost half of all TANF adults) and 30 hours for single adults with an olderchild, 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 workrequirements (and disregard them in calculating work participation rates). Accordingto the fifth annual TANF report, 23 states exempt these parents, but 19 states requirea care-giving 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 bydiscontinuing aid or by reducing aid to the family "pro rata" with respect to theperiod of work refusal. According to state plans, the penalty for a first work violationin 19 jurisdictions is loss of 100% of benefits until compliance or after a minimumpenalty period (this count includes two states that end benefits for quitting a job). For repeat offenses, penalties are increased; ultimately, under some circumstances 38states end family benefits (seven for life). The law requires TANF recipients toassign child support and spousal support rights to the state; if a recipient does notcooperate 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'sbenefits are reduced because of failure to perform a required action, the state may notgive the family an offsetting increase in food stamps, and it may reinforce the cashpenalty by cutting food stamp benefits by up to 25%. (90) The law also allows states toreduce the family's benefit for failure to comply with a signed individualresponsibility plan. (91) Illustrative recipientobligations include school attendance,immunization of children, attendance at parenting or money management classes, andneeded substance abuse treatment. On the other hand, states that adopt a provisionknown as the Family Violence Option (FVO) are permitted under certain conditionsto waive federal TANF rules regarding work, time limits and child supportcooperation for victims of domestic violence. In FY2002, all but 10 TANFjurisdictions had adopted the FVO. Income and Resource Limits. Under TANF, states have freedom to set income and resource limits. As of January2003, all but seven states had raised countable asset limits for cash recipients abovethe AFDC ceiling of $1,000 per family (about half doubled the limit); more than halfthe states now exclude one vehicle from countable assets; some permit restrictedsavings accounts; and one (Ohio) has eliminated asset limits altogether. Cash Assistance. States determine amounts paid to families with no countable income and whether to disregard anyearnings as a work incentive and any assets as a savings incentive, (and if so, howmuch). Almost all jurisdictions have liberalized treatment of earnings to bolsterwork (two states, Connecticut and Virginia, disregard all recipient earnings below thefederal poverty guideline). One state (West Virginia) pays a $100 monthly bonus tomarried couples. At least three states (California, Hawaii, and Massachusetts) haveestablished a lower maximum benefit schedule for persons required to work than forthose exempt from work. More than 20 states pay a reduced benefit, or zero benefit,on behalf of a new baby born to a TANF mother (family cap). A CRS telephone survey found that maximum benefits for a three-person TANF family in January 2003 ranged from $170 in Mississippi to $709 in Vermont and$923 in Alaska. In half the states, TANF maximum benefits for three persons wereunchanged from those for AFDC in July 1996, just before passage of TANF. Thismeans that their real value, after adjustment for price inflation, was down almost15.7%. However, four states increased benefits in real value (Louisiana, up 10%;Maryland, 9%; Mississippi, 22%, and West Virginia, 55%). Wisconsin has made the most drastic change. Its TANF program, known as W-2 (for Wisconsin Works) no longer bases benefits on family size; it pays flatbenefits and conditions them on hours of required activity. For those in a communityservice job (CSJ), it pays $673 monthly (about 75% of full-time monthly minimumwages) plus food stamps, for 30 hours of weekly work (plus up to 10 hours ineducation and training). For those unable to participate in a CSJ, it pays $628monthly. (92) For each missed hour, it reducesbenefits by $5.15, the minimum wagerate. The Wisconsin program also seeks to create jobs for TANF recipients byoffering employers a $300 maximum wage subsidy monthly, and it establishes childcare plans and health care plans that all low-income families may join for a fee. Related Programs. Although the 1996 law ended AFDC, it retained AFDC eligibility limits for use in Medicaid andin the programs of foster care and adoption assistance. It requires states to provideMedicaid coverage and benefits to children and family members who would beeligible for AFDC cash aid (under terms of July 16, 1996) if that program stillexisted. For this purpose, states may increase AFDC income and resource standardsby the percentage rise in the consumer price index since enactment of TANF; theyalso may adopt more liberal methods of determining income and resources. The lawrequires 12 months of medical assistance to those who lose TANF eligibility becauseof earnings that lift counted income above the July 16, 1996 AFDC eligibility limit. The law also makes foster care and adoption assistance matching funds available forchildren who would be eligible for AFDC cash aid (under terms of July 16, 1996) ifthat program still were in effect. Other Benefits. Benefits other than basic ongoing assistance are known as "nonassistance." They are not subject toTANF's time limits or work requirements, but they must promote one or more of thegoals of TANF. States define who is eligible and may set different income limits fordifferent services. See entries on TANF child care, TANF work activities, andTANF services. Note: For more detail, see CRS Report RL30695, Welfare Reform: State Programs of Temporary Assistance for Needy Families, CRS Report 96-720, TANFBlock Grant Program: Current Provisions Compared with AFDC, and Section 7 ofWays and Means Committee Print 108-6, the 2003 Green Book: TemporaryAssistance for Needy Families (TANF) , available on the Committee's web site 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 inlicensed 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 matchingrate for a state is that state's Medicaid matching rate (see program no. 1 -- page 29). The FY2003 federal matching rate ranged from 50% to 76.62%. For certainadministrative costs of the program and expenses related to child placement, thefederal government offers 50% matching funds. States receive 75% federal matchingfor certain training expenses. FY2002 outlays were $8.6 billion, with $4.5 billion(52%) 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 judicialdetermination that reasonable efforts have been made to enable the child to remainhome and that continuation in the home would be contrary to the child's welfare. States also may claim federal payments for children placed into foster care under avoluntary placement agreement between the child welfare agency and the child'sparents, if certain judicial findings are made within 180 days of the child'splacement. In addition, a child must meet the eligibility standards of the repealedAFDC program, as it existed in his state on July 16, 1996. (95) Finally, the child mustbe 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 reasonableefforts to prevent the need to place children in foster care, and to reunify childrenwith their families when possible. ( P.L. 105-89 , enacted in 1997, allows certainexceptions to this requirement.) Each child in foster care must have a written caseplan, and states must hold administrative and judicial reviews of each child's caseaccording to a prescribed schedule. In FY2002, administrative costs (including training and data collection expenses) were estimated to represent 54% of total federal spending for foster care. According to the most recent data collected from states by the Child Welfare Leagueof America, maintenance payments vary widely among states, ranging in FY2000from $216 monthly for a 2-year-old child in Missouri to $760 for a 16-year-old inConnecticut. Nationwide average monthly maintenance payments in FY2000 were$389 for a child age 2, $406 for a child age 9, and $465 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 SocialSecurity Act authorizes grants to states to assist foster children who are likely to "ageout" of foster care without returning to their original homes or being placed foradoption, and former foster children, with their transition to independent living. Thelaw also authorizes a separate grant to states to provide education and trainingvouchers to these youth. These programs are not means-tested, although it isassumed that the majority of beneficiaries are low-income. Expenditures for theseprograms are not included in this report.) This benefit is 100% federally funded and is provided through the tax system. FY 2002 outlays (tax year 2001) totaled $5.1 billion. (Another $22.5 billion wasused to offset taxes and is not included in this report.) 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 ableto claim a dependent exemption for the child, and the child must be their son,daughter, grandson, granddaughter, stepson, stepdaughter, or an eligible foster child.The credit is phased out at higher income levels. 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 TaxRelief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16 ) increased the credit limitto $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 taxyear 2011 with the credit reverting to the prior law level of $500. The Jobs andGrowth Tax Relief Reconciliation Act of 2003 ( P.L. 108-27 ) raised the maximumcredit to $1,000 per child for tax years 2003 through 2004. The credit is refundable for up to 10% of the taxpayer's earned income in excess of $10,000 for calendar years 2001-2004, indexed for inflation beginning in 2002(resulting in $10,500 for tax year 2003). Beginning in 2005, the credit is refundablefor up to 15% of the taxpayer's earned income above $10,000 (indexed). Beforepassage of EGTRRA, the child credit was refundable in two ways: (1) as asupplemental credit in coordination with the Earned Income Tax Credit (EITC) (thecredit was part of the child credit calculations, and had no separate form orcalculation requirements for taxpayers); and (2) as an additional credit for taxpayerswith three or more children, limited to the amount by which their social security taxesexceeded their earned income tax credit. (96) The credit is phased out at the rate of $50 for each $1,000 (or fraction thereof) by which modified adjusted gross income (AGI) exceeds certain thresholds: forsingles and heads of households, $75,000; for married couples filing jointly,$110,000; and for married couples filing separately, $55,000. Treatment by Other Means-Tested Programs. EGTRRA specified that the refundable portion of thechild credit does not constitute income and shall not be treated as a resource forpurposes of determining eligibility or the amount or nature of benefits under anyfederal program or any state or local program financed with federal funds. No federal funds are provided for General Assistance (GA). GA is a general name for state and local programs that help some of the low-income persons who donot qualify for federally aided cash payments from Temporary Assistance for NeedyFamilies (TANF) or Supplemental Security Income (SSI). (98) GA is the most commonterm, but several other names are used. (99) As of mid-1998, 25 states, including the District of Columbia (D.C.), operated statewide GA cash programs with uniform eligibility rules and, usually, uniformbenefit schedules. Of these programs, 20 were funded 100% by the state, (100) and fiverequired counties or localities to share costs with the state. (101) Nine states hadstatewide programs with county variations; in these states, all counties/localities wererequired to operate and fully fund GA programs. (102) One state (Nebraska) had auniform statewide program for the disabled and a statewide program with countyvariation for others. In addition, under state supervision, and with state/localfunding, most Virginia counties and many Wisconsin counties offered GA. In sixstates, with county funding only, some counties offered GA. (103) Finally, 10 states (104) had no program. To receive GA, a person must be judged in financial need and must live where the program is available. Further, in most states, one must be disabled, elderly, orotherwise deemed unemployable. In mid-1998, 18 states (including New York andCalifornia, the two most populous states) allowed GA for needy able-bodied adults,but 13 restricted this aid to persons with children, and most conditioned it on meetingwork requirements. Many states provided GA to disabled or elderly persons who hadapplied for SSI and were awaiting determination of SSI eligibility (states arereimbursed by the Social Security Administration for interim payments made topersons found eligible). Some aided persons with a temporary disability that did notqualify them for SSI. A few offered GA to persons enrolled in a drug or alcoholabuse treatment program. Some states made eligible "unattached" children, those notliving with a relative and hence ineligible for TANF. Eleven of the statewide programs imposed no categorical eligibility limits; they (or some of their counties or localities) offered aid to any person needy under theirstandards who did not qualify for federally funded aid: Alaska; California (LosAngeles County); Idaho (Ada County); Indiana (Center Township of MarionCounty); Iowa (Polk County); Maine; Nebraska; Nevada (Clark County); NewHampshire (City of Manchester); New York; and South Dakota (Minnehaha County). Income and asset limits for GA eligibility vary. In Florida (Dade County), Kentucky (Jefferson County), and New Hampshire (City of Manchester), onlypersons with zero income were eligible, but Hawaii, the most generous state, set themonthly income limit at $1,239 for an individual. Several states set the countableasset limit at zero, but most adopted limits between $1,000 and $2,000. Most GA programs also impose citizenship and residency tests for eligibility. The 1996 welfare law ( P.L. 104-193 ) prohibits state and local benefits for illegal aliens unless the state expressly authorizes them by law, and it permits states toexclude most legal aliens (105) from GA. Inmid-1998, some GA programs deniedeligibility (for 5 years or permanently) to legal immigrants arriving after August 22,1996, when the welfare law was enacted. Some of the GA programs open tonon-citizens require immigrants to apply for citizenship as a condition of eligibility. GA programs typically require current residence in the state, county, or municipality;and seven require a minimum residence period, ranging from 15 days to 9 months. Since 1992, coverage of many GA programs has been reduced. Montana abolished the state-run program that had operated in 12 of its counties; Wisconsinreplaced its state-required county-based program with a block grant for an optionalprogram. Connecticut, Hawaii, Minnesota, Ohio, and Pennsylvania ended benefitsfor able-bodied employable persons without children (and Pennsylvania, for familiesas well). D.C. ended GA benefits for SSI applicants. Six states tightened eligibilitycriteria for persons with disabilities. The total number of statewide programs withtime limits rose to nine, but two states (Hawaii and Michigan) removed time limitsfor persons with a disability. Since the 1996 passage of TANF, which can be usedfor cash aid to pregnant women at any stage of pregnancy, several states have ceasedusing GA funds for this group. Mid-1998 Data. GA benefit levels vary greatly among states and often within them. In mid-1998, maximum GAcash benefits reported by states with uniform statewide programs ranged from $80monthly for a single person in Missouri to $339 in Massachusetts and $645 for adisabled person in Nebraska (these amounts were unchanged from mid-1996). Maximum benefits averaged $248 monthly. About three-fourths of the states with statewide GA programs provide aid in the form of cash (except in special circumstances). Nine of these states or some of theircounties provide only vendor payments or vouchers: Idaho (Ada County); Indiana,(Center Township of Marion County); Iowa (Polk County), Kentucky (JeffersonCounty); Maine; Nebraska (non-disabled program); New Hampshire (City ofManchester); South Dakota (Minnehaha County), and Vermont. In general, ongoing assistance was provided in mid-1998, to at least some categories of recipients, by most of the 33 states with statewide programs. However,these states imposed time limits: Arizona, and Maryland, 12 months out of 36;California (Los Angeles County) 12-month limit for employable persons; Colorado,12-month lifetime limit for persons disabled by substance abuse; New Jersey,60-month lifetime limit (with extension possible); New York, 24-month lifetimelimit for cash aid (no limit for noncash aid); Pennsylvania, 9-month lifetime limit forpersons in substance abuse treatment and victims of domestic violence; Utah, 7months out of an 18-month period (for persons in program called Working TowardEmployment; and Vermont, 36-month lifetime limit, for persons in drug treatment. Recent State Data. In March 2003, enrollment in the Massachusetts program of Emergency Aid to the Elderly,Disabled, and Children (EAEDC) was up 5% from the previous year; and benefitsaveraged $324 (down $7 from 2002). In August the state announced plans to cutbenefits by 11.5% because of a budget shortfall. In April 2003, enrollment in theMichigan state-funded program of Emergency Relief was up 77% from theyear-earlier level (914 families, compared with 515); and benefits averaged $377. Maryland issued $2 million in vouchers in April 2003 under its TransitionalEmergency Medical and Housing Assistance program (TEMHA) on behalf of about14,709 persons (up 15% from a year earlier); benefits averaged $135 per person. New York spent $68 million in April 2003 for "safety net" assistance, some of whichwas in noncash form, to 283,958 persons in 159,865 cases, including familiestransferred out of TANF after reaching that program's 5-year time limit. Paymentsaveraged $425 per case. California paid a total of $22.3 million in general relief inMarch 2003 to 95,177 cases, almost all of which held only one person. Benefitsaveraged $234 per case ($335 for family cases). Census Data. The U.S. Census Bureau reports that direct cash assistance by states and localities for noncategoricalaid totaled $2.968 billion in FY2000 and $2.956 billion in FY2001. The preliminaryestimate for FY2002, based on data from states that accounted for one-third of theFY2000 census-reported total, is $3.251 billion. Most GA programs offer medicalassistance as well as cash. For medical aid provided under state-local GA programs,see program no. 4 -- page 48. The federal government provides 100% funding for veterans' and survivors' pensions. Total federal outlays for these pensions reached $3.164 billion duringFY2002. 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 servedduring a period defined in law as a period of war. The veteran must be disabled forreasons neither traceable to military service nor to willful misconduct. The survivor pension is provided to surviving spouses and children of wartime veterans who diedof nonservice-connected causes, subject to income limitations. There is no disabilityrequirement 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 ofVeterans Affairs (VA) pays monthly amounts to qualified veterans to bring their totalincomes to specified levels ( maximum benefits ), shown below. These levels areincreased (by $2,197 in 2003) for veterans with service in World War I or earlier inrecognition of their lack of home loan and education benefits made available toveterans of later wars. Countable income can be reduced for unreimbursed medicalexpenses, as well as some educational expenses incurred by veterans or theirdependents. 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 rulesregarding countable income and exclusions. Since January 1, 1979, applicationshave been processed under the Improved Law program, which provides higherbenefits but has eliminated most exclusions, offsetting countable incomedollar-for-dollar. The Improved Law program accounts for 98% of pension costs andabout 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 (seeprogram no. 1). The FY2003 federal matching rate ranged from 50% to 76.62%. Foradministrative expenses and certain training expenses, the federal matching rates are50% and 75%, respectively. The 1986 tax reform legislation ( P.L. 99-514 ) amendedthe adoption assistance program by authorizing 50% federal matching forreimbursement of certain non-recurring adoption expenses up to $2,000, such asadoption and attorney fees and court costs. FY2002 outlays were $2.5 billion ($1.3billion from federal funds). A child must be eligible for SSI (see program no. 10) or meet the eligibility standards of the repealed AFDC program, as it existed in his state on July 16, 1996, (109) must be legally free for adoption, and must have "special needs," as determined bythe state, that prevent adoption without assistance payments. Such special needs mayinclude mental or physical handicap, age, ethnic background, or membership in asibling group. (In addition, parents who adopt children with special needs who arenot AFDC or SSI eligible are entitled to assistance under the matching program fornon-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 exceedwhat would have been paid to maintain the child in a foster family home. Childrenreceiving federally subsidized adoption assistance are automatically eligible forMedicaid. Benefits can continue until the child reaches age 18 or, in cases where thechild is mentally or physically handicapped, age 21. The federal government provides 100% funding for dependency and indemnity compensation, and for death compensation. Federal outlays in FY2002 wereestimated at $84 million for 7,463 parents. Under Title 38 of the United States Code, Section 1315, parents of veterans who died from a service-connected cause are eligible for Dependency and IndemnityCompensation (DIC) if their counted income is below limits in federal law andregulations. Countable annual income limits in 2003 are $11,024 for one parentalone and for each of two parents not living together; $14,817 for two parents livingtogether, or for a remarried parent living with his spouse. Chief exclusions fromcountable 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. 15.) There are no networth 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 thatthereafter, whenever Social Security benefits were increased by an automaticcost-of-living adjustment (COLA), DIC rates must be adjusted by the samepercentage and at the same time. The maximum benefit for a sole surviving, unremarried parent in 2003 is $464 monthly. The maximum for each parent when both survive but do not live togetheris $334 per month. The maximum payment to individual surviving parents, who liveeither with the other parent, or with the spouse of the deceased veteran is $314monthly. The minimum monthly payment is $5.00. Parents in need of "aid andattendance" receive an additional monthly allowance of $250 in 2003. Note: This entry describes the program of General Assistance (GA) to Indiansoperated by the Bureau of Indian Affairs (BIA). However, tribes may design theirown GA programs, changing eligibility rules and benefit levels, provided they payany net cost increase, use any savings for tribal needs, and receive BIA approval oftheir plan. (112) Tribes may administer theirredesigned plan themselves or request BIAto do so. The Snyder Act provides 100% federal funding for General Assistance (GA) to Indians, which is administered by the Bureau of Indian Affairs (BIA). Federalobligations in FY2002 were $66.5 million. Eligible are needy Indians who are members of a tribe that is recognized by the U.S. government and Alaskan Natives with at least one-fourth degree Native blood(or who are regarded as Natives by the Native village). Federally recognized tribesare located in 34 states, of which 24 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 tribalprograms for which they are eligible, and they may not receive TANF orSupplemental Security Income (SSI). They must reside in the tribe's service area andwhere non-federally funded aid from a state or local government unit (114) is notavailable to them. Able-bodied adults must actively seek work, make satisfactoryprogress in an Individual Self-sufficiency Plan (ISP), jointly developed and signedby the recipient and the social services worker, and accept available local andseasonal employment unless they are enrolled at least half-time in a specifiedprogram of study, caring full-time for a preschool child, or would have a minimumcommuting 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-relatedexpenses, including reasonable transportation costs; child care costs (unless the otherparent 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 deductedfrom countable income is an allowance for shelter costs; namely, 25% of the TANFstandard unless a smaller amount is designated for shelter in the state TANFstandard. 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. (115) Eligibility for GA must be reviewed periodically, every 3 months for persons not exempt from seeking work and every 6 months for all participants. BIA expects the GA caseload in FY2003 and FY2004 to decline from the FY2002 level of 45,000 persons. (116) (Becauseof the relatively high levels ofunemployment on Indian reservations, it is thought that many Indians enrolled inTANF will remain eligible for that program beyond 5 years, and hence will beineligible for GA. The TANF time limit does not apply to any month of aid duringwhich the recipient lived in Indian country (117) or in an Alaska native village where atleast 50% of adults were unemployed, according to the most reliable available data. General Assistance to Indians provides cash payments and work experience and training, and 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 TANFprogram unless the state "ratably reduces" actual payments. In those cases, theBureau must reduce GA payments by the same percentage. This means that actualmaximum 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 January2003 from $170 in Mississippi to $923 in Alaska. If the state TANF program has noassistance 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-personhousehold with an adult member or (b) one-half the standard for a household of twopersons. A GA recipient who participates in the tribe's Tribal Work Experience Program(TWEP) receives an extra monthly payment ($115 in FY2002 and 2003). Thisprogram provides work experience and job skills training. TWEP programs can beincorporated within self-determination contracts, self-governance annual fundingagreements and programs coordinated under P.L. 102-477 , which allows forintegration of federally-funded employment and training programs. The Immigration and Nationality Act authorizes 100% federally funded cash assistance for needy refugees and asylees during their first 3 years in the UnitedStates, and other legislation authorizes similar assistance for certain Cuban andHaitian entrants (118) and for certainAmerasians. (119) However, since FY1992,fundinghas been appropriated to provide cash assistance only for the first 8 months afterentry. These benefits are administered by the Department of Health and HumanService's Office of Refugee Resettlement (ORR). For refugee cash assistance(RCA), ORR expenditures were an estimated $41 million in FY2002. 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 orasylee under the Act, (b) be a Cuban or Haitian paroled into the United Statesbetween 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 toexclusion or deportation and against whom a final order of deportation has not beenissued, 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 Assistance for NeedyFamilies (TANF) for 5 years after entry, provided they meet the income and assettests prescribed by their state for TANF. Those who meet the state's financialeligibility tests but who are not categorically eligible for TANF or the federalprogram of Supplemental Security Income (SSI) qualify for RCA. (For example, asingle refugee or a childless couple could receive RCA if deemed needy by stateTANF standards.) At the end of the 5-year period, their continued participation is atstate option, as it is with legal permanent residents. The law requires employableRCA applicants and recipients to accept "appropriate" job offers and to register foremployment to receive cash assistance. Under PRWORA, refugees who qualify for SSI are eligible for 7 years afterentry (before the 1996 welfare law, there was no time limit on eligibility). (121) At theend of the 7-year period, they become ineligible until they naturalize or meet thework 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 theenactment date and subsequently become disabled, they are eligible also 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 anRCA benefit equal to that of a two-person (parent and child) TANF family. Seeprogram no. 12 for description of TANF benefit levels. (Benefit levels for personswho qualify for TANF and SSI are the levels established for those programs.) The Food Stamp Act generally provides 100% federal funding for food stamp benefits. (122) Federal funds also pay for (1)federal administrative costs, (2) 50% ofstate and local administrative expenses (123) and(3) the majority of costs associatedwith employment and training programs for food stamp recipients. (124) "States" -- the50 states, the District of Columbia, Guam, and the Virgin Islands -- are responsiblefor the remainder of food stamp expenses. In Puerto Rico, American Samoa, and theNorthern Marianas, federal funds, authorized under the Food Stamp Act, provide annual grants, in lieu of food stamps, to fund nutrition assistance benefits andassociated administrative costs. The grants for Puerto Rico and American Samoa areset by law and indexed for inflation. In FY2003, they totaled $1.4 billion ($1.395billion for Puerto Rico and $5.6 million for American Samoa). The grant for theNorthern Marianas is an annually negotiated amount based on identified needs in theCommonwealth ($7.1 million in FY2003). (125) The Food Stamp program imposes four major tests for eligibility: income limits, liquid asset limitations, employment-related requirements, and limits on theeligibility of noncitizens. In addition, households composed entirely of recipients ofcash aid or services under state Temporary Assistance for Needy Families (TANF)programs, the Supplemental Security Income (SSI) program, or state/local GeneralAssistance (GA) programs are, in many cases, automatically eligible for food stamps. Automatic food stamp eligibility may continue for up to 5 months after a householdleaves a TANF program. Income. Households not automatically eligible because of receiving TANF, SSI, or GA must have counted(net) monthly income below the federal poverty income guidelines, which areadjusted annually to reflect inflation measured by the Consumer Price Index (CPI). More importantly, households without an elderly or disabled member (127) must alsohave basic (gross) monthly income below 130% of the poverty guidelines in orderto 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 thehousehold); unanticipated, irregularly received income up to $30 a quarter; loans(deferred payment education loans are treated as student aid, see below); incomereceived for the care of someone outside the household; nonrecurring lump-sumpayments such as income tax refunds (these are counted as liquid assets); paymentsof federal earned income tax credits (these are not counted as either income or -- for12 months -- as assets); federal energy assistance; reimbursements for certainout-of-pocket expenses; income earned by children who are in school; the cost ofproducing self-employment income; education assistance under Title IV of theHigher Education Act (e.g., Pell grants, student loans); other student aid to the extentearmarked or used for tuition, fees, and education-related expenses; certain paymentsunder the Workforce Investment Act (WIA); income set aside by disabled SSIrecipients under an approved "plan to achieve self-sufficiency"; and some other typesof income required to be disregarded by other federal laws. In addition, states may,within certain limits, exclude income they disregard when judging TANF orMedicaid eligibility. Counted (net) monthly income subtracts from basic (gross) income the following "deductions": (1) a "standard" monthly deduction; (128) (2) 20% of anyearned income; (3) expenses for the care of a dependent (up to $200 per dependentper month for those under age 2 or $175 for other dependents); (4) out-of-pocketmedical expenses of elderly or disabled household members, to the extent theyexceed $35 per month; (5) shelter expenses, to the extent they exceed 50% of theincome remaining after all other potential deductions and excluded expenses havebeen subtracted (up to an annually indexed ceiling standing at $378 a month inFY2003); (129) and (6) amounts paid as legallyobligated child support payments. The following tables set out the monthly net and gross income limits in the 48 contiguous states, the District of Columbia, the Virgin Islands, and Guam -- for theperiod October 1, 2003 through September 30, 2004. (130) Assets. An eligible household's liquid assets may not exceed $2,000 or $3,000 if the household includes an elderlyor disabled member. This asset test excludes the value of a residence, businessassets, household belongings, and certain other resources, such as Earned Income TaxCredits paid as a lump sum. The extent to which the value of a vehicle owned by anapplicant household is counted as an asset varies by state, often conforming to thestate's rule for its TANF program. Under the most stringent rule, the fair marketvalue of any vehicle above $4,650 is counted; however, the majority of states eitherdisregard the value of at least one vehicle or apply a more liberal threshold. The foodstamp asset test does not apply to automatically eligible TANF, SSI, and GAhouseholds; states also may, within certain limits, disregard assets that they do notcount in their TANF or Medicaid programs. Employment-Related Requirements. In order to maintain eligibility, certain nonworkingable-bodied adult household members must register for employment, accept asuitable job if offered one, fulfill any work, job search, or training requirementsestablished by administering welfare agencies, provide the welfare agency withsufficient 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 30hours a week. Exempt from these requirements are: persons caring for dependents(disabled or under age 6); those already subject to another program's workrequirement; those working at least 30 hours a week or earning the minimum-wageequivalent; the limited number of postsecondary students who are otherwise eligible;residents of drug addiction and alcoholic treatment programs; the disabled; and thoseunder 16 or age 60 or older (those between ages 16 and 18 are also exempt if they arenot the head of a household or if they are attending school or a training program). Ifthe household head fails to fulfill any of these requirements, the state may disqualifythe entire household for up to 180 days. Individual disqualification periods differaccording to whether the violation is the first, second, or third; minimum periodsrange from 1 to 6 months and may be increased by the welfare agency, in some casesto 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) withoutdependents are ineligible for food stamps if, during the previous 36 months, theyreceived food stamps for 3 months while not working at least 20 hours a week orparticipating in an approved work/training activity (including "workfare," work inexchange for benefits). Those disqualified under this rule are able to re-enter theFood Stamp program if, during a 30-day period, they work 80 hours or more orparticipate in a work/training activity. If they then become unemployed or leavework/training, they are eligible for an additional 3-month period on food stampswithout working at least 20 hours a week or enrolling in a work/training activity. Butthey are allowed only one of these added 3-month periods in any 36 months -- fora potential total of 6 months on food stamps in any 36 months without half-time workor enrollment in a work/training effort. [ Note: At state request, the special rule forable-bodied adults without dependents can be waived for areas with very highunemployment (over 10%) or lack of available jobs. Moreover, states themselveshave 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 caninclude workfare, training, job search, education, or other activities) as establishedby the welfare agency. These programs are described separately in this report (seeprogram no. 79). Other Limitations. Categorical eligibility restrictions include: (1) a ban on eligibility for many noncitizens; (131) (2) aban on eligibility for households containing striking members, unless eligible priorto the strike; (3) a ban on eligibility for most nonworking postsecondary studentswithout 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 drugaddiction or alcoholic treatment programs, persons in temporary shelters for batteredwomen and children, and those in homeless shelters; (5) a state-option ban oneligibility for those who have violated another welfare program's rules and beendisqualified, (6) limits on participation by boarders; (7) a requirement that SocialSecurity numbers be provided for all household members; (8) denial of eligibilitywhere assets have been transferred to gain eligibility; (9) denial of eligibility wherethere has been intentional violation of program rules or failure to cooperate inproviding information needed to judge eligibility and benefits; and (10) a ban oneligibility for SSI recipients in California. (132) 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 theU.S. Department of Agriculture's Thrifty Food Plan, adjusted each October forchanges in food prices. A participating household's actual monthly allotment isdetermined by subtracting, from the maximum allotment for its size, an amount equalto 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 ownincome on food. Minimum benefits for households of one and two persons arelegislatively set at $10 per month; minimum benefits for other household sizes varybut generally are somewhat higher. Maximum monthly allotments in FY2004 areshown in the following table. Table 13. Maximum Monthly Food Stamp Allotments (October 2003 through September 2004) a. Maximum allotment levels in rural AK are 27% to 55% higher than the urban AK allotments noted here. The allotment levels noted here are those in effect as ofOct. 1, 2003. However, under legislation pending as of Oct. 28, 2003, they arescheduled to increase slightly: to $169, $309, $443, $563, $669, $803, $887,$1,014, and +$127. b. The allotment levels noted here are those in effect as of Oct. 1, 2003. However,under legislation pending as of Oct. 28, 2003, they are scheduled to increaseslightly: to $212, $389, $557, $707, $840, $1,008, $1,114, $1,273, and +$159. Food stamp benefits are issued through electronic benefit transfer (EBT) cards. These cards are used like "debit cards" to access food stamp recipients' individualfood stamp accounts when purchasing food items at approved stores. Food stampbenefits can be used only to buy food items; however, EBT cards often include accessto 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 inschools and residential child care institutions (RCCIs) choosing to participate in theSchool Lunch program. The cash subsidy for free and reduced-price lunches consistsof two parts: a basic payment authorized under Section 4 of the Act for every lunchserved, without regard to the family income of the participant, and an additionalspecial assistance payment authorized under Section 11 of the Act only for lunchesserved free or at reduced price to lower-income children. Additionally, the federalgovernment provides commodity assistance for each meal served. The level offederal cash subsidies and the value of federal commodity aid are legislatively set andannually indexed. State and local government funds and children's payments alsohelp finance lunches served in participating schools and RCCIs. No charge may bemade 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 tochildren who do not qualify for free or reduced price lunches, or who do not applyfor 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 1980-1981school year (about $200 million a year). However, no matching funds are requiredfor the extra federal subsidy provided for free and reduced-price lunches, underSection 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 freeor at a reduced price. All public schools, private nonprofit schools, and RCCIs areeligible to participate and receive federal subsidies if they serve meals that meetnutrition requirements set by the U.S. Department of Agriculture based on theDietary Guidelines for Americans, offer free and reduced-price meals to lowerincome 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;those children whose family income is more than 130%, but not more than 185% ofthe guidelines, are eligible for a reduced-price lunch. Annual income limits for afamily of four for the 2002-2003 school year in the 48 contiguous states, the Districtof Columbia, Puerto Rico, Guam, and the Virgin Islands were: for free lunches,$23,530; for reduced-price lunches, $33,485. (134) In addition, most children fromfamilies receiving public assistance (e.g., cash welfare, food stamps) can be certifiedfor 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 foreach lunch served. The law establishes specific reimbursement (subsidy) rates foreach type of lunch served (free, reduced-price, "full-price") and mandates that theybe adjusted each July for inflation. Cash reimbursement rates for the 2002-2003school year were: (135) (1) $2.14 for each freelunch, (2) $1.74 for each reduced-pricelunch, and (3) 20 cents for each full-price lunch. In addition to the cash assistance noted above, the federal government provides commodity assistance for all meals served in participating schools and residentialchild care institutions. This assistance rate is adjusted annually each July forinflation, and, for the 2002-2003 school year, it was a minimum of 15.25 cents permeal served (e.g., the total cash and commodity subsidy rate for free lunches wasapproximately $2.29). Schools and RCCIs in the School Lunch program also may expand their programs to cover snacks (and, in some cases, suppers) served to children throughage 18 in after-school programs . Federal subsidies are paid at the free snack/supperrate offered to child care providers if the snack/supper is served free to children inlower-income areas. In other cases, federal subsidies vary by the child's familyincome. (See program no. 24, the Child and Adult Care Food Program, for thevarious federal subsidy rates for snacks/suppers and additional authority for schoolsand public and private nonprofit organizations to receive subsidies for snacks/suppersserved in after-school programs.) In FY2002, more than 90% of schools and RCCIs received school lunch program subsidies -- some 93,000 schools, plus nearly 6,000 RCCIs. Average dailyparticipation was 28 million children; 13.3 million received free lunches, 2.6 millionate reduced-price lunches, and lunches for 12 million students were subsidized at theminimum full-price rate (for which no income test is required). While childrenreceiving free or reduced-price lunches made up 57% of those participating, subsidiesfor their lunches accounted for over 90% of federal spending on the school lunchprogram. Note: For more information, see: CRS Report RL31577, Child Nutrition and WIC Programs: Background and Funding . The Child Nutrition Act provides 100% federal funding through grants to states for food costs and nutrition services and administration (NSA); money also isprovided for to support breast-feeding initiatives and the development of localagencies' administrative infrastructure, small farmers' market nutrition programs (seeProgram 31), and research and evaluations. State allocations are based on a formulathat reflects food and NSA caseload costs, inflation, and "need" as evidenced bypoverty indices -- although small amounts are set aside for infrastructuredevelopment and other special initiatives. Except for a small matching amount forstates choosing to operate a farmers' market nutrition program, no state or localmatching 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." Theseinclude infants (up to age 1), children up to 5 years old, pregnant women,non-nursing mothers up to 6 months after childbirth, and nursing mothers up to 1year after childbirth. A competent professional authority on the staff of aparticipating local public or private nonprofit health clinic or welfare agency thatoperates a WIC program must certify that the recipient is at nutritional risk througha 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 recipientsmay be judged automatically income eligible. Income limits may not exceed thosefor reduced-price meals under school meal programs -- 185% of the federal povertyincome guidelines (as annually adjusted) -- $27,787 (137) for a three-person family forJuly 2002 through June 2003. States can set lower income limits, but these must notbe lower than 100% of the poverty guidelines. 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 annualamount of federal funding made available, and not all eligible applicants areguaranteed benefits. (138) State healthdepartments or comparable agencies determinewhich local health or welfare agencies are eligible for program participation orexpansion in order of greatest need based on economic and health statistics, andavailable funding. And a priority system seeks to ensure that individuals at thegreatest risk are served first. The program is estimated to serve at least 80% of theeligible population. In FY2002, average monthly participation was just under 7.5million women, infants, and children. Beneficiaries receive selected supplemental foods, as called for in federal regulations, either in the form of food or, most commonly, as vouchers/checks validfor specific prescribed food items in stores. (139) Federal regulations includerequirements about the types and quantities of food to be made available and abouttailoring food packages to meet the varying nutritional needs of the infants, children,and pregnant and postpartum women participating in the program. However, stateWIC agencies have some leeway in designing specific food packages and specifyingfoods that may be bought with WIC vouchers. In FY2002, the national averagemonthly federal cost of food in a WIC food package was $35 (after an offset forrebates by infant formula companies). The law also requires that participants receive breast-feeding support, nutrition education, and a nutritional risk evaluation (in order to qualify). Monthly NSA costsfor these services averaged $13 a recipient in FY2002. 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 recipientsspecial vouchers that can be used to buy fresh foods at participating farmers' markets(See program 31). Note: For more details, see CRS Report RL31577, Child Nutrition and WIC Programs: Background and 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) cashsubsidies for all meals and snacks served in participating child and adult day carecenters and family and group day care homes for children. Subsidies are varied byparticipants' family income (in day care centers), or (in the case of family day carehomes) whether the provider has a lower-income or located in a lower-income area. Payments to sponsors of day care homes (based on the number of homes sponsored)and some federal commodity assistance also are provided, as are administrativepayments to day care center sponsors. There is no requirement for matching fundsfrom non-federal sources. Licensed (or otherwise approved) public and private nonresidential nonprofit child care, adult care, and Head Start centers, some schools operating after-schoolprograms, and family and group day care homes are eligible for federal subsidies formeals, snacks, and (in some cases) suppers they serve meeting federal nutritionrequirements. For-profit child care institutions also are eligible, but their eligibilityis limited based on the degree to which they serve "lower-income" children (asmeasured by the centers' receipt of government child care subsidies or by the familyincome of children served). 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 subsidiesare higher for meals served free or at a reduced price to lower-income individuals. As with the School Lunch and School Breakfast programs: free meals/snacks areavailable to those whose household income is not above 130% of the federal povertyincome guidelines ($23,530 for a family of four during the period July 2002-June2003); those whose household income is above 130%, but not above 185% of thepoverty guidelines ($33,485 for a family of four) (142) are eligible for reduced-pricemeals/snacks. Income eligibility guidelines are adjusted annually. Meals and snacksfor individuals from households with income above these limits (or who do not applyfor free or reduced-price meals/snacks) also are subsidized, but the subsidies aremuch smaller. Unlike the school meal programs, while federal cash subsidies paidto centers differ according to family income, there is no requirement that "free" or"reduced-price" meals/snacks be served. Centers may adjust their fees to account forfederal subsidies or charge (or not charge) separately for meals to account for thesubsidies, 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'sfamily 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 forlunches or breakfasts under the School Lunch and School Breakfast programs. Forthe period July 2002 through June 2003, these amounts were: (a) for lunches andsuppers, $2.14 each for free meals, $1.74 for reduced-price meals, and 20 cents for"full-price" meals; (b) for breakfasts, $1.17 for free meals, 87 cents for reduced-pricemeals, and 22 cents for full-price meals. Cash subsidies for snacks were set at 58cents for free snacks, 29 cents for reduced-price snacks, and 5 cents for full-pricesnacks. Finally, centers may receive the federal commodity assistance (about 15cents a meal) and are allowed to retain some of their federal subsidies foradministrative costs. 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 ofindividual recipients. Instead, there are two distinct annually indexed subsidy rates. "Tier I" homes (those located in lower-income areas or operated by lower-incomeproviders) receive higher cash subsidies; for July 2002 through June 2003, alllunches/suppers were subsidized at $1.80, all breakfasts were subsidized at 98 cents,and all snacks were subsidized at 53 cents. "Tier II" homes (those not located inlower-income areas or without lower-income providers) receive lower subsidies; forJuly 2002 through June 2003, all lunches/suppers were subsidized at $1.09, allbreakfasts at 37 cents, and all snacks at 14 cents. Organizations sponsoring homesreceive monthly payments for their administrative/oversight costs, which vary by thenumber of homes sponsored; and Tier II homes may seek higher Tier I rates forindividual 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 andschools) operating after-school programs to receive federal CACFP subsidies forsnacks served free in their programs to children (through age 18) in lower-incomeareas -- at the free snack rate noted above. In some cases, subsidies also are offered for suppers in after-school programs. In FY2002, 42,000 child care centers and some 2,000 adult care centers with an average daily attendance of 1.8 million persons participated, and some 165,000 daycare homes received subsidies for just under 1 million children in attendance. Note: For more information, see CRS Report RL31577, Child Nutrition and WIC Programs: Background and 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 careinstitutions (RCCIs) that choose to participate. A small subsidy also is provided for"full-price" breakfasts to non-needy children. Certain schools, designated as "severeneed" schools, receive subsidies that exceed regular subsidies. (144) State and localgovernment funds, as well as children's meal payments, also help finance the cost ofbreakfast programs, although there is no formal matching requirement. No chargemay be made for a free breakfast, but up to 30 cents may be charged for areduced-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, althoughsubsidies 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 federalsubsidies if they serve meals that meet nutrition requirements set by the U.S.Department of Agriculture based on the Dietary Guidelines for Americans, offer freeand reduced-price meals to lower-income children, and agree not to make a profit ontheir 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 whosefamily income is more than 130%, but not more than 185%, of the guidelines areeligible for a reduced-price breakfast. Annual income limits for a family of four forthe 2002-2003 school year were: for free breakfasts, $23,530; for reduced-pricebreakfasts, up to $33,485. (146) Income eligibilityguidelines are annually adjusted forinflation. In addition, most children from families receiving public assistance (e.g.,cash welfare, food stamps) can be certified eligible for free breakfasts based on theirpublic 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 federalcash reimbursement (subsidy) to participating schools and RCCIs for each breakfastserved. It establishes specific reimbursement rates for each type of breakfast served(free, reduced-price, "full-price") and mandates that they be adjusted each July forinflation. Regular cash reimbursement rates for the 2002-2003 school year were: (147) (1) $1.17 for each free breakfast, (2) 87 cents for each reduced-price breakfast, and(3) 22 cents for each full-price breakfast. In FY2002, 76% of schools in the School Lunch program (and virtually all RCCIs in the program) also operated breakfast programs. Some 71,000 schools androughly 6,000 child care institutions were in the program, with an average dailyparticipation of 8.1 million children -- 6 million received free breakfasts, 700,000ate reduced-price meals, and 1.4 million were subsidized at the full-price rate. Note: For more information, see CRS Report RL31577, Child Nutrition and WIC Programs: Background and 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 andHuman Services, Administration on Aging (HHS/AoA). The nutrition servicesprogram includes three components: congregate nutrition services; home-deliverednutrition 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/oroperating local projects. The non-federal matching share can be paid in cash orin-kind contributions. Federal funds are allotted to the states on the basis of theirshare of the U.S. total population aged 60 and over, except that the minimum stateallotment is 0.5% of the U.S. appropriation for the year. (Minimums are smaller forGuam, the Virgin Islands, American Samoa, and the Northern Mariana Islands.) States also receive funds from HHS (148) for commodities, or cash in lieu ofcommodities, to supplement Title III grant funds for congregate and home-deliveredmeals. These funds are allocated to states on a formula that is based on a state'sshare of meals served by all states under auspices of the Title III program for thepreceding fiscal year. FY2003 appropriations for the nutrition program totaled $714 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 disabilitiesunder age 60, who reside in housing facilities occupied primarily by the elderly wherecongregate nutrition services are provided, or who reside with and accompany olderpersons to meals. Eligible for home-delivered meals are persons who are homeboundby reason of illness or disability, or who are otherwise isolated. The law requires thatpreference be given to those with the "greatest" (1) economic need and (2) socialneed. The law defines group one to be persons whose income is at or below thepoverty guideline issued by HHS (the guideline issued in February 2003 was $8,980for a "family unit" of one person) and group two to be persons whose need forservices is caused by noneconomic factors (150) that restrict their ability to performnormal 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. Meanstests are prohibited. The law requires providers to offer at least one meal daily, 5 or more days per week. If the nutrition project serves one meal a day, each meal is to assure aminimum of one-third of the daily recommended dietary allowances (RDAs)established by the Food and Nutrition Board of the National Academy ofSciences-National Research Council. If the project serves more than one meal daily,nutritional requirements are higher (two-thirds of RDA for two meals, 100% forthree). Nutrition services funds also may be used to provide support services suchas 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 contributionschedules; but each participant is to decide for him/herself what, if anything, he/sheis able to pay. A service provider may not deny any older person nutrition servicesfor failure to contribute to the cost of the service. The law requires that voluntarycontributions 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 , Older Americans Act: Programs and Funding , and CRS Report RS21202 , Older Americans Act Nutrition Program . The Emergency Food Assistance Program (TEFAP) provides federally donated food commodities to states for distribution to emergency feeding organizations(EFOs), including soup kitchens and food banks, serving the homeless and otherneedy persons. Cash grants also are provided to help states and local EFOs with theadministrative costs of storing, transporting, handling, and distributing thecommodities. Commodities are allocated under a poverty-unemployment allotment formula: 60% of them are distributed based on a state's share of all persons with incomesbelow 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 shareof commodities. To cover local EFO costs, states must distribute to localities at least40% of the administrative funding which they receive. Further, they are required tomatch (in cash, or in-kind) funds that they do not pass along to local agencies. In FY2002, the value of federally donated commodities distributed under TEFAP was $306 million, and federal support for distribution and administrativecosts was $55 million -- for a total of $361 million. State agencies administering TEFAP are responsible for selecting the emergency feeding organizations that will distribute food. There are no federal criteria foragency selection except that the feeding organization must serve needy persons andhave the capacity to store and handle commodities. Emergency feeding organizationsinclude food banks and pantries, soup kitchens, hunger centers, temporary shelters,community action agencies, churches, and other nonprofit agencies offering foodassistance to the indigent and needy. By law, those eligible to receive commoditypackages must be "needy," but states set the criteria for individual eligibility forbenefits under federal regulations that require each state agency to establish uniformcriteria for determining household eligibility. The criteria must includeincome-based standards that enable each agency to ensure that TEFAP commoditiesgo only to households that are in need of food assistance because of inadequateincome. The commodities donated for this program are bought by the U.S. Department of Agriculture (USDA) with appropriated funds, purchased to reduce agriculturalsurpluses, or drawn from excess holdings of the Commodity Credit Corporationwhen available. In recent years, appropriated funds have been used to acquirebetween one-third and one-half of the commodities distributed under TEFAP; theremainder were provided from surplus purchases and Commodity Credit Corporationstocks. Benefits consist of commodities provided to states for food banks, pantries,and other feeding agencies that distribute them to individuals for at-homeconsumption, or to soup kitchens and homeless shelters and central feeding centersserving meals to the poor. Commodities are packaged in sizes appropriate forprogram use: small package sizes for at-home consumption, and larger, institutionalsizes for meal service operations. Traditionally, most commodities have gone forat-home consumption. In FY2002, USDA provided roughly three dozen types offood items such as canned and fresh fruits and vegetables and juices, beans, cannedmeats, raisins, nuts, pasta, peanut butter, dairy products, and rice. Food package sizeand value generally are the same for all recipients; there is no variation by income orfamily size. By law, TEFAP benefits may not be treated as income or resources ofa 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 servedunder summer programs for children, as well as administrative payments to programsponsors. 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 programsmust operate in areas where at least 50% of the children are from families withincomes that meet the eligibility criteria for free or reduced-price school lunches (thatis, with income at or below 185% of the annually updated federal poverty incomeguidelines: $33,485 (154) for a four-person familyin the summer of 2003). Sponsorsalso may receive federal support if at least 50% of children "enrolled" in the programmeet the above-noted income eligibility test (regardless of where they are located). Sponsorship is available to all public or private nonprofit school food authorities,local municipal or county governments, residential nonprofit summer camps, mostprivate nonprofit organizations, and colleges and universities participating in theNational 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 familyincome and may be supplemented with a small amount of federally providedcommodity assistance. The summer 2003 subsidy rates were: $2.35 for each lunchor supper, $1.35 for each breakfast, and 55 cents for each snack. Sponsoringagencies also receive funds for approved administrative costs, based on the numberof meals/snacks served and the type of sponsor (sponsors located in rural areas andthose who prepare meals on site receive higher payments). The number of subsidizedmeals/snacks served is limited to two per day. In the summer of 2002, some 3,500 summer program sponsors operating 30,000 sites provided subsidized meals/snacks to 1.9 million children in the peak month ofJuly. Note: For more information, see CRS Report RL31577, Child Nutrition and WIC Programs: Background and Funding . The Commodity Supplemental Food Program (CSFP) operates in 112 project areas in 28 states, the District of Columbia, and two Indian tribal areas; these projectsoften offer other services to program participants. The CSFP provides U.S.Department of Agriculture commodities and funds for administrative and distributioncosts to local agencies offering food packages to low-income mothers, infants, youngchildren, and elderly persons. Appropriations for the program finance purchase offood products to be used in monthly packages distributed to participants, as well asexpenses associated with this distribution (typically, about 20% of total funding); inaddition, projects can receive "bonus" commodities provided without appropriatedfunds from Agriculture Department stocks. Funding and commodities are distributedaccording to the caseload, or "slots" allocated to each project. These allocations arebased on previous participation levels of the projects. However, "expansion" fundingfor new slots or new state projects is available if added appropriations are provided. FY2002 funding (obligations) was approximately $104 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 benefitsunder a governmental program for low-income persons, (b) are determined to be atnutritional risk (if the state agency has adopted this requirement), and (c) live withinthe 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% ofthe federal poverty income guidelines (e.g., about $28,200 for a three-person familyin FY2004). More important, CSFP projects may serve elderly persons in theirservice areas whose income does not exceed 130% of the federal poverty guideline(a ceiling of about $11,700 for a single person in FY2004. The elderly make up over75% of recipients. Persons may not participate in the CSFP and the SpecialSupplemental Nutrition Program for Women, Infants, and Children (the WICprogram) at the same time; however they may participate in other nutrition programsfor 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, eggmix, fruit and vegetable juices, potatoes, canned vegetables and fruits, peanut butter,pasta, and dry beans. In FY2002, a total of 427,000 individuals (75,000 mothers, infants, and children and 352,000 elderly persons) received commodity food packages valued at $16-$20a month. The Food Distribution Program on Indian Reservations (FDPIR) is an "entitlement" program -- operated and funded under the aegis of the Food Stamp Act -- providing food packages in lieu of Food Stamp benefits. Under FDPIR, the U.S.Department of Agriculture (USDA) acquires the food commodities to be included inthe program's monthly food packages either by direct purchase (with appropriatedfunds designated for Indian food assistance) or, to a lesser degree, through itsagriculture support programs. The food acquired by the USDA is given to the 94Indian Tribal Organizations (ITOs) and six state agencies operating FDPIR projectsfor distribution to eligible households -- based on the projects' number of recipients. In addition, the federal government pays at least 75% of administrative anddistribution costs of the projects. FY2002 federal spending on this program(commodity purchases and support for administrative/distribution costs) totaled $74million. 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 aparticipating reservation, or, in the case of Oklahoma, reside within a stipulatedservice area. Eligible households not residing on a reservation must include a NativeAmerican household member. Households must meet financial needs tests:households in which all members are included in a public assistance or SSI grant arefinancially eligible for FDPIR; for non-assistance households, the income ceilinggenerally is the income standard of the food stamp program, increased by the amountof that program's standard deduction. Except for the area of residence/NativeAmerican householder requirements, eligibility rules are similar to those for the FoodStamp program. Grantee agencies are responsible for certifying recipient eligibility,providing nutrition education, transporting and storing commodities, and distributingthem to recipient households. Both food stamps and the FDPIR may be available inthe same area, as long as no individual household participates in both programsconcurrently. In FY2002, the FDPIR operated on 243 reservations (as well as anumber of designated service areas in Oklahoma), with average monthly participationof 110,000 persons. Benefits consist of monthly food packages that meet federal guidelines for nutritional adequacy. Commodities contained in the monthly food packages consistof a variety of items, including canned meats, fish, fruits, and vegetables, fruit andvegetable juices, cereals, rice, pasta, cornmeal, cheese, butter, nonfat dry milk, flour,vegetable oil, peanut butter and peanuts, corn syrup, and (in most projects) freshfruits and vegetables. In FY2002, foods valued at about $36 per person per monthwere provided under the FDPIR. Federal funding is provided to states (typically through state agriculture agencies that operate programs in cooperation with state health or social services departments)for two farmers' market nutrition programs: (1) a program for participants in (orthose on a waiting list for) the Special Supplemental Nutrition Program for Women,Infants, and Children (the WIC Farmers' Market Nutrition program ) and (2) a SeniorFarmers' Market Nutrition program . Money for the WIC Farmers' Market Nutritionprogram is provided as a set-aside from the annual appropriation for the SpecialSupplemental Nutrition Program for Women, Infants, and Children (the WICprogram) -- e.g., $25 million in FY2002. Funds for the Senior Farmers' MarketNutrition program are made available through a mandatory directive to spend $15million a year (plus any additional amounts that Congress may provide throughannual appropriations). State grants are allocated, at the U.S. Department of Agriculture's discretion, based on the needs described in their state plans, the availability of new federalfunds, and states' past use of funds, but not all states participate in these programs. In FY2003, 36 states, the District of Columbia, Guam, and Puerto Rico -- along withfive Indian Tribal Organizations -- participated in the WIC Farmers' MarketNutrition program. This program requires that states' contribute at least 30% of thetotal cost of the program (although Indian Tribal Organizations may contribute amatch of as little as 10%). In FY2003, 35 states, the District of Columbia, PuertoRico, and three Indian Tribal Organizations participated in the Senior Farmers'Market Nutrition program. This program requires no state match. Expansion of bothprograms (both to new participants and new states) depends on the availability ofadditional federal funding. Organized farmers' markets (and, in some cases, roadside farm produce stands or special community-supported nutrition projects) approved by administering stateagencies (normally state agriculture departments) are eligible to participate in the twofarmers' market nutrition programs. In FY2002, a total of just over 3,000 marketsparticipated. For the WIC Farmers' Market Nutrition program, WIC recipients (seeprogram no. 23), or those approved but waiting for WIC benefits are eligible inparticipating jurisdictions. Under the Senior Farmers' Market Nutrition program,lower-income elderly persons -- generally defined as those at least 60 years of agewho have household income of less than 185% of the federal poverty incomeguidelines -- are eligible for benefits. However, administering agencies may acceptproof of participation in a means-tested benefit program like food stamps or theSupplemental 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 redeemedfor fresh, unprepared fruits, vegetables, and herbs. Vouchers/coupons issued underthe WIC Farmers' Market Nutrition program may not have a value of more than $20per year per recipient (although participating states may increase this value usingnon-federal funds). Vouchers/coupons issued under the Senior Farmers' MarketNutrition program are not limited in value by law, although budgetary constraintstypically require that they be limited to amounts similar to those under the WICFarmers' Market Nutrition program. Nutrition education activities arranged by WICprogram operators also may be provided at farmers' market sites. The Child Nutrition Act provides 100% federal funding -- legislatively set, annually indexed subsidies -- to cover the cost of free half-pints of milk served tolow-income children by schools and residential child care institutions (RCCIs)choosing to participate in this program. Federal subsidies also are available forhalf-pints of milk served to non-needy children. In FY2002, approximately 5% ofthe half-pints of milk subsidized under this program were served free to low-incomechildren. 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 apolicy of lowering any prices charged for milk they serve to maximum extentpossible and using their federal payments to reduce the selling price of milk tochildren. In addition, individual schools and RCCIs may choose to offer free milkto low-income children. The program operates primarily in those schools andinstitutions that do not participate in the school lunch or school breakfast programs. (159) Each half-pint served is federally subsidized at a different rate, depending on whetherit is served free or not -- but provision of free milk is not required, and most childrenare 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, thechild's family's income must not exceed 130% of the federal poverty incomeguidelines (e.g., $23,530 (160) for a family of fourin the 2002-2003 school year). Non-needy children and needy children in schools/RCCIs that do not offer free milkpay an amount determined by the school or RCCI. For the 2002-2003 school year, half-pints were subsidized at 13.5 cents each (if there was a charge to the child) or the net cost to the school/RCCI, typically 1.5-2.5cents higher (if the milk was served free). In FY2002, 112 million subsidized half-pints (5% free) were served to roughly 500,000 children through over 8,000 schools and RCCIs. Note: For more information, see CRS Report RL31577, Child Nutrition andWIC Programs: Background and Funding . This program is funded 100% by the federal government. Outlays were $18.5 billion in FY2002. The Section 8 rental assistance program was authorized by the Housing and Community Development Act of 1974 ( P.L. 93-383 ). The program has twocomponents; section 8 project-based rental assistance and section 8 Housing ChoiceVouchers. The project-based rental assistance component is a set of rent subsidiesattached to housing units owned by private landlords. The vouchers are portablesubsidies that eligible households take to private landlords and use to subsidize theirhousing costs. Currently, HUD is not entering into any new contracts under theproject-based rental assistance component of Section 8 and when the existingcontracts expire, the households are given vouchers. Low-income families and single persons (162) are eligible for both forms ofsubsidies. Low-income, for the purpose of this program, is defined as income at orbelow 80% of the local area median income, adjusted for family size. Althoughlow-income households are eligible for Section 8 housing subsidies, extremelylow-income households, defined as households with incomes at or below 30% of thelocal area median income, are targeted for assistance. (163) Forty percent of availableproject-based rental assistance subsidies and 75% of vouchers must be targeted toextremely low income households. In the project-based rental assistance program,project owners maintain waiting lists and can give priority to working families. Inthe voucher program, quasi-governmental local Public Housing Authorities (PHAs)maintain waiting lists for Section 8 vouchers and can develop a set of localpreferences that can be used to prioritize the list. In determining the annual countable income of a family, various deductions are made from gross income. (164) The chief onesare $480 per dependent, $400 for anelderly family, excess medical costs for an elderly family, and costs of child care andhandicapped assistance. (165) For families withnet family assets above $5,000, federalregulations include in "income" used to decide eligibility and required rent thegreater of (a) actual income from all net family assets, or (b) a percentage of theirvalue, based on the current passbook savings rate. (166) Net family assets are definedas net cash value (after costs of disposal) of real property, savings, stocks, bonds, andother forms of investment. Not included are such "necessary items" as furniture andautomobiles. (167) In 1990, the NationalAffordable Housing Act ( P.L. 101-625 )increased the deductions from gross income for Section 8 housing and publichousing, but made the changes subject to approval in an appropriations measure. Through FY2003 no appropriation bill had provided for the larger deductions, andold deductions still applied. Section 8 recipients must recertify their incomesannually. Eligibility and rental charges are based on countable family incomeexpected 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) aminimum rent of up to $50 monthly set by the PHA. (168) Exemptions to the minimumrent levels can be made for a variety of hardship circumstances. The federalgovernment then pays the difference between contract rent and the rent paid by thetenant. The contract rent charged by the owner of Section 8 housing must be withinlimits established by a HUD survey of fair market rents (FMRs) for standard units ineach metropolitan area or non-metropolitan county of the Nation. P.L. 98-181 revoked authority to contract for additional Section 8 project-based rental assistanceunits. In FY2002, the federal government had $4 billion in budget authority for747,093 project-based rental assistance units. The average subsidy paid per unit was$5,388. Families who receive Section 8 Housing Choice Vouchers pay towards rent an amount between 30% and 40% of their adjusted income. The federal governmentpays a Housing Assistance Payment (HAP) based on the difference between apredetermined maximum payment, called a payment standard, and 30% of thehousehold's income. A payment standard is calculated by the PHA as an amountbetween 90% and 110% of FMR, or the rent charged for the unit, whichever is less. In FY2002, HUD had $11.5 billion in budget authority for vouchers, which was usedto support 1.96 million vouchers, at an average per household subsidy of $5,891. Note: For more information about Section 8 rental assistance, see CRS Report RL31930, The Housing Choice Voucher Program: Background, Funding, and Issuesin the 108th Congress . This program is funded 100% by the federal government. However, an indirect local contribution results from the difference between full local property taxes andpayments in lieu of taxes that are made by local housing authorities. FY2002 federaloutlays for public housing were $8.2 billion (including operating subsidies andcapital grants). (169) Public housing is publicly-owned housing for low-income families that is managed by local, quasi-governmental, public housing authorities (PHA). Thefederal government subsidizes the operating and capital costs of maintaining thesebuildings through regular subsidies, as well as competitive subsidies paid to PHAs. The competitive subsidies include the HOPE VI Revitalization of Distressed PublicHousing Grants, which can be used to demolish and/or revitalize troubled publichousing developments and the Public Housing Drug Elimination Program (PHDEP),which can be used to promote safety in public housing. The public housing programwas authorized by the U.S. Housing Act of 1937 (93-383), as amended. Households (171) 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 publichousing, since 1998, at least 40% of all public housing units must be occupied byextremely low-income families, defined as families with income at or below 30% ofarea median income. (172) However, PHAs aredirected not to concentrate extremelypoor 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. (173) The chief onesare: $480 per dependent, $400 for anelderly family, excess medical costs for an elderly family, and costs of child care andhandicapped assistance. (174) For families withnet family assets above $5,000, federalregulations 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. (175) Net familyassets 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 "necessaryitems" as furniture and automobiles. (176) Eligibility and rental charges are based oncountable family income expected in the 12 months following admission orrecertification. 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 8 hoursper month of community service. This requirement was established by the QualityHousing and Work Responsibility Act of 1998 (QHWRA) ( P.L. 105-276 ). It wassuspended during FY2002, but was reinstated as of August 1, 2003. Exempt fromthis rule are persons who are engaged in an educational program or work-relatedactivity, have a disability which would prohibit them from complying with therequirement or are 62 years of age or older. Those who do not comply with therequirement 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 $50monthly set by the PHA. (177) Exemptions to theminimum rent levels can be made fora variety of hardship circumstances. Under P.L. 105-276 , tenants are permitted tochoose (annually) between paying either a flat rent or an income-based rent. Thisprovision 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 beused to determine the family's portion of rental payment for 1 year. After 1 year, therental increase is phased in. The amount of subsidy paid by the federal government on behalf of the residentsof public housing is based on the difference between the cost of operating andmaintaining a public housing project and the amount collected in tenant rent. FY2002 federal outlays for public housing (including capital grants, operating subsidies, PHDEP, Hope VI, and the public housing loan fund), (178) averaged about$6,795 per unit. (179) This program is funded 100% by the federal government. Factors used to allocate loan funds: state shares of rural occupied substandard units, ruralpopulation, rural population in places of fewer than 2,500 persons, and low-incomeand very-low-income rural households. Federal obligations for direct and guaranteedloans totaled $3.5 billion in FY2002. 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 sanitaryhousing 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. (181) 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 statefinanced 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 andSection 8 housing (adjusted for family size, these limits are 80% and 50% of the areamedian, respectively). (182) The Housing and Community Development Act of 1987 ( P.L. 100-242 ) (183) directed the Farmers Home Administration (FmHA), since replaced by the RuralHousing Service (RHS), (184) to carry out a 3-yeardemonstration program under whichmoderate income borrowers (with income at or below the area median) might obtainguaranteed loans under Section 502 for the purchase of single-family homes. Theprogram was made permanent by the Cranston-Gonzalez National AffordableHousing Act ( P.L. 101-625 ). Other eligibility requirements are set by RHS. Families must have sufficient income to make mortgage payments and to pay premiums, taxes, maintenance, andother 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) forSection 8 housing and public housing. Accordingly, the chief deductions fromcountable income are $480 per year per dependent, $400 for an elderly family, excessmedical costs for an elderly family, and costs of child care and handicappedassistance. (185) RHS regulations exclude someitems by definition. (186) They alsorequire that income from net family assets be counted in calculating income foreligibility and loan repayment purposes and define net family assets to include theequity 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 itemsof personal property, assets that are part of the business, trade, or farming operations,or irrevocable trust funds. (187) 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, and regulationsspecify that a new house for six persons should not exceed 1,248 square feet. Section502 direct loans generally have a term of 33 years, but the term may be extended to38 years for borrowers with incomes below 60% of the area median. Depending onthe borrower's income, the interest rate may be subsidized to as low as 1%. In agiven fiscal year, at least 40% of the funding must be made available tovery-low-income borrowers (those with income of 50% or less of the area median). The Housing and Community Development Act of 1992 permits guaranteed loans toborrowers whose income does not exceed 115% of the area median. In FY2002, direct loans from RHS totaled $1.080 billion and provided housing for 14,727 low-income families. Private lenders made about $2.419 billion inguaranteed loans to 28,364 low- to moderate-income families. Federal funds pay 25% of costs of new construction, rehabilitation or tenant-based assistance under the Home Investment Partnerships program, which wasestablished in late 1990 by P.L. 101-625 . (188) A participating jurisdiction (local or stategovernment) pays the remaining share; it may use bond or debt financing to cover nomore than 25% of its overall matching fund requirement. However, if a jurisdictionis found in "fiscal distress," its funding share is reduced or eliminated. To receive HOME funds, a jurisdiction must submit a consolidated plan identifying its housingneeds and strategies. The formula for allocating HOME funds among states and unitsof local government (metropolitan cities, urban counties, or consortia) has six factors,three of which are poverty-related measures. Federal obligations for FY2002 totaled$1.8 billion; state/local contributions totaled $704 million. To be eligible for help from this "affordable housing" block grant program, families or individuals must meet an income test. For rental housing andtenant-based rental assistance, at least 90% of recipient families must have annualincomes that do not exceed 60% of the median family income for the area (adjustedfor family size); (190) the remaining 10% offamilies may have incomes up to 80% ofthe area median. For homebuyers, the income limit is 80% of the area median. In determining the annual countable income of a family, various deductions are made from gross income. (191) The chief onesare: $480 per dependent, $400 for anelderly family, excess medical costs for an elderly family, and costs of child care andhandicapped assistance. (192) For families withnet family assets above $5,000, federalregulations include in "income" used to decide eligibility and required rent thegreater of (a) actual income from all net family assets, or (b) a percentage of theirvalue, based on the current passbook savings rate. (193) Net family assets are definedas net cash value (after costs of disposal) of real property, savings, stocks, bonds, andother forms of investment. Not included are such "necessary items" as furniture andautomobiles. (194) The goal of HOME is to increase the supply of affordable housing, especially of rental housing, for very low-income and low-income Americans (amendments in1992 added elder cottage housing opportunity (ECHO) units to the program). Themaximum rental subsidy payable under HOME is the difference between the rentstandard 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 theextremely low-income families generally exceed 30% of income unless they receiveadditional tenant-based rental assistance. Over the course of the program, as of September 30, 2002, about $6.3 billion in HOME funds and $19.2 billion in other public (and some private) funds hadassisted 687,274 housing units and provided tenant-based assistance to 83,939families. In the projects completed through the end of FY2002, 97% of the tenantsreceiving rental assistance, 81.5% of the tenants in assisted rental housing, 68.8% ofthe residents of repaired homes, and 29.4% of the assisted homebuyers, had incomesof 50% or less of the area median income. Note: This program was inadvertently omitted from previous editions of this report. Program outlays for FY1996 through FY2002 (195) have been added to historical tablesin this edition. This program is funded 100% by the federal government. Outlays were $895 million in FY2002. The Department of Housing and Urban Development's (HUD) Housing for Special Populations program is actually two programs: Section 202 SupportiveHousing for the Elderly and Section 811 Supportive Housing for the Disabled. (197) Both programs provide capital advances to finance the construction, rehabilitationor acquisition of structures that will serve as supportive housing for low-incomeelderly and/or disabled households. The capital advance is interest-free and can beforgiven as long as the property remains available for very low-income elderly ordisabled households for at least 40 years. The capital advances are paired with rentalassistance, similar to Section 8 rental assistance. Each year, up to 25% of Section811 funds provided by Congress are used to provide Section 8 Housing ChoiceVouchers to persons with disabilities to allow them to search for units in the privatemarket. Both programs (198) restrict eligibility to households with income at or below 50%of the local area median income, adjusted for family size. (199) In determining theannual countable income of a family, various deductions are made from grossincome. (200) The chief ones are: $480 perdependent, $400 for an elderly family,excess medical costs for an elderly family, and costs of child care and handicappedassistance. (201) For families with net familyassets above $5,000, federal regulationsinclude 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 onthe current passbook savings rate. (202) Netfamily assets are defined as net cash value(after costs of disposal) of real property, savings, stocks, bonds, and other forms ofinvestment. Not included are such "necessary items" as furniture and automobiles. (203) Like in most HUD housing assistance programs, residents of Section 202 and Section 811 properties must recertify their incomes annually. Eligibility and rentalcharges are based on countable family income expected in the 12 months followingthe 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 ofinitial occupancy. In order to live in a Section 811 property, a household must haveat least one member who has a disability, such as a physical or developmentaldisability, 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. (204) Minimumrents can be set as high as $50, however, exemptions to the minimum rent levels canbe made for a variety of hardship circumstances. The benefit level paid by thefederal government to the landlord is equal to the difference between the contract rentfor the unit and the amount of rent paid by the tenant. The contract rent must bewithin limits established by a HUD survey of fair market rents for standard units ineach metropolitan area or non-metropolitan area of the Nation. In FY2002, the federal government spent $672 million for the Section 202 program and $223 million for the Section 811 program. In 2002, these programssupported 62,694 Section 202 units and 18,649 Section 811 units. This program is funded 100% by the federal government. Factors used to allocate funds: state shares of rural population, rural housing units lacking plumbingand/or overcrowded, and poor persons living in rural areas. Federal obligations forthis program totaled $705 million in FY2002. Since 1974 the Farmers Home Administration (FmHA) and its successor, the Rural Housing Service (RHS) (206) have beenauthorized to make rental assistancepayments to owners of RHS-financed rural rental housing (Section 515) and farmlabor housing (Sections 514 and 516) to enable them to reduce rents charged toeligible tenants. Eligible tenants must have adjusted family income that does notexceed the very-low-income limit established for the area by the Department ofHousing and Urban Development (HUD) -- 50% of the area median, adjusted forfamily size. (207) Owners must agree to operatethe property on a limited profit ornonprofit basis. The term of the rental assistance agreement is 20 years for newconstruction projects and 5 years for existing projects. Agreements may be renewedfor up to 5 years. An eligible owner who does not participate in the program may bepetitioned 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 rentfor the units. Originally, tenants in the program paid no more than 25% of theirincome in rent. (208) Amendments in the 1983Housing Act provide that rent paymentsof eligible families are to equal the highest of (1) 30% of monthly adjusted familyincome, (2) 10% of monthly income, or (3) for welfare recipients, the portion of afamily's welfare payment, if any, that is designated for housing costs. (209) In FY2002, this program provided assistance to about 44,298 families (in rental assistance renewal contracts and aid for newly constructed units). This program is funded 100% by the federal government. Outlays in FY2002 totaled $579 million. Authorized by the Housing and Community Development Act of 1974 ( P.L. 93-383 ), the Section 236 Interest Reduction Payments (IRP) program providesmortgage subsidies to owners of multifamily properties who agree to keep theproperty available to low-income families for a specified number of years. Section236 subsidized units often also receive some form of rent subsidy, such as Section8 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 opento families and to single persons without regard to age, except in units alsosubsidized 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 incomes, all earnings of minorchildren living at home, plus $300 for each child. For tenants admitted afterDecember 21, 1979, P.L. 96-153 provided that income should be defined inaccordance with procedures and deductions permissible under the Section 8 program. That program excludes some items (including earnings of children, lump-sumpayments, and payments for foster care) from "income" by definition. It also deducts some items from income. The chief ones are $480 per dependent, $400 foran elderly family, excess medical costs for an elderly family, and costs of child careand handicapped assistance. (211) Incomerecertification 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 mortgagebearing a 1% interest rate. The Department of Housing and Urban Development(HUD) makes payments to a mortgagee to reduce the effective interest rate to theproject to 1%. A fair market rental charge is established for each unit based on costsof 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 equalto 30% of "adjusted gross income," (212) (countable housing income, as defined above),whichever is greater, but not more than the market rent. However, 20% of tenantswho cannot afford the basic rent are to be provided additional help to lower theirrental payment to 30% of income. (213) Further,elderly and handicapped familiespaying more than 50% of their income for rent can receive Section 8 assistance. (214) In FY2002, benefits averaged $1,833 per dwelling unit, $153 monthly. These subsidies were paid on behalf on families in 315,976 units. (215) This program is 100% federally funded. Ninety percent of appropriated funds are distributed by formula, (217) and 10% bycompetitive awards. Three-fourths offormula grants are made to cities (for metropolitan statistical areas with a populationof more than 500,000 and more than 1,500 AIDS cases) and to eligible states (withmore than 1,500 AIDS cases in areas outside of MSAs eligible for HOPWA grantsthrough a city). Remaining formula funds are allocated among cities (in metropolitanstatistical areas with a population greater than 500,000 and more than 1,500 AIDScases) that had a higher than average per capita incidence of AIDS during the yearprevious to the appropriation year. (218) Theminimum formula grant is $200,000. Thenumber of jurisdictions that qualify for a formula allocation has been growing, from97 in 1999 to a projected 114 in 2004. Competitive awards are made for projectsproposed by states and local governments for areas not included in formulaallocations. Competitive grants also are available for projects of nationalsignificance proposed by nonprofit entities. HOPWA outlays for FY2002 were $314million. 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 whoseincome does not exceed 80% of the local area median income, adjusted for familysize. (219) However, the law authorizes theSecretary of Housing and UrbanDevelopment (HUD) to alter the income ceiling for an area if this is found necessarybecause of prevailing levels of construction costs or unusually high or low familyincomes. The program offers information about housing to all persons with AIDSregardless of income. According to a 2002 survey of providers, more than half of households served by HOPWA have extremely low incomes, below 30% of the area median. (220) HOPWA funds may be used for numerous benefits and services, including housing information services; acquisition, rehabilitation, conversion, lease, and repairof facilities to provide housing and services; new construction (for single roomoccupancy (SRO) dwellings and community residences only); project- ortenant-based rental assistance, including assistance for shared housing arrangements;short-term rent, mortgage, and utility payments to prevent homelessness; supportiveservices such as health and mental health services, drug and alcohol abuse treatmentand counseling, day care, nutritional services, intensive care when required, aid ingaining access to other public benefits; operating costs; and technical assistance inestablishing and operating a community residence. HUD data show that in FY2002, 68,000 households received housing assistance through HOPWA. HUD has projected that in FY2003, 73,000 households willreceive assistance through HOPWA. Note: For more details about HOPWA, see CRS Report RS20704, Housing Opportunities for People with AIDS (HOPWA) . This program is funded 100% by the federal government. Factors used to allocate funds state shares of: rural population, rural housing units lacking plumbingand/or overcrowded, and poor persons living in rural areas. Federal obligations forthis program totaled $114 million in FY2002. (221) 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 ordisabled persons or those aged at least 62. The law requires that at least 40% ofSection 515 units nationwide and 30% of units in each state be occupied by"very-low-income" families or persons. Moreover, the Housing and CommunityDevelopment Act of 1987 restricts occupancy of Section 515 housing units, ifconstructed with help of low-income housing tax credits, to families whose incomesare within the limits established for the tax credits. (223) However, this restriction doesnot apply if the Rural Housing Service (RHS) (224) finds that units have been vacant forat least 6 months and that their continued vacancy threatens the project's financialviability. The law (225) defines "low-income" and "very-low-income" families as thosewhose incomes do not exceed limits established by the Department of Housing andUrban Development (HUD) for such families in public housing and Section 8housing (that is, up to 80% or 50% of area median income, respectively, adjusted forfamily size). (226) Federal regulations issued October 1, 1985, provide that the moderate-incomelimits are $5,500 above the low-income ceilings (unless the moderate income limitin 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 theunits for amounts within the payment ability of eligible tenants, and must havesufficient initial capital to make loan payments and meet costs. Applicants mustconduct market surveys to determine the number of eligible occupants in the areawho are willing and financially able to occupy the housing at the proposed rentlevels. 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. Purchaseloans 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 FY2002, Section 515 loans financed housing for about 7,284 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 ruralhouseholds. For grants, a third factor is added: rural population aged at least 62.Federal obligations for this program totaled $57.8 million in FY2002. 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 termselsewhere. The program uses the very-low-income limits established by theDepartment of Housing and Urban Development (HUD) for the area. (228) Income ofborrowers must be insufficient to qualify for a Section 502 loan, but adequate,including any "welfare-type" payments, to repay a Section 504 loan, as determinedby the Rural Housing Service (RHS). The law (229) provides that farm housingprograms are to use the income definition of the Section 8 (and public housing)programs (See program no. 33). Grants are made to elderly homeowners at least age62 (230) whose annual income prevents any loanrepayment. Loans are limited to $20,000 and have a 20-year term at a 1% interest rate. (231) Owners who are at least age 62 may qualify for grants of up to $7,500. Dependingon repair costs and the homeowner's income, the owner may be eligible for a grantfor the full cost of repairs or for some combination of a loan and a grant, not toexceed $20,000. In FY2002, $31.8 million in loans repaired 55,615 homes. A totalof about $30.6 million in grants was used for the repair of 6,170 homes owned by theelderly. 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 RHSnational office and are available as determined administratively. Federal obligationsfor these loans and grants totaled $61.7 million in FY2002. Individual farm owners, associations of farmers, local broad-based nonprofit organizations, federally recognized Indian tribes, and agencies or politicalsubdivisions of local or state governments may be eligible for loans at a very lowinterest rate from the Rural Housing Service (RHS), (233) successor to the FarmersHome Administration (FmHA), to provide low-rent housing and related facilities fordomestic farm labor. Applicants must show that the farming operations have ademonstrated need for farm labor housing, must agree to operate the property on anonprofit basis, and must be unable to obtain credit on terms that would enable themto provide housing to farm workers at rental rates that would be affordable to theworkers. Except for state and local public agencies or political subdivisions,applicants must be unable to provide the housing from their own resources andunable to obtain the credit from other sources on terms and conditions that they couldreasonably 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 stateor local body or nonprofit organization that, within a reasonable period of time, iswilling 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 willbe sufficient to pay operating expenses, make capital improvements, make paymentson 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 farmlabor if there is a "pressing need" in the area for the housing and there is reasonabledoubt that it can be provided without the grant. Applicants must contribute at least10% 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 asubstantial portion of their income from the production or handling of agricultural oraquacultural products. (234) They must be U.S.citizens or legally admitted forpermanent residence in the United States. The term includes retired or disabledpersons 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 thefollowing order of priority: (1) active farm laborers, (2) retired or disabled farmlaborers who were active at the time of retiring or becoming disabled, and (3) otherretired 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 andimprove the land upon which the housing will be located. The funds may be used toinstall streets, water supply and waste disposal systems, parking areas, anddriveways, as well as to buy and install appliances such as ranges, refrigerators,washing machines, and dryers. Related facilities may include the maintenanceworkshop, recreation center, small infirmary, laundry room, day care center, andoffice 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 theproject, or (2) the difference between the development costs and the sum of (a) theamount available from the applicant's own resources and (b) the maximum loan theapplicant can repay given the maximum rent that is affordable to the target tenants. In FY2002, $47.3 million in loans and $14.5 million in grants financed the development of 1,870 housing units for farm workers and their families. This program is funded 100% by the federal government. Outlays totaled $54 million in FY2002. 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 inprivately-owned housing or housing developed under HUD's Section 236 program. Income eligibility for new (236) recipients of rentsupplements is based on eligibility forSection 8 rental assistance and is therefore limited to low income families, definedas families whose incomes are 80% or less of the area median income, adjusted forfamily size. (237) Included in the definition ofincome are earnings from total assetsgreater than $5,000. Income recertification is required annually. Preference foravailable rent supplements is given to households who live in substandard housing,are involuntarily displaced, or are paying more than 50% of income for rent. Before 1979, families were eligible if they were: aged 62 or over or handicapped; displaced by governmental action or natural disaster; occupants ofsubstandard 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 themarket 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 FY2002, 18,600 units received subsidies, which averaged about $2,900 (238) perunit. No new commitments have been entered into under this program since 1973. Current spending under the program is only for the 18,600 contracts that have not yetexpired. 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 RHSnational office and are available as determined administratively. Federal obligationsfor these grants and loans totaled $27 million in FY2002. States, political subdivisions, public nonprofit corporations (including Indian tribes and tribal corporations), and private nonprofit corporations (240) may receiveTechnical Assistance (TA) grants from the Rural Housing Service (RHS), successorto the Farmers Home Administration (FmHA). (241) The TA grants are used to pay allor part of the cost of developing, administering, and coordinating programs oftechnical and supervisory assistance to families that are building their homes by themutual self-help method. This is the method whereby families, organized in groupsof 6 or 10 families, use their own labor to reduce construction costs. Each family isexpected to contribute labor on group member's houses to accomplish 65% of thetasks specified by RHS. (242) 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 responsibilitiesunder the program, and (3) funds for the proposed TA project are not available fromother 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. (243) 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 beeligible for 2-year site loans under Section 523 or Section 524. Private nonprofitorganizations must have a membership of at least 10 community leaders. The siteloans may be used to buy and develop rural land, which then is subdivided intobuilding 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 sitesneed 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 norestrictions on construction methods. Houses built on either kind of subsidized siteusually are financed through the Section 502 rural housing loan program (seeprogram no. 35). 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 nationaloffice for larger grants. Applicants must demonstrate that the self-help method willresult 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 administrativeexpenses, buying and maintaining specialty and power tools (participating familiesare expected to have their own basic hand tools), and paying for technical andconsultant services that are not readily available without cost to the participatingfamilies. 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 anddevelop sites. Funds may be used to construct access roads and utility lines, providewater and waste disposal facilities if such facilities cannot reasonably be provided ona community basis with other financing, and to provide landscaping, sidewalks,parking areas, and driveways. Common areas such as playgrounds and "tot lots" maybe funded if they are legally required as a condition of subdivision approval. In FY2002, organizations received $26.5 million in mutual and self-help housing grants, and $0.5 million in site development loans. No self-help site loanswere made in FY2002. The count of families receiving assistance is reported underthe Section 502 program. This program is funded 100% by the federal government. Federal obligations for this program totaled $19.6 million in FY2002. Applicants must meet the following requirements: (1) they must be members of a federally recognized American Indian Tribe or Alaska Native Village (2) theymust live in an approved tribal service area, (3) their annual income may not exceed125% of the poverty income guidelines of the Department of Health and HumanServices, (245) (4) their present housing must besubstandard, (5) they must meet theownership requirements for the assistance needed, (6) they must have no otherresource for housing assistance, (7) they have not received assistance after October1, 1986, for repairs and renovation, replacement of housing, or down paymentassistance, and (8) they did not acquire their present housing through participationin 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 incomeas 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 thedisability; 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 isadministered 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 livableuntil standard housing is available. The condition of the housing must be such thatit is not cost effective to renovate the property. These grants are limited to $2,500per 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 anyone dwelling and the grants may be made to homeowners or renters. Occupants ofrental 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 ifthe house is sold within 5 years of completion of repairs, and that the applicants willrepay 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) whoown or lease land that is suitable for housing and the land has adequate ingress andegress rights. The grants are used to provide modest replacement housing. Applicants who lease houses or land must have an undivided leasehold and theleasehold must last at least 25 years from the date that assistance is received. If thehome is sold within 10 years, the full amount of the grant must be repaid. For eachyear after the 10th year, the grantee may retain 10% of the original grant amount andrefund the remainder if the home is sold. If the home is sold after 20 years, the grantdoes not have to be repaid. In FY2002, HIP grants assisted 572 families by providing for the renovation of 389 homes, and the construction of 183 homes. Note: P.L. 100-242 (Section 401(d)(1)) terminated authority to make additionalSection 235 commitments, effective October 1, 1989. This program is funded 100% by the federal government. Federal outlays for this program totaled $11 million in FY2002. 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 forSection 235 assistance. The HUD regulations exclude from "income" for thepurposes of determining eligibility and subsidy levels 5% of gross income, allearnings of minor children living at home, plus $300 for each such child. (248) Alsoexcluded is unusual income or property income that does not occur regularly or otherincome 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 orafter October 17, 1975, condominium units that have never been occupied, or familyunits (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 aninsured market rate home mortgage to as low as 4%. The borrower must be able topay toward his mortgage payments at least 20% (249) of his or her "adjusted grossincome" (countable housing income, as defined above). Mortgage amounts forcommitments made after July 13, 1981, are limited to $40,000 for single-family andcondominium units with three bedrooms or less, and $47,500 for units with four ormore 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 handicappedperson, if the larger mortgage is needed to make the dwelling accessible and usableto 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 1year. The law provides that the amount recaptured shall be equal to the assistanceactually received or at least 50% of the net appreciation in the value of the property,whichever is less. (250) Benefits averaged about $828 per dwelling unit in FY2002, about $69 monthly. (251) Approximately 13,000 dwellingunits received assistance in FY2002. This program is funded 100% by the federal government. Grantees are encouraged, however, to leverage the grants with funds from local, state, or othersources. Factors used to allocate funds: state shares of rural population, ruraloccupied substandard units, and rural poor families. Federal obligations for thisprogram totaled $8.6 million in FY2002. States, local governments, nonprofit corporations, and Indian tribes, bands, or nations may be eligible to receive grants to operate programs that finance the repairand 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 dollarlimits established by the Department of Housing and Urban Development (HUD) forthe area. (253) Grant applicants must have a staffor governing body with either (1)proven ability to perform responsibly in the field of low-income rural housingdevelopment, repair, and rehabilitation; or (2) management or administrativeexperience that indicates the ability to operate a program offering funds for housingrepair 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 haveoccupied the property for at least 1 year. Occupants of leased homes may be eligiblefor assistance if (1) the unexpired portion of the lease extends for 5 years or more,and (2) the lease permits the occupant to make modifications to the structure andprecludes the owner from increasing the rent because of the modifications. The Rural Housing Service (RHS), (254) successor to the Farmers HomeAdministration (FmHA), is authorized to provide grants to eligible public and privateorganizations. The grantees may in turn provide homeowners with direct loans,grants, or interest rate reductions on loans from private lenders to finance the repairor rehabilitation of their homes. Many housing preservation activities are authorized: (1) installation and/or repair of sanitary water and waste disposal systems to meetlocal health department requirements; (2) installation of energy conservationmaterials, such as insulation and storm windows and doors; (3) repair or replacementof the heating system; (4) repair of the electrical wiring system; (5) repair ofstructural supports and foundations; (6) repair or replacement of the roof; (7) repairof deteriorated siding, porches, or stoops; (8) alteration of the interior to providegreater accessibility for any handicapped member of the family, and (9) additions tothe property that are necessary to alleviate overcrowding or to remove health hazardsto the occupants. Repairs to manufactured homes or mobile homes are authorizedif (1) the recipient owns the home and site and has occupied the home on that site forat least 1 year, and (2) the home is on a permanent foundation or will be put on apermanent 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 contributeto the health, safety, or well-being of the occupants; or materially contribute to thelong-term preservation of the unit. These improvements may include painting,paneling, carpeting, air conditioning, landscaping, and improving closets or kitchencabinets. The Section 533 program was authorized in 1983, and regulations for the program were published in 1986. (255) The RHSis authorized to make Section 533grants also for rehabilitation of rental and cooperative housing. Regulations toimplement these grants were issued in spring 1993, (256) even though Congress haddirected this action much earlier. (257) Fundingfor this part of the Section 533 programbecame available in FY1994. In FY2002, rural housing preservation grants financed home repairs for 2,133 families. The Homeownership and Opportunity for People Everywhere programs (HOPE 1, 2, and 3) were established in 1990 (258) to helplow-income, first-time homebuyerspurchase housing owned by federal, state, and local governments. Grants wereawarded through FY1996 on a competitive basis to nonprofit organizations, residentmanagement corporations, cooperative associations, public housing authorities, orother bodies who, in turn, carry out the economic development and homeownershipgoals. Regulations required recipients of HOPE 3 implementation grants tocontribute $1 in matching money for each $4 in federal funds awarded (for amountsgranted before April 11, 1994, the required match was higher, 33%). While there hasbeen no new funding of HOPE 1, 2, and 3 programs since FY1996 and no new grantsare being made, some money already committed and in the pipeline continues to bespent. According to figures from the Office of Management and Budget, federaloutlays from current balances were $25 million in FY2000, $21 million in FY2001and $3 million in FY2002. HOPE grantees have included Habitat for Humanity,Catholic Charities, Volunteers of America, and the Enterprise Foundation. 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 HUDassisted housing, or have an income that does not exceed 80% of the median incomefor 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 renovatedunits to tenants and other qualifying households. HOPE 2 authorizes grants for thesale of multifamily properties that are insured by the Department of Housing andUrban Development (HUD) or are owned by the government, and for funds for smallbusiness startups and other economic development activities. HOPE 3 providesfunds for the purchase of single-family homes held or insured by federal, state, orlocal governments. Many of the HOPE 3 properties sold were homes held by theResolution Trust Corporation, dating to the "Savings & Loan crisis." Purchasers were expected to buy fully renovated units at significant discountsfrom appraised values. There has been almost no information available on programactivity in the last few years on HOPE 1, 2, or 3. 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 approvedthe sale of more than 4,700 public housing units since 1993. However, moving fromthe planning stage to actual sale of units can take as many as 10 years. In manycases, grantees are devoting a portion of the grant to support resident organizations,counseling, and training of residents, and other neighborhood economic developmentactivities. HOPE 1 Implementation Grants of $82.4 million were made for 30 grants during FY1992 and FY1994. In a FY2000 HUD status report, information wasavailable on only about one-third of the applicants approved. Of grantees receiving$8.2 million, approximately $4.6 million remained unspent. A number of projectsare in the process of being shut down, with grants being terminated, and money beingreturned. For example, in FY1994, a grant of $1.67 million was made to the housingauthority of Hartford, Connecticut. A grant was approved for the sale of 60 units. HUD says that its field office proposed to terminate the grant as of June 30, 2000 forfailure to execute. A total of $278,000 has been spent, but no information isavailable on whether any units have been sold. An example is from the housingauthority in Kern County, California. An implementation grant of $4.5 million wasmade in FY1994 for the sale of 168 units of public housing. As of FY2000, therewas a remaining balance of $1.9 million, although no information is available on howmany units may have been sold. It appears from previous reports that at least 261HOPE 1 grants totaling $113 million have been made, but again, no aggregateinformation is available on how many units have been sold. Under HOPE 2, grants of about $75 million were made through FY1996. No further information has been made available from HUD. 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 acquiredunder HOPE 3 and 1,234 transferred to new buyers. (260) Under the Clinton Administration, there was a move away from the sale of multifamily units, with a shifting emphasis to the sale of both publicly and privatelyowned, scattered-site, single-family homes. In the last few years there has been aphasing down of specialized programs like HOPE 1, 2, and 3. This reflects a policyof "empowering local communities" by giving them the flexibility to developinnovative strategies to meet their local housing and community development needs. For example, currently, HUD's Federal Housing Administration (FHA) sellsHUD-owned single-family homes to approved non-profits at discounts under its"Direct Sales" program. These homes are usually resold to low- andmoderate-income homebuyers in coordinated efforts with local governments andother federal programs to stabilize and revitalize certain neighborhoods. Other HUDowned homes are sold at 50% discounts under FHA's Officer Next Door andTeacher Next Door programs. For detailed information about government-assistedhome buying, see HUD's homebuyer site at [http//www.hud.gov/buyhome.html]. 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 the 2001-2002 school year were $11.4 billion. Pell Grants, originally called "Basic Educational Opportunity Grants," are available to undergraduate students enrolled in an eligible institution ofpostsecondary education who meet a needs test, the elements of which are prescribedin the Higher Education Act (Part F of Title IV). Grantees must meet general studentaid eligibility requirements including maintaining satisfactory progress in their courseof study, not be in default on a federally assisted student loan, not owe a refund ona Pell Grant or Supplemental Educational Opportunity Grant, and register for theSelective 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 andhis/her family might reasonably be expected to contribute toward total costs forpostsecondary education (the expected family contribution or EFC). For a dependent (262) student, the expectedfamily contribution is based on the student's andhis or her parents' income and assets. For an independent (263) student, the expectedcontribution is based on the income and assets of the student, if single, and studentand spouse, if married. Included as income are welfare benefits, including TANFpayments, child support, the earned income tax credit, untaxed Social Securitybenefits, and some other untaxed income and benefits. On May 30, 2003, the Department of Education announced updates to the need analysis tables for the 2004-2005 award year. (264) The announcement providedinflation-adjusted updates to four tables used in calculating the expected familycontribution: the income protection allowance, the adjusted net worth of a businessor farm, the education savings and asset protection allowance, and the assessmentschedules and rates. The Department publishes an annual booklet explaining theExpected Family Contribution (EFC) formula. (265) In FY1999, more than 90% of Pell Grant recipients considered to be dependent students had total parental income below $40,000. Among independent studentgrantees, more than 90% had total income below $30,000. (266) Pell Grant awards to students are the lesser of: (1) a statutorily established maximum award ($4,050 for FY2003), minus the expected family contribution (seeexplanation under Eligibility Requirements ); or (2) the cost of attendance minus theexpected family contribution. For the academic year 2001-2002, an estimated 4.8 million students received Pell Grants averaging $2,411. The Higher Education Act forbids AFDC (or its successor, TANF), food stamps, and any other governmental program that receives federal funds from taking Pellgrants (or other student aid provided under the act) into account when determiningeligibility 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 CRSReport IB10097, 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 (268) but awarded directlyto local Head Start agencies. Federal assistance for a Head Start program is limitedto 80% of program costs, but the law permits a larger share if the Secretary of HHSdetermines this to be necessary for Head Start's purposes. Federal regulations permita higher federal share for a Head Start agency that is located in a relatively poorcounty (269) or one that has been "involved" ina major disaster if the Secretary findsthat 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 budgetperiod within FY1973 or FY1974, it is entitled by regulation to continue to receivethe larger share. The non-federal share may be paid in cash or in kind. It may bepaid by the Head Start agency or by another party. A Head Start agency is a localpublic or private nonprofit or for profit organization designated to operate a HeadStart program. FY2003 appropriations for Head Start were $6.7 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, (271) definedas families with incomes below the "official poverty line," and including childrenfrom families receiving public assistance and children in foster care. In addition, atleast 10% of total Head Start enrollment opportunities in each program must be madeavailable for handicapped children In 2003, federal poverty income guidelines were$15,260 for a family of three and $18,400 for a family of four for the 48 contiguousstates and the District of Columbia. Head Start does not have asset rules restrictingeligibility. 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 incomeguidelines. To qualify for this authority, communities must have a population nogreater than 1,000, be medically underserved, and lack other preschool programs ormedical services within a reasonable distance. Head Start provides comprehensive services to preschool children. Services include educational, dental, medical, nutritional, and social services to children andtheir families. Head Start agencies are forbidden by law from charging fees, althoughfamilies who want to pay for services may voluntarily do so. Note: For further information about Head Start, see CRS Report RL30952 , Head Start Issues in the 108th Congress. 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. (272) Capital for FFEL Staffordloans is provided by banks and otherprivate lenders. Capital for Stafford/Ford loans is provided directly by the federalgovernment. In the FFEL program the federal government pays the student's interestduring certain periods, and provides interest subsidies to lenders, and federalreinsurance against borrower default, death, disability, and bankruptcy. In the Forddirect loan program, the government forgoes student interest payments during certainperiods. These subsidized loan programs are authorized by Title IV of the HigherEducation Act of 1965, as amended. Estimated net obligations for FY2002 were $7.5billion. 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 toindividuals 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 andhis or her family's income and assets to determine the amount the student and familycan reasonably be expected to contribute. This amount is subtracted from thestudent's cost of attendance to determine the amount of a subsidized loan for whichthe student is eligible. On May 30, 2003, the Department of Education announcedupdates to the need analysis tables for the 2004-2005 award year. (274) Theannouncement provided inflation-adjusted updates to four tables used in calculatingthe expected family contribution: the income protection allowance, the adjusted networth of a business or farm, the education savings and asset protection allowance,and the assessment schedules and rates. The Department publishes an annual bookletexplaining the Expected Family Contribution (EFC) formula. (275) Undergraduatestudents must receive a determination of whether they are eligible for a Pell Grantbefore applying for a subsidized loan. This rule is to assure that eligible studentsreceive 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 bondequivalent rate of the 91-day Treasury bill plus a premium which differs dependingon 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-dayTreasury 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 topass 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 3 years of study; for graduate andprofessional school students, the limit is $10,500 per year for up to 5 years of school. The aggregate loan limit for undergraduate, graduate and professional study is$65,500. In FY2002, subsidized FFEL Stafford and DL Stafford/Ford loan disbursements totaled over $30.1 billion. The main components of FFEL annual federal expenditures are the in-school, grace period and deferment interest payments tolenders on behalf of borrowers of subsidized loans, special allowance payments tolenders, and reimbursements to guaranty agencies for losses due to borrower defaults;guaranty agencies also receive allowances from the federal government foradministrative expenses. In the DL program, the main components of annual federalcosts are the foregone interest payments for subsidized loans while students are inschool, during the grace period and deferments; defaults; and administrative costs ofcontracts for loan origination, servicing and collections, and fees to schools whoperform origination functions themselves. In both programs, there are also certainannual revenues that offset some of these costs, including fees that students orparents pay when borrowing, and collections on defaulted loans. In FFEL, otheroffsets include fees that are assessed on lenders/loan holders, and guaranty agencies. Net federal obligations for FY2002 were an estimated $4.9 billion. Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues ; CRS Report RL30655, Federal StudentLoans: Terms and Conditions for Borrowers ; and CRS Report, RL30656, TheAdministration 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 professionalstudents in eligible institutions of post-secondary education who need earnings toattend. Students may work on-campus or off-campus for a public or privatenonprofit or a private for-profit organization. Since October 1, 1993, institutionshave 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%. (277) Federal grants to institutions fund 50% to 75% of the student's wages; the remainingpercentage is paid by the post-secondary institution or other employer. Funds areallocated to institutions first on the basis of their FY1985 award and then inproportion to aggregate need. (278) FY2002appropriations were $1 billion. The law authorizes federally subsidized wages for students who are enrolled in a post-secondary program, including proprietary institutions, who demonstratefinancial need, as determined by the statutory need analysis system set forth in PartF of Title IV of the Higher Education Act. This system calculates an expected familycontribution. (280) Five percent of an institution'sFWS funds must be used for studentswho are enrolled on a less than full-time basis if the total financial need of thesestudents exceeds 5% of the need of all students attending the institution. A student's earnings under the FWS program (282) are limited to his or her need,and the rate of compensation must at least equal the minimum wage. Theinstitution's share of compensation may be provided to the student through tuitionpayments, room and board, or books. During the academic year 2002-2003, an estimated 1,073,000 students received FWS-supported earnings averaging $1,252. The Higher Education Act forbids AFDC (or its successor, TANF), food stamps, and any other governmental program that receives federal funds from taking studentaid provided under the Act into account when determining eligibility for benefits, orthe amount of benefits. Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues and CRS Report RL31618 , Campus-BasedStudent Financial Aid Programs Under the Higher Education Act . Note: The federal TRIO programs consist of six programs authorized by TitleIV of the Higher Education Act of 1965, as amended: Upward Bound, StudentSupport Services, Talent Search, Educational Opportunity Centers, Ronald E.McNair Postbaccalaureate Achievement, and Staff Development. The first threewere the original "TRIO" programs. The Staff Development activities provideshort-term training for TRIO program staff; they are not described below. FY2002appropriations were $827 million. These are categorical grant programs. They are 100% federally funded. In addition, institutions conducting Student Support Services programs must provideassurances that each participating student will be offered aid sufficient to meet hisor 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" appliesin these programs. The authorizing statute for the TRIO programs defines alow-income individual as one whose family's taxable income in the preceding yeardid not exceed 150% of the "poverty level" as determined under Bureau of theCensus criteria. For the school year 2002-2003, the taxable income limits for three-and four-person families were $22,890 and $27,600, respectively (higher in Alaskaand Hawaii). (284) The program descriptionsbelow are drawn from the authorizingstatute and program regulations. Upward Bound. (285) Not fewer thantwo-thirds of the participants in any project must be low-income, potential firstgeneration college goers. The remaining one-third must be either low-income or potential first generation college goers. All participants must need academic supportin order to successfully pursue an education beyond high school. With certainexceptions, participants must have completed grade 8 but not entered grade 12, andbe 13 to 19 years of age. For veterans there is no age limit. Student Support Services. (286) Notfewer than two-thirds of program beneficiaries must be either disabled, orlow-income first generation college goers. The remaining participants must bedisabled, or low-income, or first generation college goers. All participants must needacademic support in order to successfully pursue a post-secondary educationprogram. Talent Search. (287) Not fewer thantwo-thirds of program beneficiaries must be low-income, potential first generationcollege goers. The program requires that all participants must have completed thefifth grade or be at least 11 years of age, but generally not older than 27. (Forveterans there is no age limit.) Educational Opportunity Centers. (288) Not fewer thantwo-thirds of the beneficiaries served byeach center must be low-income, potential first generation college goers. In general,participants must be at least 19 years of age. Ronald E. McNair Postbaccalaureate Achievement. (289) This program wasauthorized in 1986 to assiststudents in gaining admission to graduate programs. At least two-thirds of theparticipants must be low-income, first generation college students. The remainingparticipants 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 necessaryfor education beyond high school; personal counseling; academic counseling;tutoring; exposure to cultural events and academic programs; and activitiesacquainting 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 highschool 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 toparticipants in filling out college applications and financial aid request forms, andtutoring and counseling. McNair Postbaccalaureate Achievement provides services such as summer internships, tutoring, counseling, and research opportunities. In FY2002, an estimated 865,434 participants were served in the TRIO programs, as follows: Upward Bound -- 56,324; Student Support Services -- 198,046; Talent Search -- 389,454; Educational Opportunity Centers -- 217,836;and Ronald McNair Achievement Program --3,774 Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues and CRS Report RL31622 , TRIO and GEARUP 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 theinstitution's own resources. Funds are allocated to institutions first on the basis oftheir FY1985 award and then in proportion to aggregate need. FY2002appropriations were $760 million. The Higher Education Act of 1965, as amended, authorizes supplemental educational opportunity grants (291) forpost-secondary undergraduate students with thegreatest financial need as determined by the need analysis system set forth in Part Fof Title IV of the Higher Education Act. (292) Institutions' financial aid administratorshave, however, substantial flexibility in determining the size of individual studentawards. The first priority is for Pell Grant recipients with exceptional need. Aninstitution's supplemental educational opportunity grant funds may be used for lessthan full-time students. The law sets minimum and maximum awards at $100 and $4,000, respectively. An estimated 1,189,000 students received average grants of $772 under the programduring the 2002-2003 academic year. The Higher Education Act forbids AFDC (or its successor, TANF), food stamps, and any other governmental program that receives federal funds from taking studentaid provided under the act into account when determining eligibility for benefits, orthe amount of benefits. Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues and CRS Report RL31618 , Campus-BasedStudent 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 stateeducational agencies for programs designed to meet the special needs of migratorychildren of migratory agricultural workers or fishermen. Through FY2002, fundswere allocated among states on the basis of annual counts of eligible children and apercentage of average per pupil expenditures. (294) Under P.L. 107-110 , from FY 2003forward, states are to receive the same amount as in FY2002, (295) plus a share of anyadditional appropriations (allocated on the basis of the previous formula, withupdated child counts). Most programs are administered by local school districts,which receive subgrants from the state educational agencies, though some are run byother public or private nonprofit agencies. Discretionary grants and contracts are alsoavailable to state educational agencies to improve program coordination within andamong states. As of 1995, record transfer is the sole responsibility of the states. FY2002 appropriations were $395 million. Eligible students are migratory children whose parents or guardians are migratory agricultural workers or fishers and who have moved within 3 years fromone school district to another to enable a member of their immediate family to obtaintemporary 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, butmigratory children are presumed to need special educational and other services. Title 1 migrant education programs commonly provide regular academicinstruction, remedial or compensatory instruction, bilingual and multiculturalinstruction, vocational and career education, testing, guidance and counseling, andmedical and dental screening. Preference is given to students at risk of not meetingstate academic standards or who moved during the school year. In school year1999-2000, an estimated 818,159 children were eligible. In FY2002, migranteducation programs served about 738,000 students, according to the Office ofMigrant Education. 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 (HE) of 1965, as amended, provides federal assistance to institutions of highereducation to operate a revolving fund providing low-interest loans to students. Federal funds provide new capital contributions, and pay for the cancellation ofcertain loans authorized in the law. Since academic year 1994-1995 participatinginstitutions have been required to provide a 25% annual match to the federal capitalcontribution (previously, their match rate was 15%). FY2002 appropriations were$166 million. The law authorizes low-interest, long-term loans for (1) undergraduate, graduate, or professional students, (298) (2) whoare "in need" of the amount of the loanto pursue a course of study, and (3) who maintain good academic standing. The needanalysis system set forth in Part F of Title IV the HE is used in calculating anexpected family contribution under the Perkins Loan program. On May 30, 2003, theDepartment of Education announced updates to the need analysis tables for the2004-2005 award year. (299) The Departmentpublishes an annual booklet explaining theExpected Family Contribution (EFC) formula. (300) Effective October 1, 1981, the law authorized loans at a 5% interest rate. Loans are to be repaid over a 10-year period beginning 9 months after the end of study thatis on at least a half-time basis. No interest is charged until repayment of the principalbegins, unless the payment is deferred, as permitted under certain conditions. Inaddition, all or a portion of the loans may be canceled for those who enter specificteaching jobs, law enforcement, or military service. Annual loan limits are $4,000for undergraduate students and $6,000 for graduate or professional students. Theaggregate limits are $20,000 for undergraduate students (who have completed 2 yearsof study, but who have not completed their baccalaureate degree) and $40,000 forgraduate and professional students; and $8,000 for any other students study. Anestimated 707,000 students borrowed loans averaging $1,790 under the program inthe 2002-2003 school year. Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues and RL31618, Campus-Based StudentFinancial 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 theestablishment of state student aid programs for needy post-secondary students. Aftereach 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 throughparticipating institutions. The law provides that no state shall receive less from thefederal government than it received in FY1979. Funds not used by one state may bereallotted to others in proportion to their higher education enrollments. Stateallocations are based on their share of the total number of eligible students in allstates as determined by the U.S. Secretary of Education. States are permitted to use20% of funds for community service work learning jobs for eligible students. The1998 law, which reauthorized the program and renamed it as LEAP, also authorizeda new program of "Special Leveraging Education Assistance Partnerships." (301) FY2000 appropriations were $67 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 meetcitizen/resident requirements, must demonstrate substantial financial need asdetermined in accordance with criteria of his/her state and approved by the Secretaryof Education, must maintain satisfactory academic progress, and must not default ona student loan or owe a refund for student assistance. At state discretion, part-timestudents may also be eligible. All public or private nonprofit institutions of highereducation as well as post-secondary vocational institutions are eligible to participateunless 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 "communityservice work learning study programs." (303) (Theregulations also call these work-studyjobs "community service-learning" jobs.) In academic year 2002-2003,approximately 171,000 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 studentaid provided under the act into account when determining eligibility for benefits, orthe amount of benefits. Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues and CRS Report RS21183, LeveragingEducational Assistance Partnership Program (LEAP): An Overview . The law provides 90% federal funding for student loans and 100% for scholarships. Eligible schools must contribute to the loan fund a minimum shareequal to one-ninth of the federal sum The federal government's share of the loanfund (its capital contribution) now is financed by loan repayments from participatingschools -- not by appropriations. Appropriations for scholarships (and some loanrepayments) in FY2002 were $57.8 million. Loans. (305) The Health Professions Student Loan Program(HPSL) provides long-term, low-interest rate loans to full-time, financially needystudents to pursue a degree in an accredited public or nonprofit school of medicine,dentistry, optometry, pharmacy, podiatric medicine, or veterinary medicine. TheLoans for Disadvantaged Students Program (LDS) provides long-term, low-interestrate loans to full-time, financially needy students from disadvantaged backgroundsto 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 studentsfrom disadvantaged backgrounds, including racial and ethnic minorities and mustoperate a program to recruit and retain minority faculty. Students at accredited publicand nonprofit private schools of nursing are eligible for loans from the NursingStudent Loan (N.L.) program. The school selects qualified loan applicants, makesreasonable 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 aneed for additional funds. Any school that receives returned funds is required todeposit the school's share of one-ninth of the amount received into the loan fund foradditional loans to students. Scholarships. P.L. 105-392 , the Health Professions Partnerships Training Act of 1998, enacted on November 13, 1998, reauthorized andconsolidated the health professions education and training programs under the PublicHealth Service Act through FY2002. The Act repealed authority for then existingscholarship programs, namely: (1) Scholarships for Students of ExceptionalFinancial Need (EFN); (2) Financial Assistance for Disadvantaged HealthProfessions Students (FADHPS); and (3) Scholarships for Health ProfessionsStudents from Disadvantaged Backgrounds (SHPDB). It established a new programof Scholarships for Disadvantaged Students (SDS). (306) However, the law providesfunding as part of the new SDS program for recipients of EFN and FADHPS whocontinue to be enrolled after academic year 1998-1999. The 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, veterinarymedicine, chiropractic, allied health, or schools offering graduate programs in publichealth, behavioral and mental health or physician assistants. At least 16% of SDSfunds must be made available to schools that will provide scholarships only fornurses, and schools must give preference to former EFN and FADHPS recipients.Schools are required to agree that, in providing scholarships under SDS, preferencewill be given to students from disadvantaged backgrounds for whom the costs ofattending the school would constitute a severe financial hardship. The Secretary maynot make a grant to a school unless the school is carrying out a program for recruitingand retaining students from disadvantaged backgrounds, including racial and ethnicminorities. Loan Repayments. Two programs provide loan repayments, funded by appropriations: (1) the Disadvantaged HealthProfessions Faculty Loan Repayment and Fellowship Program (Faculty LoanRepayment Program/FLRP); and (2) the Nursing Education Loan Repayment forRegistered Nurses Entering Employment at Eligible Health Facilities Program(Nursing Education Loan Repayment Program/NELRP). (307) 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 mentalhealth; (2) are enrolled in an approved graduate training program in one of the healthprofessions listed previously; or (3) are enrolled as full-time students in accreditedinstitutions described above and in the final course of study or program leading to adegree. 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 legalresident; (4) are employed full-time at an eligible health facility; (5) have a currentunrestricted license in the State in which they intend to practice; and (6) sign acontract to work full-time as a registered or advanced practice nurse for 2 or 3 yearsat an eligible health facility. Loans. Health Profession Student Loans and Loans for Disadvantaged Students may be made in amounts that do notexceed the cost of attendance, including tuition, other reasonable educationalexpenses, and reasonable living expenses. Loans have a 5% interest rate and mustbe repaid over a period ranging between 10 years and 25 years, at the discretion ofthe 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; serviceas a Peace Corps volunteer; and periods of advanced professional training, includinginternships and residencies. The Secretary 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 tocomplete the health professions studies leading to the individual's first professionaldegree; (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 notresumed or cannot reasonably be expected to resume the course of study within 2years of ending them. Nursing Student loans have a maximum limit of $2,500 for an academic year, $4,000 for each of the final 2 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 forany student. Preference for these loans is given to licensed practical nurses, topersons with exceptional financial need, and to persons who enter as first-yearstudents. Loans are repayable over a 10-year period, excluding periods for serviceand study similar to those listed above. A school is authorized to extend therepayment period for up to an additional 10 years for certain borrowers who failedto make consecutive payments. Loan Repayments. The program of Faculty Loan Repayment repays loans at a rate of up to $20,000 per year forpersons who have agreed to serve for at least 2 years as faculty members at aneligible school. The program of Nursing Education Loan Repayments provides forrepayment of 30% of unpaid principal and interest for each qualified loan after thefirst 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. Appropriationsin FY2002 were $1.3 million for FLRP and $10.3 million for NELRP. Scholarships. Scholarships are awarded for tuition expenses, other reasonable educational expenses, and reasonableliving expenses incurred while attending school for the year. In awarding grants toeligible health professions and nursing schools, the Secretary must give priority toeligible entities based on the proportion of graduating students going into primarycare, the proportion of under-represented minority students, and the proportion ofgraduates working in medically underserved communities. Scholarshipappropriations in FY2002 totaled about $46 million. The Higher Education Act of 1965 (HE), 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. (308) From FY1997 through FY2000,the Javits Fellowships were fundedunder GAANN, then reverted back to separate funding in FY2001. (309) Beginning inFY2000 funding for Javits Fellowships was specifically dictated in appropriationslanguage to provide funds a year in advance of the academic year in which thefellowships would be used. (310) Institutions mustmatch 25% of the federal GAANNfellowship grant. FY2002 appropriations were $46 million. Javits Fellowships. Title VII-A, Subpart 1, HE, authorizes the Javits Fellowships (311) in the arts, humanities, and socialsciences. Title VII-A, Subpart 1 fellowship stipends are based on financial need, andrecipients 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 ofapplication, have not completed their first year of study are eligible to apply for aJavits Fellowship. Applicants must be accepted at or attending a post-secondaryinstitution in one of the selected fields of study. Twenty percent of the fellowshipsare awarded in the social sciences, 20% in the arts, and 60% in the humanities. (312) Fellowships are awarded for a period of up to 4 years. Recipients are selectedthrough a national competition based on "demonstrated achievement, financial need,and exceptional promise." (313) The program islimited to U.S. citizens and nationals,permanent residents, and citizens of the Freely Associated States (Republic of theMarshall Islands, Republic of Palau, and the Federated States of Micronesia). GAANN Fellowships. Title VII-A, Subpart 2, HE, authorizes a program of Graduate Assistance in Areas ofNational Need (GAANN). (314) Individualgraduate students are eligible to receive afellowship from an assisted department if they demonstrate financial need, accordingto criteria determined by their higher education institutions, and have excellentacademic records. The Secretary of Education designates areas of graduate study inwhich there are national needs. The Secretary makes grants to academic departmentsproviding courses of study leading to a graduate degree in one of these areas. Inaddition, institutions must assure that they will seek talented students frombackgrounds traditionally under-represented in these fields of graduate study. ForGAANN awards for academic year 2003-04, the Secretary has designated thefollowing areas of national need: biology, chemistry, computer and informationsciences, engineering, geological and related sciences, mathematics, and physics. (315) Thurgood Marshall Fellowships. Title VII-A, Subpart 3, HE authorizes the Thurgood Marshall Legal EducationalOpportunity Program to assist minority, low-income or disadvantaged collegegraduates 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 lessthan 5 years. (316) CLEO, a nonprofit project ofthe American Bar Association Fund forJustice and Education, began assisting disadvantaged students in 1968. (317) Javits Fellowships. Each Javits Fellowship consists of an institutional payment covering tuition and fees and astudent stipend for living expenses. The amount of the stipend is based on either thestudent's financial need or the level of support provided by the National ScienceFoundation's Graduate Research Fellowship program, whichever is less. In FY2002,57 new fellowship awards were made. GAANN Fellowships. The GAANN fellowships are provided under 3-year grants to academic programs. Grantsfor a fiscal year are for not less than $100,000 and not more than $750,000. Studentsmay receive the fellowships for up to 5 years of study. Students receive a stipend tocover 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 thestudent's financial need or the level of support provided by National ScienceFoundation's Graduate Research Fellowship program, whichever is less. Theinstitutional 25% match of the federal grant can be used for additional fellowshipsand to meet other costs not covered by the institutional payment. In FY2002, no newfellowship awards were made, but in FY2001, 86 new awards were made. Thurgood Marshall Fellowships. The Thurgood Marshall Fellows receive counseling for study at accredited lawschools, preparation on selecting and applying to a law school, and financialassistance. A number of services are available to Thurgood Marshall Fellows formeeting the competition of law school and to improve the student's retention andsuccess in law school including: a 6-week pre-law summer institute for at lawschools throughout the country; pre-law mentoring programs with law school faculty,bar association members and judges; tutoring, academic counseling, midyearseminars, and preparation for bar examinations. Thurgood Marshall Fellows mayalso be paid a stipend for participation in summer institutes and midyear seminars. In FY2002, the single grant awarded to CLEO provided support services for anestimated 350-450 Thurgood Marshall fellows. Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues and CRS Report RS21436(pdf) , GraduateFellowship Programs Under Title VII of the Higher Education Act (HE):Background and Reauthorization . The Department of Education makes discretionary grants to colleges and universities and other public or private nonprofit agencies cooperating with suchschools to help migrant students obtain a high school equivalency certificate. (318) Mostgrants are for a 5-year period. FY2002 appropriations were $23 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 mustbe eligible to participate (or must have participated within the last 2 years) in theTitle 1 Migrant Education program (see program no. 56) or the WorkforceInvestment Act program for migrant and seasonal farmworkers. They must be atleast 16 years of age (or beyond the age of compulsory school attendance in the statein which they reside), not enrolled in school, and not have a high school diploma orits equivalent. (320) HEP projects typically provide instruction in reading, writing, mathematics, and other subjects tested by equivalency examinations; career-oriented work-studycourses; tutoring; and personal and academic counseling. In addition, they providefinancial assistance, housing, and various support services. In the 2002-2003 schoolyear, HEP served about 8,600 students at 23 institutions. Average federalcontribution per student was approximately $2,674. The Department of Education makes discretionary grants to colleges and universities and other public or private nonprofit agencies cooperating with suchschools to help migrant students complete their first year in college. (321) Most grantsare for a 5-year period. FY2002 appropriations were $15 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 mustbe eligible to participate in the Title 1 Migrant Education program or the WIAprogram for migrant and seasonal farmworkers. Students must be admitted to orenrolled as first year students at a participating college or university. (323) CAMP projects typically provide tuition and stipends for room and board and personal expenses; they also provide academic and personal counseling, tutoring inbasic skills and other subject areas, and various support services. In the 2002-2003school year, CAMP served about 2,500 students at twelve institutions. Averagefederal contribution per student was approximately $6,500. Note: For more information, see CRS Report IB10097, The Higher Education Act: Reauthorization Status and Issues . Note: This program, formerly called Ellender Fellowships ( Title X, Part G of theElementary and Secondary Education Act of 1965) has been funded even thoughrecent federal budgets have requested no appropriation for it. (324) Close Up Fellowshipsnow 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 entrysummarizes Ellender Fellowships and Close Up Fellowships rules under both laws. Ellender Fellowships. This program provided fellowships to economically disadvantaged students, secondaryschool teachers, economically disadvantaged older Americans, and recent immigrantsto spend 1 week in Washington, D.C. attending seminars on government and currentevents and meeting with leaders of the Federal Government. "Older American" wasdefined as an individual at least 55 years old. Economic disadvantage was notdefined in the law, and the program had no regulations. The Close Up Foundation (325) administered the program. Close Up Fellowships. The Close Up Foundation continues to administer the program by providing federal funding forfellowships 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 theFederal Government. Appropriations for FY2002 Close Up Fellowships were $1.5 million. Fellowships cover the costs of room, board, tuition, administration, and insurance for a week-long series of meetings, tours, and seminars about public affairsin Washington, D.C., sponsored by the Close Up Foundation. Students and theirteachers meet with officials from the three branches of the federal government anddiscuss pending issues. In the 2002-2003 school year, 1,334 students, 1,246 teachers,and 250 new American immigrants received fellowships, at an overall average costof $1,231 for students and $1,331 for teachers (federal share of $694 for students and$352 for teachers) and $1,450 for new American immigrants (federal share of $540). The Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ) created the Child Care and Development Block Grant (CCDBG), which provides 100% federallypaid discretionary funds to states and other entities. (326) CCDBG also receivesentitlement funds, some of which require state matching funds (see below). Federaloutlays in FY2002 -- from discretionary funds, entitlement funds, and amountstransferred to CCDBG from the block grant for Temporary Assistance for NeedyFamilies (TANF) -- totaled $6.4 billion. Discretionary Funds. Of discretionary CCDBG funds, one-half of 1% is reserved for allotment to theterritories, and 1% to 2% ( determined by the Secretary of Health and HumanServices) is reserved for payments to Indian tribes and tribal organizations. Remaining discretionary funds are allocated among states, based on each state'sproportion of all children under age 5, its proportion of all children who receive freeor reduced price school lunches, and its per capita income relative to that of theNation. Through FY1995, states were required to reserve 25% of their allocation toimprove child care quality and to increase availability of early childhooddevelopment programs and before- and after-school services. Effective in FY1996,states could spend no more than 5% of their allotments for administrative costs, andno less than 4% on efforts to improve the quality and availability of child care. Entitlement Funds. Before October 1, 1997, states also received federal funds for child care services on behalfof current, former, and potential recipients of Aid to Families with DependentChildren (AFDC). For these funds states had to provide matching funds. The 1996welfare reform law repealed the AFDC-related child care programs and replacedthem with entitlement funding to states for child care services. The law appropriated$13.9 billion in entitlement child care funding for 6 years, FY1997-FY2002, withannual amounts of $2.1 billion for FY1998, $2.2 billion for FY1999, $2.4 billion forFY2000, and $2.6 billion and $2.7 billion for FY2001 and FY2002, respectively. Funding for FY2003 was extended on a quarterly basis at the FY2002 rate of $2.717billion annually. These amounts are provided under Title IV-A of the Social SecurityAct (the part governing TANF), but states are required to transfer them to the sameagency that administers the CCDBG and to spend them in accordance with CCDBGrules. The combined discretionary and entitlement funding streams are referred toby 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 twocomponents. First, each state receives a fixed amount each year, equal to themaximum annual amount received by the state under the repealed AFDC child careprograms in FY1994, FY1995, or in FY1992-FY1994, on average. This amount isestimated to equal $1.2 billion each year; no state match is required to receive thesefunds. Second, remaining entitlement funds are allocated to states according to eachstate's share of children under age 13. States must achieve maintenance-of-effortspending targets to qualify for these funds; they also must provide matching fundsfor them, at the Medicaid match rate, which varies among states and is relatedinversely to state per capita income (see program no. 1). As with discretionaryCCDBG funding, states may spend no more than 5% of their entitlement funds foradministrative costs, and no less than 4% on activities to improve the quality andavailability of child care. Note: States are authorized to transfer to the CCDBG upto 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, (328) if disabled or under court supervision),and (2) live with at least one parent who is working or attending a job training oreducational program (unless the child is receiving protective services or in need ofthem). In addition, the income of the child's family cannot exceed 85% of the statemedian 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 verylow-income families and to those with special needs. According to statute, statesmust spend 70% of entitlement funds on welfare recipients working towardself-sufficiency or families at risk of welfare dependency. However, because allfamilies 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 meanthat welfare families must be served. In theory, all funds may be used forlow-income, non-welfare, working families. However, state plans indicate that manystates 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 directlyby the state, through a grant or contract, or through certificates that are payable forchild care from an eligible provider of the parents' choice. Child care services mayinclude 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 RL31817 , Child Care Issues inthe 108th Congress . See TANF block grant entry (program no. 12). In FY2002, expenditures for TANF-funded services (other than child care, shown separately in this report) were estimated at $6.1 billion, $4.4 billion (72%)from federal funds and $1.7 billion from state-local funds. This excludes TANFfunds 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 theservices can be expected to lead toward ending the dependence of needy parents ongovernment 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 alsomay provide services to non-needy families if they are directed at the goals ofpreventing and reducing out-of-wedlock pregnancies or encouraging the formationand maintenance of two-parent families. In their TANF plans, most states said theyprovide support services to recipient families plus three categories of needy familiesnot enrolled in cash aid: former cash recipient families, families at risk of becomingeligible for cash aid, and unemployed or underemployed non-custodial parents. Generally income limits range from 150% to 250% of federal poverty guidelines (in2003, from $22,890 to $38,150 for a family of three). However, some states havehigher flat annual income limits for some services. For example, Colorado sets anouter limit of $75,000 for any TANF-funded service. Transportation subsidies, parental skill building services, home energy aid, housing aid, rehabilitation services (mental health/substance abuse counseling andtreatment), and domestic violence counseling are examples of benefits/servicesprovided (other than child care, the most frequently mentioned service). Examplesof TANF-funded services that impose no income test include teen pregnancyprevention programs, responsible parenthood counseling, abstinence programs, andfamily planning services. A broad category of TANF expenditures is for servicesauthorized under pre-TANF law (such as services for children in the juvenile justicesystem and certain child welfare and foster care services). Note: For more information, see CRS Report RL30695, Welfare Reform: State Programs of Temporary Assistance for Needy Families . The Social Security Act (Title XX) provides 100% federal funding (330) to statesfor social services up to a maximum ceiling level ($1.7 billion in FY2001-2003,lowered from $2.38 billion in FY2000). Funds are distributed among states on thebasis of population. The FY2000 appropriation of $1.775 billion was below the$2.38 billion ceiling, and appropriations in FY2001 and FY2002 dropped to $1.725billion and $1.7 billion respectively. Funding for FY2003 was maintained at $1.7billion. Note : In FY1997-FY2003 states had authority to transfer to the socialservices block grant (SSBG) up to 10% of their TANF block grants, which total$16.5 billion annually ( P.L. 105-33 ). (331) Transfers of TANF funds to SSBG totaled$1.1 billion in FY1998, $1.3 billion in FY1999, $1.1 billion in FY2000, $920 millionin FY2001, and $1 billion (or 6% of the TANF grant) in FY2002. The authorizedtransfer 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 for FY2002and 2003. 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 FY2001. The reporting form includes a list of 29 eligibleservice categories in which funds may be spent. The list includes categories such aschild care, home-delivered meals for the elderly, foster care, housing services, andfamily planning services. In FY2001, for the country as a whole, the servicesreceiving the greatest percentage of spending were: child protective services(11.8%), foster care services for children (10.1%), special services for the disabled(8.3%), and child day care (7.6%). For FY2000 the corresponding shares were10.8%, 10.7%, 7.8%, and 5.9%, respectively. Note: For more details about SSBG, see CRS Report 94-953 , Social ServicesBlock Grants (Title XX of the Social Security Act) . See TANF block grant entry (program no. 12). In FY2002, expenditures for TANF child care were estimated at $2.3 billion, $1.6 billion (68%) from federal funds and $0.750 billion from state-local funds. Thisexcludes TANF funds transferred to the Child Care and Development Block Grant(CCDBG) -- program no. 64. It also excludes TANF state maintenance-of-effortexpenditures that could also count toward state spending required to qualify forentitlement matching funds under the CCDBG. (333) 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 blockgrant 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 beexpected to lead toward ending the dependence of needy parents on governmentbenefits by promoting work or job preparation, one of the program's goals. Statesdecide what income limits to set for TANF-funded child care (i.e., how "needy" theparents 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 needed it to work, study, orundergo training, former cash recipient families (for a transition period), and families"at risk" of becoming income-eligible for cash aid. Generally income limits forfamilies not enrolled in the cash program range from 150% to 250% of federalpoverty guidelines (in 2003, from $22,890 to $38,150 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. For instance, Connecticut'sinitial income limit is 50% of the state's median income, adjusted for family size;eligibility ends when income reaches 75% of the median. Wisconsin providessubsidized child care for all needy Wisconsin families: for initial eligibility, 185%of the federal poverty guideline, for continued eligibility, 200%. Massachusettsprovides child care to those with income below 85% of the state median income. Illinois sets the income limit at 200% of the poverty guideline Many states set the usual age cutoff for TANF-funded care at 13 years, thegeneral limit of the Child Care and Development Block Grant (CCDBG), but theTANF 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 singleparents who receive TANF assistance cannot be punished for refusal to performrequired work if they are unable to obtain needed care for a child under age 6 for aspecified 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. They also decide whether to provide care directly or to issue vouchers for care.Connecticut limits child care subsidies to $325 per child monthly ($425 for a childwith special needs). A few states reimburse families for child care expenses byadding the amount to the cash benefit (i.e., by disregarding income used for childcare costs when calculating benefits). Some states use the same free or co-pay rulesas those adopted by the state for the CCDBG; state TANF plans indicate that Illinois,Michigan, and South Carolina do so. Under a consolidated budget account for Homeless Assistance Grants, (335) theDepartment of Housing and Urban Development (HUD) provides funding for four programs aiding the homeless that are authorized under the Stewart B. McKinneyHomeless Assistance Act ( P.L. 100-77 ). They are the Emergency Shelter Grantsprogram, Section 8 Moderate Rehabilitation Assistance for Single-Room Occupancy(SRO) Dwellings, the Shelter Plus Care program, and the Supportive Housingprogram. Federal funding for the Emergency Shelter Grants program is provided through formula grants to states, cities, and counties in accordance with the distributionformula used for Community Development Block Grants (CDBG). Money for theother 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 theShelter Plus Care program, grantees must match federal funds provided for shelterwith 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 fundsalso are used for "Supportive Services Only" projects that are linked to housingprovided by other organizations. The 2002 Appropriations Act required a 25% matchfor all HUD-funded services. Outlays for the Homeless Assistance Grants programin 2002 were $1 billion. Under a "continuum of care" strategy developed by HUD, grantees generally must develop and maintain (or participate in) consolidated plans for the integrationof 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 governmentaland nongovernmental agencies) must compete for HUD approval of their grantproposal. Individual eligibility for assistance from any Homeless Assistance Grantproject generally depends on decisions made by the local sponsor. However, someprograms restrict beneficiary eligibility to specific categories. The Shelter Plus Careprogram is limited to homeless persons with very low incomes (336) who havedisabilities, chronic substance abuse problems, or AIDS and related diseases. TheSRO program is limited to single homeless persons. Permanent housing under theSupportive 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, activitiesinclude renovation, major rehabilitation, or conversion of buildings for use asemergency 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 intransition to independent living through provision of transitional housing, follow-upservices, 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. TheShelter 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: Recent Statistics and Targeted Federal Programs . The Community Services Block Grant Act (CSBG) (338) authorizes 100% federallyfunded block grants to states for community-based antipoverty activities. Stateallocations are based on the percentage of funds received in the state in FY1981 fromthe former Community Services Administration (CSA) under Section 221 of theEconomic Opportunity Act. Of total appropriations, half of 1% is reserved forallotment to the territories, and the Secretary of Health and Human Services alsomust reserve 1.5% for training, technical assistance, planning, evaluation and datacollection. For FY2003, $650 million was appropriated for the block grant, plus$89.4 million for several smaller related activities, such as community economicdevelopment, job opportunities for low-income individuals (JOLI), grants for ruralcommunity facilities, the national youth sports program, community food andnutrition activities and individual development accounts. (339) In general, beneficiaries of programs funded by CSBG must have incomes no higher than the federal poverty income guidelines. For FY2003, the guidelines were$18,400 for a family of four and $8,980 for a single person in the 48 contiguousstates. (341) Amendments enacted in 1984 allowstates to increase eligibility criteria to125% of the poverty guidelines "whenever the state determines that it serves theobjectives 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 fundsfrom many other sources (such as Head Start, weatherization assistance, low-incomehome energy assistance, emergency food and shelter programs, employment andtraining, and legal services) to operate antipoverty programs, Note: For more details about the Community Services Block Grant, see CRS Report RS20124, Community Services Block Grants: Background and Funding . 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 FY2003appropriation was $338.8 million, (342) up $9.5million from the FY2002 sum. Theincrease was to provide supplemental funding for states that were scheduled toreceive a cut in FY2003 funding because of use of data from the 2000 Census, whichshowed a shift in state poverty populations. The Legal Services Corporation Act of 1974 (344) provides financial aid toprograms that offer legal services in noncriminal proceedings to low-income persons. The law makes eligible "any person financially unable to afford legal assistance" andsays the Corporation should take into account not only income, but liquid assets, (345) fixed debts, cost of living, and other factors in determining an individual's capacityto pay for a lawyer. The law requires the Corporation to set national maximumincome limits and to establish guidelines that will insure preference for those leastable to afford an attorney. Regulations of the Corporation have established themaximum income limit for eligibility at 125% of the federal poverty incomeguidelines. Thus, the income limit was $23,000 for a family of four, and $11,225 fora single individual in calendar year 2003 in the 48 contiguous states, the District ofColumbia, and the outlying areas. Higher limits apply in Alaska and Hawaii. Regulations permit exceptions to the income limit in specified circumstances. Forexample, the regulations permit legal services on behalf of a person whose incomefalls between 125% and 150% of the poverty line if the purpose is to obtain benefitsfrom a "governmental program for the poor," or if warranted by certain factors suchas the individual's current income prospects, medical expenses, fixed debts andobligations, child care and other work-related expenses, expenses associated with ageor 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, publicbenefit programs such as cash welfare, Social Security, Supplemental SecurityIncome (SSI), workers' compensation, unemployment compensation, Medicare, andMedicaid. The Legal Services Corporation's stated goal is to provide "minimumaccess to legal services for all poor persons," defined as the equivalent of twoattorneys 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 criminalproceedings nor in most civil cases that are fee-generating in nature, such as accidentdamage 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. Thiswas a prohibition against LSC funding of any organization that represented clientsin an effort to amend or otherwise challenge existing welfare law. By a 5-4 vote, theCourt found that this restriction violated the First Amendment (freedom of speech). The Court held that restricting LSC attorneys in advising their clients and inpresenting arguments and analyses to the courts distorted the legal system by alteringthe 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 andasylees become self-sufficient. Other legislation authorizes similar assistance forcertain Cuban and Haitians entrants (346) and forcertain Amerasians. (347) The refugee,asylee and entrant social services funds are distributed among the states underformulas that usually take into account each state's proportion of persons in eligiblegroups who entered the United States within the previous 36 months. Social servicesfor these groups have been authorized through FY1999. The Department of Healthand Human Service's Office of Refugee Resettlement (ORR) administers thisprogram. For social services, ORR expenditures amounted to $144 million inFY2000, $144 million (348) in FY2001, and $159million in FY2002. 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 orasylee under the Act, (b) be a Cuban or Haitian paroled into the United Statesbetween 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 toexclusion or deportation and against whom a final order of deportation has not beenissued, 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 eligibilitylimitations such as age. The above groups also may benefit from services financedunder the Social Security Act (Title XX), but generally would have to meet thestate's Title XX eligibility requirements. Exceptions to Title XX rules can be madeso that refugees, asylees and entrants can receive certain particular services such aslanguage 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 XXsocial 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 (350) (the EFS program) under the authority and direction of the Federal EmergencyManagement Agency (FEMA). (351) The NationalBoard awards EFS funds to localboards for allocation to direct service providers. To qualify for funds, a localjurisdiction must have a relatively high rate of unemployment for the most current12-month period with available data and a high poverty rate (as measured by the mostrecent census). The National Board allocates funds to local jurisdictions on the basisof 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 formulaestablished by the state boards. These funds are intended to enable state boards totarget pockets of homelessness or poverty in areas not qualifying under the regularnational formula. Examples include areas that suffer sudden economic changes suchas plant closings, areas with high levels of unemployment or poverty that do not meetthe minimum level of unemployment, or jurisdictions that have documentedmeasures of need that are not adequately reflected in unemployment and povertydata. Federal EFS outlays for FY2002 were $143 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 programis designed to purchase food and shelter to supplement and expand current availableresources to target special economic, not disaster-related, emergencies. Theeligibility of direct service providers to receive EFS funds is determined by each localboard. EFS-funded assistance is available for any individual or family whom thelocal 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 1 month onlyto avert homelessness, and limited repairs to feeding and sheltering facilities. Note: For further general information and individual county grant information, see the EFS program homepage at http://www.efsp.unitedway.org . See TANF block grant entry (program no. 12). In FY2002, expenditures for TANF work programs and activities were reported at $2.7 billion, $2.1 billion (78%) from federal funds and $ 0.6 billion fromstate-local funds. (This excludes funding for the separate Welfare-to-Work grantprogram administered by the Department of Labor -- program no.78 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 bythe state. It also requires states to achieve minimum rates of participation by TANFfamilies in federally recognized work activities. (354) States may use TANF block grantfunds to provide work programs and activities for recipient families and variousgroups of "needy" families not enrolled in the cash program, so long as the servicescan be expected to lead toward ending the dependence of needy parents ongovernment benefits by promoting job preparation and work, one of the program'sgoals. States decide eligibility limits, and they may tailor activities to the needs ofindividual families. If they offer work activities to noncustodial parents of TANFchildren, they may choose whether or not to include them in calculating workparticipation 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. The FY2002 composition of spending fromFY2002 TANF grants: Education and training, 14.8%; work subsidies, 2.7%, (355) andother work activities/expenses, 82.5%. Nineteen states reported making outlays forwork subsidies and 34, for education and training. In a guidance for use of TANFfunds ( Helping Families Achieve Self-Sufficiency), HHS lists numerous ways tosupport work activities, including job search and placement, job skills training, workexperience, job retention services and counseling, and specialized training forsupervisors. Note: For more information, see CRS Report RL30767, Welfare Reform: Work Activities and Sanctions in State TANF Programs . The Job Corps is 100% federally funded. The Job Corps is authorized by Title I, Subtitle C of the Workforce Investment Act (WIA). (356) FY2002 Job Corpsappropriations were $1.5 billion. Those eligible for the Job Corps are "low-income" youths aged 16-24 (only 20% of enrolles may be older than 21) who have one or more of the followingcharacteristics: deficient in basic reading, writing, or computing skills; a schooldropout; homeless, a runaway, or a foster child for whom state or local governmentpayments are made; a parent; in need of additional education, vocational training, orintensive counseling and or help to accomplish regular schoolwork or to secure andhold 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 amember of family that was eligible to receive food stamps in the previous 6 months;(c) had family income (359) for the preceding 6months no higher than the federal povertyguideline (a limit in 2003 throughout the 48 contiguous states and the District ofColumbia (360) of $ 18,400 for a family of fourpersons and $8,980 for a single person)or no higher than 70% of the lower living standard income level (LLSIL) (a ceilingthat ranged, effective on May 30, 2003, for a four-person family from $18,270 innon-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 theStewart McKinney Homeless Assistance Act; (e) is a foster child on behalf of whomstate or local government payments are made; or (f) is a disabled person whose ownincome 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, andhealth services. Enrollees receive personal allowances while participating in theprogram and readjustment allowances upon successful completion of the program. Job Corps centers are required to provide child day care, to the extent practicable, ator near the centers. WIA forbids needs-tested programs to take its allowances, earnings, and payments into account in determining eligibility for benefits and their amount. (361) Enrollees may remain in the Corps for up to 2 years; the average stay is about 7 months. Note: For further information about Job Corps see CRS Report 97-536 , Job Training Under the Workforce Investment Act: An overview ; and CRS Report RS20244 , The Workforce Investment Act: Training Programs under Title I at AGlance , CRS Report RS21484 : Workforce Investment Act of 1998 (WIA):Reauthorization of Title I Job Training Programs . For further information about JobCorps under JTPA see CRS Report 94-862, The Job Training Partnership Act: ACompendium of Programs . This program is 100% federally funded. Youth Activities are authorized under Subtitle B, Chapter 4 of the Workforce Investment Act (WIA). (362) Funds are allocatedto states on the basis of a three-part formula: state shares of the national distributionof "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 livingstandard income level). (363) FY2002appropriations were $1 billion. 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 basicliterary skills; a school dropout; homeless, a runaway, or a foster child; pregnant ora parent; or a youth offender, in need of additional assistance to complete aneducational 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 amember of family who was eligible to receive food stamps in the previous 6 months;(c) had family income (365) for the preceding 6months no higher than the federal povertyguideline (a limit in 2003 throughout the 48 contiguous states and the District ofColumbia (366) of $ 18,400 for a family of fourpersons and $8,980 for a single person)or no higher than 70% of the lower living standard income level (LLSIL) (a ceilingthat ranged, effective on May 30, 2003, for a four-person family from $18,270 innon-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 theStewart McKinney Homeless Assistance Act; (e) is a foster child on behalf of whomstate or local government payments are made; or (f) is a disabled person whose ownincome meets the program limit, but whose family income exceeds it. The program has no asset rules. WIA Program of Youth Activities. Local youth programs must include the following 10 services: tutoring, study skillstraining, and instruction leading to secondary school completion; alternativesecondary school offerings; summer employment opportunities directly linked toacademic and occupational learning; paid and unpaid work experience, includinginternships and job "shadowing," occupational skill training; leadership developmentopportunities, including community service and peer-centered activities; supportiveservices; adult mentoring for at least 12 months; followup services for at least 12months, and comprehensive guidance and counseling, including drug and alcoholabuse counseling. At least 30% of local allotments must be used to provide activitiesto out-of-school youth. Local boards may determine how much of available youthfunds to use for summer and for year-round activities, and local programs havediscretion to decide what specific services to provide to a participant. Note: CRS Report RS20244 , The Workforce Investment Act: Training Programs under Title I at A Glance , and CRS Report RS21484 : Workforce Investment Act of1998 (WIA): Reauthorization of Title I Job Training Programs . This program is 100% federally funded. Adult Activities are authorized under Subtitle B, Chapter 5 of the Workforce Investment Act. (367) Funds are allocated tostates 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 (familyincome below the federal poverty guideline or 70% of the lower living standardincome level). (368) FY2002 appropriations were$950 million. Those eligible for adult activities are persons at least 18 years old. Any individual may receive "core" services (for example, job search assistance). Forintensive services, such as individual career planning, and for job training, a personmust need the services in order to become employed or to obtain or retain a job thatallows for self-sufficiency. If funds are limited, priority must go to recipients of cashwelfare 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, whichinclude outreach, job search and placement assistance, and labor market information. "Intensive" services are available only to persons who have received at least one coreservice and need further services to obtain or retain a job. Intensive services includemore comprehensive assessments, development of individual employment plans, andcounseling and career planning. Training services linked to job opportunities in thecommunity are available for persons who cannot find a job through intensiveservices. Both occupational training and training in basic skills may be offered. Topromote individual choice, participants use an "individual training account" to selecta program from a qualified training provider. The law also authorizes supportiveservices, 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. (370) However, an exception applies to food stamp recipients, aged 19 or older, who areenrolled in on the-job-training. Food stamp rules treat the earnings of on-the-jobtrainees as earned income. Note: For more information see CRS Report RL30929(pdf) , Job Training: Characteristics of Workforce Training Participants . For more historical informationabout the adult and youth training programs under JTPA, see CRS Report 94-862, The Job Training Partnership Act: A Compendium of Programs . For moreinformation about the programs under WIA see CRS Report 97-536 , Job TrainingUnder the Workforce Investment Act: An Overview, CRS Report RS20244 , TheWorkforce Investment Act: Training Programs under Title I at A Glance . The law provides 90% federal funding (up to 100% in disaster or economically depressed areas) for this program. The non-federal share can be cash or in kind. Thestate allocation formula has three elements: a hold harmless factor (the 2000 levelof funding); a state's relative share of persons aged 55 years and older; and a state'srelative per capita income. For FY2003, $442 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 guidelinesestablished by the Department of Health and Human Services (HHS). Departmentof Labor (DOL) regulations provide eligibility for a person who is a resident of thestate and a member of a family that either (a) received countable income in theprevious 6 months on an annualized basis, or actual income during the preceding 12months, whichever is most beneficial to the applicant, that is not higher than 125%of the HHS poverty guidelines or (b) receives regular cash welfare payments. The2003 income eligibility ceilings were $11,225 for an individual and $15,150 for atwo-person family (higher in Alaska and Hawaii). There is no asset test. Regulations give first priority to persons with the greatest economic need, second priority to persons aged 60 years or older, and third priority to eligible personsseeking reenrollment within a year of leaving the program because of no fault of theirown, or illness. Regulations forbid an upper age limit, and they require annualrecertification of income. The DOL instructions (372) require SCSEP project sponsors to disregard variouskinds of income of applicants and recipients, including welfare payments, disabilitypayments, one-quarter of Social Security benefits, unemployment benefits,employment and training benefits, trade adjustment benefits, capital gains, the first$3,000 in dividend and interest income, certain veterans' benefits, one-time unearnedincome payments or unearned income payments of fixed duration. In addition, $500of otherwise includable income is not counted as annual family income forreenrollees who were previously dropped from the program because of illness ormovement to unsubsidized employment. However, support received from absentfamily members, such as adult children supporting their aged parents, is included indeciding eligibility. Participants are placed in part-time community service jobs, for which their wages are subsidized by the federal government; when possible, project sponsors areencouraged 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 orlocal minimum wage, or the prevailing wage paid by the same employer for similarpublic occupations. Hours of unsubsidized work per enrollee are limited to 1,300 inany 12-month period. In 2002, wages under the program averaged $5.35-$5.40 perhour. Note: For more information, see CRS Report 95-917, Older Americans Act: Programs and Funding and CRS Report RL30055(pdf) , Older Americans Act: 106thCongress Legislation . Note: No part of the original TANF block grant was earmarked for workprograms, but in 1997, Congress added a 2-year $3 billion program ofwelfare-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 2 years, FY1998 and FY1999. AlthoughWtW is a component of TANF (Section 403(a)(5) of the Social Security Act), it isadministered by the Department of Labor (DOL). After set-asides, (373) 75% of WtWfunds were designated for matching formula grants (66.7% federal matching rate)and 25% for competitive grants. Formula grants were allocated by DOL to states onthe basis of their shares of the national adult TANF population and the povertypopulation. States were required to distribute 85% of the formula grants to localworkforce investment areas. (374) DOL awardeda total of $2 billion in formula grants(to 48 states in 1998 and 45 in FY1999) and $712 in competitive grants to localitiesand nonprofit organizations. The original law gave WtW grantees 3 years from thedate of an award in which to spend WtW funds, but Congress extended the deadline2 years, allowing WtW expenditures to continue through FY2004 (ConsolidatedAppropriations for 2001, P.L. 106-554 ). WtW funds are focused on hard-to-employ TANF recipients. As first enacted, 70% of funds had to be used for the benefit of TANF recipients (and TANFnon-custodial parents) with at least two specified barriers to work who themselves(or whose minor children) were long-term recipients (30 months of AFDC/TANFbenefits) or were within 12 months of reaching the TANF 5-year time limit or ashorter state time limit. The target groups had to have at least two of these threework impediments: lack a high school diploma and have low skills in reading ormathematics, require substance abuse treatment for employment, and/or have a poorwork history. WtW eligibility was liberalized by P.L. 106-554 . Grantees now (377) may use WtW funds (and state matching funds) on behalf of four new groups: long-termTANF recipients without specified work barriers, former foster care youths 18 to 24years old, TANF recipients who are determined by criteria of the local privateindustry council to have significant barriers to self-sufficiency, and non-TANFcustodial parents with income below the poverty line. However, at least 70% ofWtW funds must be spent on long-term TANF recipients and/or noncustodial parentswithout specified work barriers. The 1999 law also set special rules for noncustodial parents. To be eligible for WtW, noncustodial parents must be unemployed, underemployed, or havingdifficulty paying child support and they must comply with an oral or written personalresponsibility contract. They also must meet one of these conditions: their minorchild (or the child's custodial parent) must be a long-time TANF recipient or within12 months of reaching a TANF time limit, the child must be a recipient ofincome-tested aid (TANF, food stamps, SSI, Medicaid or S-CHIP), or the child musthave left TANF within the last 12 months. Activities that may receive WtW funds are: the conduct and administration of community service or work experience programs; job creation through wagesubsidies, on-the-job training, contracts with providers of readiness, placement, andpost-employment services, job vouchers for placement, readiness, andpost-employment services, job retention or support services if these services are nototherwise available; and, added by P.L. 106-113 , up to 6 months of vocationaleducational or job training (effective July 1, 2000). The law specifies that a workactivity paid with WtW funds may not violate an existing contract for services or acollective bargaining agreement and that a WtW worker cannot fill a vacancyresulting from cutting the hours of a job below full time. In FY2002, WtW spendingtotaled $413 million ($342 million from formula grants and $71 million fromcompetitive grants). As of September 30, 2002, unspent WtW funds totaled about$416 million -- $293 million in formula grants and $123 million in competitivegrants. Note: For more detail, see CRS Report RS20134, Welfare Reform: Brief Summary of the Welfare-to-Work Grant Program . The Food Stamp Act provides for annual grants to state agencies administering the Food Stamp program to conduct employment and training activities for foodstamp recipients. These grants, which are automatically reserved from annual foodstamp appropriations, are set at $90 million a year. They are not limited by fiscalyear, and unspent amounts can be carried over and accumulated for use in a futureyear 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 serveall recipients who are able-bodied adults without dependents (ABAWDS). Employment and training grants generally are allocated among states on the basis oftheir proportion of persons to which food stamp work rules apply, with specialemphasis on the estimated number of able-bodied adults without dependents(ABAWDs) in each state's food stamp caseload as a proportion of the national total. (380) 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 FY2002, these payments exceeded $110 million. As detailed in the description of the Food Stamp program (program no. 21), certain nonworking able-bodied adult recipients must register for employment, accepta suitable job if offered one, and fulfill any work, job search, or training requirements(participate in employment and training programs) established by administering stateagencies. (382) Major exemptions from thisrequirement incorporated in food stamp lawinclude persons caring for dependents (disabled or under age 6) and those alreadysubject to another program's work requirement. In addition, states may choose notto require participation of otherwise covered individual recipients. NonworkingABAWDs, on the other hand, must participate in an employment or training activityunder conditions noted in the description of the Food Stamp program -- unless theyreside in an area for which the state agency has obtained a waiver because of veryhigh unemployment levels or the lack of available jobs or they have been individuallyexempted by the state agency under its authority to exempt up to 15% of thosepotentially subject to ABAWD work/training rules. (383) In FY2002, states reportedsome 2.3 million new work registrants (i.e., persons potentially subject to requiredparticipation in employment and training programs); approximately 1.2 million(including about 450,000 ABAWDs) were subject to employment and trainingrequirements. 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: jobsearches and training for job searches, educational activities to improve basic skillsand employability (e.g., literacy training, high school equivalency preparation),vocational training, workfare or work experience programs. Almost two-thirds ofemployment/training program participants are typically assigned to job search or jobsearch 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 grandparentsproject (up to 100% in special situations). The local project may provide itsmatching share in kind or cash. Appropriated for FY2002 was $107 million. 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 federalpoverty guideline (or 135% of the poverty line in the case of volunteers living inareas determined by the Corporation for National and Community Service to have a higher cost of living). (385) For 2003, the 125%of poverty limit was $11,225 for a singleperson and $15,150 for a two-person family in the 48 contiguous states (higher inAlaska and Hawaii). Allowable medical expenses are annual out-of-pocket medicalexpenses for health insurance premiums, health care services, and medications thatwere not and will not be paid by Medicare, Medicaid, other insurance or other thirdparty payor, and which do not exceed 15% of the applicable income guideline. Onceenrolled, a person remains eligible so long as his countable income does not exceed150% of the poverty guideline (or, in high cost areas, 162%). The program has noasset 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 aretax-free and cannot be treated as wages or compensation for the purposes of anypublic benefit program. Volunteers also receive annual physical examinations andaccident and personal liability insurance. Foster grandparents provide services tochildren with exceptional or special needs. Note: For more information about the Foster Grandparent program, see CRS Report RL30186(pdf) , Community Service: A Description of AmeriCorps, FosterGrandparents, and Other Federally Funded Programs , 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 companionproject (up to 100% in special situations). The local project may provide itsmatching share in kind or cash. Appropriated for FY2002 was $44.4 million. 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 federalpoverty guideline (or 135% of the poverty line in the case of volunteers living inareas determined by the Corporation for National and Community Service to have a"higher" cost of living). (387) For 2003, the 125%of poverty limit was $11,225 for asingle person and $15,150 for a two-person family in the 48 contiguous states (higherin Alaska and Hawaii). Allowable medical expenses are annual out-of-pocketmedical expenses for health insurance premiums, health care services, andmedications that were not and will not be paid by Medicare, Medicaid, otherinsurance or other third party payor, and which do not exceed 15% of the applicableincome guideline. Once enrolled, a person remains eligible so long as his countableincome 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 aretax-free and cannot be treated as wages or compensation for the purposes of anypublic benefit program. Volunteers also receive annual physical examinations andaccident and personal liability insurance. Senior companions provide supportiveservices 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(pdf) , Community Service: A Description of AmeriCorps, FosterGrandparents, and Other Federally Funded Programs , 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 foremployability-related services) for refugees and asylees. Other legislation authorizessimilar assistance for certain Cuban and Haitians entrants (388) and for certainAmerasians. (389) The Department of Health andHuman Service's Office of RefugeeResettlement (ORR), which administers the program, awards grants to designatedstate agencies on behalf of counties with high concentrations of refugees, asylees orother eligible groups. States must allocate at least 95% of funds to counties. Forrefugee targeted assistance, ORR benefit expenditures amounted to $49.5 million inFY2002. 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 orasylee under the Act, (b) be a Cuban or Haitian paroled into the United Statesbetween 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 toexclusion or deportation and against whom a final order of deportation has not beenissued, 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 whoneed 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 foremployability 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 EmploymentWorks (NEW) Program (391) to continue tribalwork and training grants that existedunder JOBS. Administered by HHS, the NEW program is 100% federally funded. The law appropriated $7.6 million annually for FY1997-FY2002. This equals thesum received by Indian tribes and Alaska native organizations to operate their ownJOBS programs in FY1994. (Funding was extended through March 30, 2004, by aseries of laws.) In the year ending June 30, 2001 (program year 2000-2001) aboutone-third of the78 tribal grantees transferred their NEW funding to demonstrationprojects administered by the Bureau of Indian Affairs under P.L. 102-477 (IndianEmployment, Training, and Related Services Demonstration Act). 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 NEWprograms, define who will be eligible, decide what benefits and services to provide,and specify the population and geographic area to be served. Target groups generallyinclude TANF recipients, non-custodial parents, recipients of General Assistance(GA) from the Bureau of Indian Affairs (BIA), and unemployed parents. Of NEWparticipants in program year 2000-2001, about 70% also were enrolled in TANF and6% in BIA general assistance. (In early 2003, 38 tribal TANF plans were inoperations, covering about 27,000 families in 15 states.) (393) Also, as noted in the entryon General Assistance to Indians (program no.18 in this report), some tribes operateTribal Work Experience Programs (TWEP), which pay a monthly $115 supplementto 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% ofclients); classroom training (5%); work experience (26%); on-the job training (3%);and other tribal work activity (12%). (394) A totalof 1,565 NEW participants, including616 TANF recipients, began unsubsidized jobs during the year. According to theFifth annual TANF report, many tribes with NEW programs co-located training,employment, and social services, often in "one-stop" centers. Some granteesestablished information/resource centers and learning centers, which provided avariety 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 EnergyAssistance Program (LIHEAP). (395) throughannual block grants to states, the Districtof Columbia, more than 100 eligible Indian tribes, two commonwealths, and fourterritories. (396) The Department of Health andHuman Services (HHS) distributesannual 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 lawalso expanded the criteria for LIHEAP contingency funding and added a sectionconcerning natural disasters. In FY2002, 29 states received contingency fundstotaling $100 million. Federal outlays for LIHEAP totaled $1.8 billion in FY2000,$1.9 billion in FY2001, and $1.8 billion in FY2002. States and other grantees design and administer their own programs under general federal guidelines. These guidelines set maximum and minimum incomeeligibility standards, and allow jurisdictions operating the LIHEAP to makecategorically eligible most households receiving Temporary Assistance for NeedyFamilies (TANF), Supplemental Security Income (SSI), Food Stamps, veterans'pension, or compensation benefits. (398) Incomeeligibility standards vary, but they may not be above 150% of the federal poverty income guidelines (a 2003 limit of $27,600for a family of four in the 48 contiguous states), or 60% of the jurisdiction's medianincome (adjusted for family size). In addition, they may not be below 110% of thefederal poverty income guidelines. The law requires that benefits and outreachactivities be targeted to those with the greatest home energy needs (as well as costs)particularly households with young children, frail elderly, and disabled individuals. (399) Eligibility for LIHEAP benefits is typically determined on a "household" basis, andgrantees may establish eligibility standards in addition to income. A household canbe an individual, or group of individuals who are living together as one economicunit for whom residential energy is customarily purchased in common or who makeundesignated rent payments for energy. Grantees operating the LIHEAP 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 lowestincomes and highest energy costs in relation to their income. They also must setaside a "reasonable" portion of their allotment for energy-related emergencies (basingthe set-aside on past experience). LIHEAP funds may be used to help pay residentialheating or cooling costs, purchase/install low-cost weatherization materials, andassist 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). LIHEAPobligations for weatherization totaled $159 million in FY2000 and $234 million inFY2001, exceeding outlays for the weatherization program of the Department ofEnergy (program no. 85). Benefits most commonly take the form of cash payments to households, vendor "lines of credit," vouchers, and tax credits. In FY2000, some 3.9 million householdsare estimated to have received home heating benefits (and, in 17 states, coolingassistance was given to 318,438 households). In FY2002, heating benefits went to anestimated 4.7 million households. The program includes a Residential EnergyAssistance Challenge (REACH) grant program, established by 1994 law, to increaseefficiency 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 1 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 Issues. The Energy Conservation and Production Act of 1976 ( P.L. 94-385 ), as amended, provides 100% federal funding for weatherization assistance tolow-income persons through grants administered by the Department of Energy(DOE). (400) Administrative costs may not exceed10% of grant funds. Weatherizationfunds are allocated among the states on the basis of factors that include: number ofheating degree days and cooling degree days, number of low-income owner-occupiedand renter-occupied dwellings, percentage of total residential energy used for spaceheating and space cooling. Although states are not required to provide matchingfunds, (401) state and local funds often supplementfederal amounts. Appropriationstotaled $230.0 million in FY2002. States and other grantees design and administer their own programs under general federal guidelines. The law makes eligible all "low-income" households andoffers alternate definitions of this term. States are permitted to give DOEweatherization assistance to households whose (a) combined income falls at or below125% of the federal poverty income guidelines, a ceiling equal in the 48 contiguousstates to $23,000 for a family of four in 2003 (at state option, the ceiling can be liftedto 150% of the poverty guideline, if the state has adopted that income limit forLIHEAP) and (b) families with a member who received cash welfare paymentsduring the previous 12 months from TANF, SSI, or state assistance programs. Legislation allows a maximum average expenditure, adjusted annually for price inflation ($2,614 in FY2003), 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; purchaseor lease of tools, equipment and vehicles; employment of on-site supervisors; andstorage of weatherization materials). DOE reports that it weatherized more than97,000 homes in FY2001 and 5.2 million over the 27-year history of the program. The Low-Income Home Energy Assistance Program (LIHEAP) usually spends morefunds on weatherization assistance than the DOE program. For information aboutLIHEAP weatherization assistance, see program no. 84. Note: For more information, see CRS Report RS20373, The Department ofEnergy's Weatherization Assistance Program and CRS Issue Brief IB10020, EnergyEfficiency: Budget, Oil Conservation, and Electricity Conservation Issues. For DOEsummary, see http://www.eere.energy.gov/buildings/weatherization/about.html . Table 14. Need-Based Benefits: Expenditures andEnrollment Data, by Programs and Form of Benefits FY2000-FY2002 Data in this table are based on program reports and budget documents, including departmental justifications of appropriations estimates. Details of sources areavailable upon request. Note: Programs are listed in descending order of total FY2002 expenditures. Except for sums below $100 million, figures shown are rounded to the nearest million. Totals reflect rounding of sums below $100 million to the nearest million. N.A =means "not available." N.P.= means no program. To conserve space, names of someprograms have been shortened in the table. MEDICAL BENEFITS a. Funded program costs. b. Includes these sums for administration: 2000, $5,892 million; 2001, $6,555 million; 2002, $6,601 million. c. Includes these sums for administration: 2000, $4,685 million; 2001, $5,325 million; 2002, $5,330 million. d. Unduplicated annual number of persons ever enrolled during the year, regardless of whether they receiveda service funded by the program. e. Appropriations. f. Includes these sums for administration: 2000, $23 million; 2001, $24 million; 2002, $25 million. g. VA makes grants to states to help finance construction of some states' veterans' homes and pay perdiem expenses for some veterans in state homes,but state and local expenditures are not known. h. Data include these sums for administrative costs: 2000, $116.5 million; 2001, $ 191 million; 2002,$251 million. Federal benefit expenditures arefrom state claims for federal matching dollars, submitted to HHS on Form 21C (as of 11/30/02), and may includeMedicaid administrative costs atan enhanced federal matching rate. i. Actual state and local share of administrative costs for FY2000-FY2002 are not available. j. Number ever enrolled during the year. k. Data from the Centers for Medicare and Medicaid Services, Office of the Actuary, National Health StatisticsGroup. l. Annual count. m. Minimum match required by law for block grant amount (75% of Federal sum) and SPRANS grants(50% of Federal sum). States may spend more,but data are not available. n. Includes these estimated sums for administration: 2000, $23 million; 2001, $20 million; 2002, $21million. Refugee cash and medical administrativeexpenditures actually are combined. Estimates are based on the 1998-1999 proportion of benefit dollars in eachprogram. o. Because of a high degree of overlap (and in some cases, a mixture of monthly and annual numbers), recipienttotals are not shown. CASH BENEFITS *Some other programs provide aid in the form of cash intended for specific goods or services. Examples are the Low-Income Home Energy AssistanceProgram and educational loan and grant programs. a. In FY2000, 13 monthly payments of SSI were made, and in FY2001, 11 monthly payments. Expenditure data in this table have been adjusted to a12-payment basis for each year. b. Includes these sums for administration: 2000, $2,321 million; 2001, $2,397 million; 2002, $ 2,522 million. Excludes these amounts for beneficiaryservices: 2000, $54 million; 2001, $44 million; 2002 $ 54 million. c. Includes these estimated sums (calendar year) for state administration of state SSI supplements: $71million; $72 million; $ 68 million (estimatesequal 8% of state-administered benefits). d. Data include recipients of non-federally administered payments (state-administered SSI supplementsonly, data as of December of each year): 2000,83,483; 2001, 87,059; 2002, 151,989. In 2002, Texas began reporting on state-administered supplements, whichincreased estimated numbers abovethose of previous years. e. Data for 2000 and 2001 are from U.S. Treasury, Internal Revenue Service, and refer to the calendaryear (tax year ) to which the EITC applied. Benefitsexclude tax expenditures (reductions in tax owed), which totaled $4,492 million in 2000 and $ 4,376 million in 2001 Data for 2002 are estimates from the FY2004 Budget of the United States, Analytical Perspectives, and exclude tax expenditures of $4,450million. f. Estimated annual number of tax units (chiefly families). 2001 number is preliminary. g. Includes basic cash assistance, refundable tax credits, short-term nonrecurring benefits (example,diversion payments), and contributions to individualdevelopment accounts. Excludes transfers to CCDBG and SSBG. Excludes spending for TANF child care, TANFwork activities, and TANF services (reported separately under those programs). Excludes separate Welfare-to-Work grants administered by the LaborDepartment. However, includesadministrative costs for all TANF-funded benefits and services. h. Includes these sums for overall TANF administrative costs (for all benefits and services): 2000, $1,506million; 2001, $1,598 million; 2002, $1,633million. i. Includes these sums for overall TANF administrative costs (all benefits and services): 2000, $889million; 2001, $1,042 million; 2002, $983 million. j. Number of recipients. Number of families: 2000, 2.265 million; 2001, 2.116 million; 2002, 2.064. Number of children: 2000, 4.385 million; 2001,4.055 million; 2002, 3.839 million. k. Foster care benefit expenditures do not include child support payments collected on behalf of fostercare children, which are used to reimburse stateand federal costs for foster care maintenance payments. For FY2000, child support payments received on behalfof foster care children totaled $45million; for each of FYs 2001 and 2002, $49 million. l. Includes these sums for administration, data collection, training, and demonstration (waiver) costs: 2000, $2,376 million; 2001, $2,473 million; 2002,$2,641 million. Note: before FY2000, states were not asked to separately classify demonstrationspending, which may be used for either benefitsor administration. Waiver expenditures included in the foregoing sums were: 2000, $136 million; 2001, $148million; 2002, $191 million. m. Includes these estimated sums for administration, data collection, training, and demonstration (waiver)costs: 2000, $2,224 million; 2001, $ 2,311million; 2002, $2,474 million. Waiver costs included in the preceding totals were: 2000, $131 million; 2001, $142million; 2002, $186 million. n. Data for 2000 and 2001 are from U.S. Treasury, Internal Revenue Service, and refer to the calendaryear (tax year ) to which the child tax creditapplied. Benefits exclude tax expenditures (reductions in tax owed), which totaled $19.7 billion in 2000 and $ 22.5billion in 2001. Data for 2002are estimates from the FY2004 Budget of the United States, Analytical Perspectives, and exclude tax expendituresof $22.2 billion. o. Spending data relate to state fiscal years. 2000 and 2001 spending data are based on reports from theU.S. Census Bureau (state and local governmentexpenditures for noncategorical cash assistance payments). 2002 amount is an estimate, based on data obtainedfrom 4 states that accounted for 33%of the 2000 Census-reported total. Data from these states indicated that GA cash expenditures rose about 10% from2000 to 2002. p. Annual count. q. Includes these sums for administration, data collection, training, and demonstration (waiver) costs: 2000, $286 million; 2001, $299 million; 2002,$305 million. Waiver spending included in foregoing totals: 2000, $90,000; 2001, $240,000; 2002, $1 million. r. Includes these estimated sums for administration, data collection, training, and demonstration (waiver)costs: 2000, $255 million; 2001, $ 271 million;2002, $277 million. Waiver spending included in foregoing totals: 2000, $90,000; 2001, $235,000; 2002, $729,000. s. Obligations. t. Estimates. Includes these estimated sums for administration: 2000, $12 million; 2001, $11 million;2002, $12 million. Refugee cash and medicaladministrative expenditures actually are combined. Estimates are based on the 1998-1999 proportion of benefitdollars in each program. u. Recipient totals are not shown because data include monthly and annual numbers. FOOD BENEFITS *See also program no. 72, Emergency Food and Shelter. a. Federal expenditures represent obligations unless otherwise marked. b. Food stamp data include spending for (1) state-financed benefits for non-citizens, to the extent that theyare funded through transfers to the federalgovernment (2) Puerto Rico's nutrition assistance program (over $1.2 billion yearly), and (3) nutrition assistancegrants to American Samoa andthe Northern Marianas totaling about $10 million yearly. State-local expenditure estimates are for administrationand do not include amountstransferred to the federal government to finance benefits for non-citizens ($35 million in 2000, $34 million in 2001,and $78 million in 2002), oramounts spent directly by states for benefits to non-citizens. c. Excludes sums spent for food stamp work/training, reported under that program (no. 79 ). Includesthese sums for food stamp administration: 2000,$1,935 million; 2001, $2,102 million; 2002, $2,264 million. Includes amounts for state-financed benefits fornon-citizens. d. Includes persons receiving nutrition assistance in Puerto Rico: 2000, 1.1 million; 2001, 1.1 million; 2002,1 million. e. Estimated cash and commodity assistance for free and reduced price lunches and after-school snacks. Includes federal funds for state administrativeexpenses for school lunch and other child nutrition programs. These administrative funds totaled: 2000, $120 million; 2001, $127 million; 2002,$ 132 million. Excludes cash assistance for "full-price"meals (44% of total lunches served), which have no incometest. f. Not reported since 1980, when federal funds provided about half the total cost of the lunch program,and children's meal payments, plus state/localrevenues, the other half. A 1994 Agriculture Department survey indicates that 40% of the total operating costs ofschool meal programs come fromchildren's meal payments and state/local government sources. The minimum state matching requirement totals justover $200 million annually. g. Estimated average daily number of children receiving free and reduced-price meals in these programs. h. Includes these federal payments for state-local administration, nutrition services, infrastructure grants,and technical services: 2000, $1,108 million;2001, $1,150 million; $2002, $1,208 million. "Administrative" expenses include costs of providing nutritional riskassessments, nutrition education,and other services such as breast feeding support services. All figures have been adjusted for year-to-year carryovers of unspent funds. I. None required. Contributions unknown. J. Federal spending for state administrative costs included under program no. 21 (school lunch). See footnotee. k. Estimates of funds (including the value of commodity assistance) for meals/snacks served to childrenand adults with family income not exceeding185% of the poverty income guideline. Includes administrative payments for day care home sponsors and auditexpenses: 2000, $136 million; 2001,$138 million; 2002, $138 million. l. Estimates of children from families who meet an income test (185% of the poverty income guideline)are based on the number of meals/snackssubsidized at the higher rate paid for meals served to such children. However, a 1999 Agriculture Departmentsurvey indicates that the figurespresented here may overstate the number of lower-income children served by approximately 200,000. m. The law prohibits an income test, but requires preference for those with greatest economic or social need. n. Sums represent (1) appropriations of Administration on Aging (AoA) before transfer of funds amongsupportive service and nutrition service categoriesplus (2) USDA obligations of funds for the elderly commodity program. For FY2002, AoA appropriations were$566.5 million, and USDAcommodity obligations were $ 176.5 million. o. The non-federal share for congregate and home-delivered nutrition is an estimate based on a 15%match requirements for these funds. No match isrequired for the nutrition services incentive component of the program. p. Annual unduplicated number. 2002 is an estimate. q. Sums represent the value of commodities plus appropriations for state and local administrative anddistribution costs and the value of "bonus"commodities provided without appropriation. Includes commodities for soup kitchens and food bank programs. r. States must match, in cash or in-kind, administrative grants that they do not pass along to local agencies. Amounts, if any, are not known. s. Includes payments to summer program sponsors for administrative costs and health inspectionpayments to states: 2000, $30 million; 2001, $30 million;2002, $ 30 million. t. July participation. u. Includes amounts obligated for administration and distribution costs): 2000, $20 million; 2001, $23million; 2002, $23 million. Not adjusted forinter-year transfer of funds. Because of carry overs of funds and commodity inventories among fiscal years, actualexpenditures are higher than thenew obligation amounts shown here. Does not include the value of "bonus" commodities provided withoutappropriation, estimated at $1 to $5million annually. v. Sums represent the value of purchased commodities plus administrative grants. Administrative costs: 2000, $21 million; 2001, $23 million; 2002,$ 23 million. Not adjusted for inter-year transfers of commodities. Does not include the value of "bonus"commodities provided without anappropriation: estimated at $5 to $10 million annually. Because of carry overs of funds and commodity inventoriesamong fiscal years, actualexpenditures are higher than the new obligation amounts shown here. w. Indian tribal organizations and state agencies operating the program must contribute up to 25% ofadministrative and distribution costs, but the amountof their contributions (estimated at $5 to $10 million annually) are not known. x. All spending is shown as benefit expenditures. No information is available on the breakout betweenbenefit and administrative spending, althoughadministrative expenses generally may not exceed 17% of a state's grant. y. Although a 30% state match is required under the WIC component of the farmers' market nutritionprogram, no information is available on the actualamount spent. z. Average number of half-pints of free milk served daily to children whose family income does notexceed 130% of the poverty income guidelines. Excludes federally subsidized milk served without regard to child's family income. aa. Recipients are not totaled because of a high degree of overlap (and/or in some cases, a mixture of monthlyand annual numbers). HOUSING BENEFITS *See also program no. 72, Emergency Food and Shelter, and program no. 68, Homeless Assistance Grants. a. Units eligible for payment at end of fiscal year. b. Outlay data include operating subsidies, capital grants, and HUD-administered Indian housing. Outlayand housing unit data exclude the Indian HousingBlock Grant. c. Localities accept payments in lieu of property taxes that are lower than normal taxes (usually equal to10% of shelter rent). No estimate is availableof the value of this benefit. d. Obligations. e. State-local governments may use up to 10% of federal HOME funds for administrative costs. f. Consists of housing units provided, constructed, or rehabilitated by HOME funds, plus tenant-basedrental assistance. Housing units: 2000, 78,968;2001, 69,712; 2002, 73,804. Families receiving tenant-based rental assistance: 2000, 6,899; 2001, 11,756; 2002,10,239. g. Units assisted under this program also are counted under the Section 515 program (rural rental housing loans)or Section 514 program (farm laborhousing loans). h. Amounts shown are appropriations. i. Beginning in FY2001, includes rehabilitation loans. j. Amount of rural housing repair loans and grants (Section 504) obligated: 2000, $27.4 million in loansand $30.4 million in grants; 2001, $ 30.3 and$31.1 million, respectively; 2002, $31.8 and $30.6 million, respectively. k. Number of rural housing units repaired with loans and grants (Section 504): 2000, 4,321 units repairedwith loans and 5,442 with grants; 2001, 5,431and 6,331, respectively; 2002, 5,615 and 6,170, respectively. Note: Some units may receiveboth a loan and a grant. l. Amount of farm labor housing loans (Section 514) and grants (Section 516) obligated: 2000, $25.9million in loans and $19.3 million in grants; 2001,$32.1 and $9.1 million, respectively; 2002, $47.3 and $14.5 million, respectively. m. Amounts shown are self-help technical assistance grants (Section 523) and site loan obligations(Sections 523 and 524). Grants: 2000, $30.4 million; 2001, $17.6 million; 2002, $26.5 million. Site loan obligations (Section 523): 2000, $1.2 million; 2001, $4 million;2002, $0.0 million. Site loanobligations (Section 524):2000, $0.6 million; 2001, $3.7 million; 2002, $0.5 million. n. These programs provide for the development of building sites. Houses constructed on these ssites generallyare financed (and counted) under theSection 502 program. o. Numbers represent new and repaired or renovated houses, as follows: 2000, 238 new and 310 repairedor renovated houses; 2001, 138 new and 225repaired or renovated houses; 2002, 201 new and 327 repaired or renovated houses. p. Columns are not totaled because they are a mixture of numbers: dwelling units, loans, and grants. Further,some units are assisted by more than oneprogram. EDUCATION BENEFITS a. Federal expenditure data represent appropriations and, unless otherwise indicated, are based upon appropriations for the program in the school yearending in the fiscal year named. For forward-funded programs, for example, "FY2002 expenditures" are totalFY2001 appropriations for the program(which generally were available for obligation from July 1, 2001 through Sept. 30, 2002). For current-fundedprograms, FY2002 expenditures areFY2002 appropriations, which generally were available for obligation throughout FY2002. b. The number of recipients is based upon counts or estimates of participants in the school year endingin the fiscal year named. For example, FY2002recipients are students who participated in (or received benefits from) programs during the 2001-2002 school year,or during the summer of 2002. c. Federal appropriations include funds for local administration. Note: Although HeadStart is classified in this report as an education program, itprovides many other services. It is administered by HHS rather than ED. d. Estimate. Based on requirement that non-federal funds equal 20% of total program costs (equivalent to 25%of federal sums). e. Dollars are for the program in the fiscal year named. They are net program obligations for subsidizedStafford and Stafford/Ford loans. Data forFY2000 are negative: -$1.7 billion for FFEL loans and -$0.6 million for Ford loans. Combined data for FY2001are positive: $4.3 billion for FFELand -$0.7 billion for Ford loans. FY2002 data are positive: $3.4 billion for FFEL loans and $4.1 billion for Fordloans. Recipient data representnumber of subsidized Stafford and Stafford/Ford loans made in the fiscal year. f. This program also receives non-governmental funds. g. Recipient data exclude TRIO staff who receive training. h. Federal funds for these migrant education programs may be supplemented by states, local schooldistricts, or public or nonprofit agencies. However,data are unavailable on this support, which is voluntary. i. Estimates. Based on requirement that non-federal funds at least equal the federal sum. J. Data here apply only to scholarships and loans funded with appropriations. Revolving funds (from loanrepayments) fund Health Professions StudentLoans and Loans for Disadvantaged Students. k. Recipients 2000, 17,679 persons received scholarships and 588, loans; 2001, 13,477 and 35, respectively;2002, 11,377 and 37, respectively. l. The program of graduate assistance in subject areas of national need requires institutions to provide matchingfunds equal to 25% of the federal grant. m. Data refer to persons receiving new awards each year; they exclude persons with continuing fellowships. n. School year 2002-2003 recipients: 1,223 students, 1,246 teachers, and 250 new Americans. SERVICES a. Includes expenditures made from funds transferred to CCDBG from TANF. b. Average monthly number of children served. c. Includes services provided solely under terms of pre-TANF law, supportive services, pregnancyprevention and family formation activities, andunclassified "other" expenditures. d. Includes these sums for transportation and other supportive services for non-employed persons (classifiedas "non-assistance"): 2001, $524 million;2002, $339 million e. Includes these sums for transportation and other supportive services for non-employed persons(classified as "non-assistance"): 2001, $133 million;2002, $245 million. f. Includes transfers from TANF: 2000, $ 1,079 million; 2001, $920 million; 2002, $1,043 million. Excluded are transfers from LIHEAP and theCommunity Services Block Grant (and reported under those programs). g. Not total TANF maintenance-of-effort (MOE) child care spending. To avoid double counting, reportedhere is only the amount by which TANF MOEspending exceeds CCDBG MOE spending. 2002 sum is estimated. h. Appropriations i. None required. Contributions unknown. j. Includes administrative costs: 2000, $16 million; 2001, $20 million; 2002, $ 19 million. k. Recipient count represents total number of cases closed during the fiscal year. l. Law places these limits on administrative spending: local recipient organizations, 2% of their funds;National board, 1%; state set-aside committees,0.5%. Note: Shelters, not individuals, are fund recipients. m. Includes these sums for administrative costs: FY2000, $2.6 million; FY2001, $3.3 million, and FY2002,$3.4 million. JOBS AND TRAINING a. Data are appropriations unless otherwise marked. b. Expenditures. c. Effective July 1, 2000, includes funds for summer employment opportunities for youth (previously a separateprogram). d. The law permits no more than 13.5% of federal funds to be used for administrative costs (butauthorizes the Secretary of Labor to increase this to 15%under certain conditions). e. Estimate, based on general requirement that non-federal funds equal at least one-ninth of federal funds(10% of total). State-local spending representscash and in-kind amounts and may include some private sums. f. FY2000, $404 million in formula grants and $164 million in competitive grants; 2001, $427 millionin formula grants and $164 million in competitivegrants; 2002, $ $329 million in formula grants and $ 18.3 million in competitive grants. g. Matching funds for formula grants h. FY2000, 141.7 thousand formula grant participants and 56.8 thousand competitive grant participants;FY2001, 170.4 thousand and 36.1 thousandparticipants, respectively; and FY2002, 107.6 thousand and 10 thousand, respectively. i. Spending for administering and operating employment and training activities for food stamp recipientsand for support costs like child care andtransportation. Funding provided (obligated) substantially exceeds expenditure amounts shown in this table. Ineditions of this report issued before2001, funding for the employment and training programs for food stamp recipients was included in figures shownfor administration of the food stampprogram, typically $150 -- $200 million annually in federal funds and $50-$100 million in state funds. j. Table shows non-federal funding (cash and in-kind amounts from state-local governments and someprivate sources), as reported in annual BudgetJustifications of the Corporation for National and Community Service. These amounts exceed the requiredminimum non-federal "matching" share(10% of the total, one-ninth of the federal amount). k. Annual number. ENERGY AID a. Recipient numbers are households served during the year with heating and winter crisis aid. Outlay data include weatherization aid. Expendituresare from regular LIHEAP appropriations plus contingency funds. In addition, some states may have access to oilprice overcharge funds (under theEmergency Petroleum Allocation Act of 1975). Those funds are limited, as most cases have been settled. InFY2000, 2 states obligated about $3million of oil overcharge funds. b. Of these funds, $400 million was released in the final weeks of FY2000, making them effectively availablefor FY2001. c. Unofficial estimate provided by the National Energy Assistance Directors' Association (NEADO), based ona survey of the states. d. By law, no more than 10% of federal funds may be used for administration. e. Total may include some duplication, as some households may receive aid from both programs. | More than 80 benefit programs provide aid -- in cash and noncash form -- that is directed primarily to persons with limited income. Such programs constitute thepublic "welfare" system, if welfare is defined as income-tested or need-basedbenefits. This definition omits social insurance programs like Social Security andMedicare. Income-tested benefit programs in FY2002 cost $522.2 billion: $373.2 billion in federal funds and $149 billion in state-local funds (Table 1) . Welfare spendingrepresented almost 19% of all federal outlays, with medical aid accounting for 8%of the budget. Total welfare spending equaled 5% of the gross domestic product andset a new record high, up $45.3 billion (9.5%) from the previous peak of FY2001. In current dollars, spending increased during the year for all forms of aid except jobsand training. Higher medical spending accounted for $32.8 billion of the netincrease, and 54 cents of every welfare dollar went for medical assistance. Expressedin constant FY2002 dollars ( Table 2) , welfare spending increased by 7.9% from the2001 level. The composition of welfare spending differed by level of government ( Tables 3 and 4 ). Medical aid consumed 80% of state-local welfare funds, but 43.9% offederal welfare 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, recipientsmust work or study. Further, the block grant program of Temporary Assistance forNeedy Families (TANF) requires adults to start work after a period of enrollment, thefood stamp program imposes work and training requirements, and public housingrequires residents to engage in "self-sufficiency" activities or perform communityservice. Finally, the Earned Income Tax Credit (EITC) is available only to workers. An unduplicated count of welfare beneficiaries is not available. Enrollment in TANF and food stamps remained far below 1994/1995 peak levels during2000-2002, but Medicaid enrollment set a new record high. Average 2002 monthlynumbers: Food stamps, 20.2 million; TANF, 5.1 million; and Supplemental SecurityIncome (SSI), 6.9 million. During the year 50.9 million persons received Medicaidservices, and in 2001, EITC payments went to an estimated 16.8 million tax filers. Census Bureau data indicate that 5.4 million families with children were poor in2002 before receiving cash aid from TANF, General Assistance (GA) or the EITC,compared with 6.7 million in 1996 (last full year of the pre-TANF welfare program). Among these families, the EITC was received by 53.7% of those with a female headand by 71.7% of those with a male present ( Figure 3) . |
Non-elderly, non-disabled, non-working residents of public housing are subject to a community service and self-sufficiency requirement (referred to as the CSSR or community service requirement). Specifically, all adult residents of a household who are not otherwise exempted are required to participate in eight hours per month of either community service or economic self-sufficiency activities in order to maintain their eligibility for public housing. Exempted residents include those who are 62 years or older; blind or disabled and can certify that they cannot comply with the community service requirement; caretakers of a person with a disability; engaged in work activities; exempt from work activities under the Temporary Assistance for Needy Families program (TANF) or a state welfare program; and/or members of a family in compliance with TANF or a state welfare program's requirements. According to data released by HUD, of the 1.86 million individuals living in public housing, approximately 812,000, or (44%) are potentially subject to the community service requirement. It requires that residents of public housing, unless exempted, participate in eight hours of community service and/or economic self-sufficiency activities per month. PHAs have broad discretion in defining what counts as community service or economic self-sufficiency activities. Allowable activities may include, among others, volunteer work at a local public or nonprofit institution; caring for the children of other residents fulfilling the community service requirements; participation in a job readiness or training program; or attending a two- or four-year college. However, public housing tenants required to fulfill the community service requirements cannot supplant otherwise paid employees of the PHA or other community service organizations. PHAs must review and verify each member of a household's compliance 30 days prior to the end of the household's annual lease. Each nonexempt family member is required to present a signed certification on a form provided by the PHA of CSSR activities performed over the previous 12 months. This form is developed and standardized by the PHA and the submitted form is verified by a third party. In 2016, as a part of a broader set of administrative streamlining actions, HUD began to permit PHAs to adopt policies to allow families to self-certify their compliance with the CSSR, subject to validity testing. If any member of the household fails to comply with the community service requirement, the entire household is considered out of compliance. The tenant must agree to make up the community-service deficit in the following year in order to renew the household's lease through a signed "work-out agreement" with the PHA. If the tenant does not come into compliance, the PHA may not renew the household's lease. However, PHAs may not terminate a household's lease for noncompliance before the lease has expired. Noncompliant tenants may file a grievance to dispute the PHA's decision to terminate tenancy. Each PHA must develop a local policy for administering the community service and economic self-sufficiency requirements and include the policy in its agency plan. PHAs may administer community service activities directly, partner with an outside organization or institution, or provide referrals to tenants for volunteer work or self-sufficiency programs. The community service and economic self-sufficiency requirement applicable to public housing residents originated with the housing reform debates of the 1990s and parallel debates at the time about the role of work and welfare reform. Following several years of legislative effort, in 1997, H.R. 2 , the Housing Opportunity and Responsibility Act of 1997, and S. 462 , the Public Housing Reform and Responsibility Act of 1997, were introduced. They sought to reform HUD's low-income housing programs by consolidating the public housing program into a two-part block grant program; denying occupancy to applicants with a history of drug-related activity; and requiring residents of public housing to meet a community service requirement. The community service and economic self-sufficiency requirement was among the most controversial elements of the sweeping bills. While neither H.R. 2 nor S. 462 became law, a compromise version was enacted as the Quality Housing and Work Responsibility Act of 1998 (QHWRA), Title V of the FY1999 Departments of Veterans Affairs and Housing and Urban Development (VA-HUD) appropriations bill ( H.R. 4194 ), signed into law by then-President Bill Clinton ( P.L. 105-276 ). QHWRA contained many provisions from H.R. 2 and S. 462 , including a version of the community service and economic self-sufficiency requirement. HUD did not issue regulations to implement the community service provisions of QHWRA until March 29, 2000. The regulations took effect beginning on October 1, 2000, and were in effect for just over one year. Language added to the FY2002 VA-HUD appropriations bill ( P.L. 107-73 ), which was enacted in November 2001, prohibited HUD from using any FY2002 funds to enforce the community service and self-sufficiency requirements. The suspension of the provision ended when the FY2003 appropriations bill ( P.L. 108-7 ) was signed into law on February 21, 2003. HUD issued new guidance to the local public housing authorities (PHAs) that administer public housing on June 20, 2003, instructing them to reinstate the community service requirement for public housing residents beginning on August 1, 2003. Following full implementation of the community service requirement, legislation was introduced in several Congresses to repeal the community service requirement, although it was not enacted. As is evident in its legislative and regulatory history, the community service and economic self-sufficiency requirement for residents of public housing has been controversial since its inception. It is consistent with the movement toward required work and self-sufficiency activities that characterized the welfare reform debates of the same era, which culminated in the creation of the Temporary Assistance for Needy Families (TANF) program. Supporters of mandatory work policies have argued that low-income families should earn the benefits or subsidies they are receiving. They have also argued that by compelling families into self-sufficiency activities, such policies can improve the lives of poor families and their children by potentially increasing their incomes. Those who have argued against mandatory work requirements contend that such requirements are paternalistic and do not promote real self-sufficiency, but rather, low-wage work that may not be sustainable. All of these disagreements manifested during debate over the provision, and additional arguments were made specifically for and against the public housing requirement. Proponents of the community service requirement cited concerns about a perceived negative culture at public housing developments and the possibility for the community service requirement to help change that culture. Opponents of the provision argued specifically against the idea of a community service "requirement" for public housing residents, arguing it is akin to the forced community work mandated of criminals. Additionally, critics raised questions about the fairness of applying this requirement only to residents of public housing and not to recipients of Section 8 Housing Choice Vouchers or Section 8 project-based rental assistance, since the programs serve similar populations. During debate over the provision, concerns were repeatedly raised that the community service requirement would be administratively burdensome or an unfunded mandate. Although only a small number of tenants may actually be subject to the community service requirement at a given PHA, the PHA must certify either the participation or exemption status of every resident of public housing. Furthermore, the grievance and/or eviction process for tenants who are found to be noncompliant with the community service requirement may be costly. Industry groups contended that this requirement is an unreasonable burden for PHAs, that, they argue, are chronically under-funded. Some of the opponents of the policy speculated that PHAs would not aggressively implement the provision; rather, they would try to exempt as many families as possible and set a very broad definition of eligible activities in order to avoid costly grievances and evictions and keep administrative burdens low. Differences of opinion were also expressed regarding whether the community service requirement would be complementary to, or duplicative of, the work requirements that had recently been adopted for cash assistance recipients under the Temporary Assistance for Needy Families program. There has also been some controversy surrounding HUD's implementation of the community service requirement. The statute states that in order to meet one of the exemption criteria, tenants must be engaged in work activities, as defined in the Social Security Act. The Social Security Act definition of work activities does not include a minimum number of hours a person must perform the listed activities in order to be considered engaged in work activities. HUD's 2003 Notice to PHAs encouraged them to consider a tenant engaged in work activities, and therefore exempt from the community service requirement, only if they were working at least 30 hours per week. This guidance initially prompted confusion as to whether PHAs were required to set a 30-hour standard. While the guidance states that PHAs are encouraged to set a 30-hour standard, they are not required to set such a standard. In March 2008, HUD's Inspector General released an audit of HUD's implementation and enforcement of the community service requirement. The audit was performed in response to media reports that the community service requirement was rarely enforced. The audit found that HUD did not have adequate controls to ensure that PHAs properly administered the community service requirement, and the audit estimated that at least 85,000 households living in public housing were ineligible as a result of noncompliance with the community service requirement. In response to these findings, in November 2009, HUD published additional guidance to PHAs regarding the administration of the community service requirements. The guidance largely restated existing requirements, although it did provide enhanced guidance on reporting. It also reiterated steps PHAs may take to enforce the community service requirement, as well as steps HUD may take to sanction PHAs for failing to enforce the community service requirement. In February 2015, HUD's Inspector General released a new audit of HUD's implementation and enforcement of the community service requirement. The audit found that HUD subsidized housing for 106,000 units occupied by noncompliant tenants out of nearly 550,000 units potentially subject to the community service requirement nationwide. As a result, the OIG contended that the agency paid more than $37 million in monthly subsidies for public housing units occupied by noncompliant tenants. The audit recommended that the agency develop and implement a written policy for the community service requirement to ensure adequate compliance and create training and further clarified reporting mechanisms. In response to the audit, HUD issued a notice to PHAs on August 13, 2015, with further guidance related to the statutory/regulatory requirements for administering the community service requirement; data collection and reporting requirements; action to take against noncompliant tenants; and penalties against PHAs that do not comply. The notice also provided clarification that HUD has interpreted the statutory exemptions for compliance with the community service requirement to include the Supplemental Nutrition Assistance Program (SNAP). Therefore, if a tenant is a member of a family that receives SNAP, and has been found to be in compliance with SNAP program requirements, then the tenant is exempt from the community service requirement. This clarification is particularly notable because the 2015 OIG report contended that PHAs were incorrectly classifying families as exempt from the community service requirement because of their SNAP participation. Since HUD has now clarified that SNAP families are exempt, the OIG's estimate of the number of noncompliant families is likely overstated to some degree. In August of 2016, HUD published on its website summary data reflecting compliance with the CSS requirement. Those data report that of the 1.86 million people living in public housing, the community service requirement is applicable to 44%, or 812,000 residents. Of those residents to whom the community service requirement applies, approximately 68% are exempt (i.e., are already working, have a disability, etc.). Of the remaining 32% who are not exempt (257,000 residents, or 13% of all people living in public housing), 48% were reported to be in compliance (124,000 individuals, or 7% of all public housing residents), 32% were reported as pending verification by the PHA (83,000 individuals or 4% of all public housing residents), and 19% were reported as being out of compliance (48,000 individuals, or 3% of all public housing residents). | The Quality Housing and Work Responsibility Act of 1998 (P.L. 105-276) included provisions designed to promote employment and self-sufficiency among residents of assisted housing, including a mandatory work or community service requirement for residents of public housing. Non-elderly, non-disabled, non-working residents of public housing are required to participate in eight hours per month of either community service or economic self-sufficiency activities in order to maintain their eligibility for public housing. The community service requirement has been controversial since its inception. Supporters of the provision believe that it is consistent with the goals of welfare reform and that it will promote civic engagement and "giving back" among residents of public housing; detractors argue that it is punitive, unfairly applied, and administratively burdensome. In February 2015, the Department of Housing and Urban Development (HUD) Inspector General released an audit critical of HUD's implementation and enforcement of the community service requirement. In response to the report, HUD issued further guidance in August 2015 related to the statutory/regulatory requirements for administering the community service requirement; data collection and reporting requirements; action to take against noncompliant tenants; and penalties against PHAs that do not comply. Recent HUD data indicate that approximately 14% of public housing residents are subject to the community service requirement and not otherwise exempt. Of those nonexempt residents, approximately 19% were reported as noncompliant (or about 3% of all public housing residents). |
Inland waterways are a significant component of the nation's marine transportation system. These waterways carry approximately one-sixth of the national volume of intercity cargo on 25,000 miles of commercially active inland and intracoastal waterways. Included in this total are approximately 12,000 miles of fuel-taxed federal waterways known as the Inland Waterway System (IWS), which are managed by the U.S. Army Corps of Engineers (Corps). These waterways cover 38 states and handle approximately half of all inland waterway freight (or one-twelfth of all national freight). The Corps develops, operates, and maintains the infrastructure of these commercial waterways (e.g., navigation channels, harbors, locks, and dams), and also maintains and regulates the channel depths through dredging and water management. Costs for maintenance and construction on inland waterways are funded by the Corps (through appropriations) and the commercial user industry (through user fees paid to the federal government). The Corps pays for 100% of the cost for studies and for operations and maintenance on the IWS, while the cost for new construction or major rehabilitation (currently defined as any upgrade in excess of $8 million) is shared equally between the Corps and the commercial industry. Congress is faced with competing proposals relating to future financing for inland waterway system investments, including who will finance what investments, and at what level. The current revenue source, a set tax on fuel agreed to in the mid-1980s, is insufficient to cover the nonfederal costs of major capital expenditures on inland waterways. This has in some years resulted in federal taxpayers covering more than half of these costs. The ongoing shortfall is currently limiting the number of new and ongoing inland waterway construction projects, and is expected to continue to do so unless changes to the financing system are enacted by Congress. Recent proposals highlight a number of issues associated with inland waterways. On multiple prior occasions, the executive branch has proposed to phase out the fuel tax in favor of lock usage fees, but these efforts have been rejected by Congress. More recently, the user industry proposed and continues to favor a plan that includes increases to the existing fuel tax in combination with an increase in the overall federal share for inland waterway costs. The use of inland waterways for commercial transport predates the founding of the nation itself. Before the onset of rail and highway transport, inland waterways were a primary means of transporting many goods. Through the early 1800s, inland waterway development was left to the states, until the Supreme Court gave the United States authority over interstate commerce in 1824. Shortly thereafter, the federal government began funding and support for waterways to benefit commerce. Improvements in other forms of transportation (rail and highway) have decreased overall reliance on inland waterways as a means of commercial freight transportation, but these waterways remain a significant part of the nation's transportation mix for many commodities. Annually, inland waterway traffic on the federal IWS accounts for 4%-5% of total commercial tonnage shipped. While in terms of tonnage, inland waterways are a relatively small part of the nation's overall freight transportation network, waterways remain an important transportation route in some regions of the country, especially those that rely on movement of bulk goods over long distances. In these areas, the percentage of commercial tonnage shipped by barge, especially for specific commodities, is much higher. Along with freight rail, inland waterways are a primary means of transport for the nation's grain and oilseed exports, and for bulk products such as coal, petroleum, chemicals, processed metals, cement, sand, and gravel. Although previous estimates by the Corps and others projected that inland waterway traffic would increase, actual traffic on inland waterways has remained somewhat flat over the last 20 years in terms of both tonnage and ton-miles. At the same time, overall freight tonnage for all modes of domestic freight shipping increased at an average annual rate of 1.2% from 1997 to 2007, and is expected to continue to increase. The Department of Transportation projects that overall freight tonnage will double over the next 25 years, with inland waterway traffic projected to increase at a rate significantly less than that projected for rail and highway shipping. The system of fuel-taxed inland and intracoastal waterways is displayed in Figure 1 . Inland waterway tonnage relative to other modes of freight transit is shown in color in Figure 2 . As Figure 2 indicates, almost all of the tonnage (approximately 90%) transported on inland waterways comes through the Mississippi and Ohio River System, primarily through bulk shipping on barges. The federal government invests in inland waterways because of the value of the IWS to the nation. The federal government first began to invest in inland waterways in the early 1800s. Over time, this gave way to a significant federal investment in the form of full funding for investigations, operations and maintenance, and construction costs funded through the U.S. Army Corps of Engineers. However, legislation in the 1970s and 1980s changed this system and created user cost-sharing requirements for a subset of these costs. Two pieces of legislation transformed inland waterway financing and created the framework for the current system: the Inland Waterways Revenue Act of 1978 ( P.L. 95-502 , 26 U.S.C. §9506) and the Water Resources Development Act (WRDA) of 1986, as amended ( P.L. 99-662 , 26 U.S.C. §4042). These two laws underpin the current financing system for Corps inland waterway projects. Prior to these laws, investments had been entirely funded by the federal government as a result of established policies (see box below). Together, the acts of 1978 and 1986 established a fuel tax on commercial barges, cost-share requirements for inland waterway projects, and a trust fund to hold these revenues and fund investments in construction. The overall effect of these changes was a greater financial and decision-making responsibility for commercial operators on the inland waterway system. The federal policy of taxing fuel on commercial barge traffic was codified in the Inland Waterways Revenue Act of 1978. The act of 1978 also established the Inland Waterways Trust Fund (IWTF), which was initially funded by this fuel tax ($0.04 per gallon, beginning in FY1980, gradually increasing to $0.10 per gallon in FY1986), and established those waterways that are subject to the tax. However, no appropriations were authorized from the IWTF until later, in WRDA 1986. WRDA 1986 authorized additional increases to the 1978 act's fuel tax, which were set to rise to the current level of $0.20 per gallon beginning in 1994. (See Table 1 for the full schedule of tax increases.) Similar to the initial tax under the 1978 act, this tax was not indexed for inflation. Significantly, WRDA 1986 also laid out a cost-sharing process for inland waterway expenditures: it stipulated that inland waterway construction projects would be funded on a 50/50 basis, with 50% of the funds required for construction coming from the IWTF and the remaining 50% funded by the Treasury's General Revenue (GR) fund. On the other hand, operations and maintenance (O&M) costs were to remain a 100% federal responsibility. Under WRDA 1986, expenditures from the IWTF on a construction project are not automatic. They must be first authorized by Congress and then funded in annual discretionary appropriations. WRDA 1986 authorized an initial round of projects to be funded by the IWTF, and subsequent Water Resources Development Acts passed by Congress have authorized additional projects. Pursuant to the WRDA requirements, appropriations for these projects have been made by Congress in annual appropriations bills (see next section, " Inland Waterways Trust Fund: Trends and Issues Since 1986 ," for additional information on funding trends). As previously mentioned, WRDA 1986 retained the policy of 100% federal funding for inland waterway costs besides construction and major maintenance (i.e., expenditures for studies and operations and maintenance costs less than $8 million). While not technically part of the IWTF, the amount of federal dollars spent on O&M typically exceeds the amount spent on construction and major rehabilitation by a significant amount, and is often part of policy discussions related to inland waterways. WRDA 1986 also established the Inland Waterways Users Board (IWUB), a federal advisory committee subject to the Federal Advisory Committees Act. Section 302 of WRDA 1986 stipulates that the board be made up of 11 members representing shipping interests on the primary geographical areas served by inland waterways, with due consideration given to tonnage shipped on the respective waterways. The board was established to give commercial users an opportunity to inform the priorities for federal decision-making on IWTF projects. It meets regularly three times a year to develop and make recommendations to the Secretary of the Army and Congress regarding these investments. Between 1986 and 2011, the IWTF balance has varied considerably. Beginning in 1992, balances increased, reaching their highest level, $413 million, in 2002. On multiple occasions, the executive branch (through the Clinton Administration in 1996 and the Bush Administration in 2004) proposed to further increase fees on the user industry and require the IWTF to also fund some portion of operations and maintenance expenditures (in addition to the construction and major rehabilitation requirements). These proposals were not enacted by Congress. Beginning in FY2005, appropriations from the IWTF increased significantly as the Bush Administration requested and Congress appropriated greater investments in IWTF-funded projects. These increasing expenditures significantly exceeded annual fuel tax collections going into the IWTF and interest on the IWTF balance. (See Figure 3 .) Additionally, some projects significantly exceeded their original cost estimates, further stressing the trust fund. As a result, balances fell sharply from 2005 to 2010. In an effort to reduce stress on the IWTF and prevent the balance from falling to unsustainable levels, Congress has taken a number of "stopgap" measures in previous years. For instance, Congress exempted major rehabilitation projects from their usual cost-sharing requirements in the continuing resolution for FY2009 ( P.L. 110-329 ) and limited the projects with access to the IWTF in regular appropriations for FY2009 ( P.L. 111-8 ). Congress also provided inland waterway projects with more than $400 million in construction funding under the American Recovery and Reinvestment Act (ARRA, P.L. 111-5 ), and exempted this funding from IWTF cost-share requirements. These measures limited the costs to the IWTF for ongoing projects, while also allowing for the completion of these projects. More recently, Congress prohibited the Corps from entering into new contracts requiring IWTF funding since FY2009, and has limited enacted appropriations from the IWTF to expected fuel tax revenues for the coming year. Due in part to these stopgap measures, the trust fund balance appears to have stabilized. A summary of these trends is provided in Figure 3 . Without changes to IWTF financing, funding for new projects is expected to be extremely limited in the foreseeable future, with most of the funding expected to go to one project, Olmsted Locks and Dam on the Ohio River. Such a scenario would likely increase the current project backlog for Corps inland waterways projects. Long-term options and proposals to address this situation are discussed in the section below, " Inland Waterway Financing Proposals ." In addition to problems with the IWTF financing system, other concerns have been raised in recent years. Specifically, fuel tax payers (represented by the IWUB) have registered complaints related to structural inefficiencies and inequities in the Corps project planning process for inland waterways investments. Many users note that in the past, decisions within the executive branch have led to what some consider inefficient project implementation and use of tax dollars (in the form of cost escalation and schedule delays on some IWTF projects). As a partial response to these concerns, in FY2006 the Corps implemented several reforms to its project delivery process, including implementation of risk-based cost estimates and prioritized funding for projects with a high risk of cost overruns. While the IWUB generally recognized these changes as improvements, many continue to advocate for additional structural reforms to the planning process (see below section, " Inland Waterways Users Board Proposal "). Some highlight cost overruns and project planning issues at one project in particular, the Olmsted Locks and Dam project, as evidencing ongoing needs for reform associated with planning and oversight of the IWTF. The estimated cost for the Olmsted project has increased significantly over time, in part due to major changes to the project's design and method of construction. The previously authorized cost of $775 billion (authorized in P.L. 100-676 in 1988) was increased to $2.9 billion in the FY2014 continuing resolution enacted on October 16, 2013. As of January 1, 2013, the project was 49% complete. As of 2013, the lock components of the project were complete. The dam and demolition components of this project are expected to be completed in 2020 and 2024, respectively. Concerns related to the solvency of the IWTF and the equity of the financing system for fuel-taxed inland waterways have led to a number of recent proposals, first by the Bush Administration in 2008, then by the Obama Administration in 2009 and 2010. While these proposals were rejected by Congress, the Administration has recently presented Congress with a new recommendation that would raise revenues for the IWTF. The user industry, represented by the IWUB, recently adopted its own proposal, which differs significantly from the Administration's proposal. The user proposal would implement an increase to the current fuel tax, while also requiring an increased federal share for some inland waterway investments (e.g., dams). Past Administrations, including both the Bush and Obama Administrations, have submitted various proposals to increase commercial user fees on inland waterways. The most recent of these proposals are discussed below. In response to concerns regarding a potential IWTF shortfall, the Bush Administration in 2008 submitted a legislative proposal to Congress that would have instituted a lock usage fee to replace the fuel tax and generate additional revenue for the IWTF beginning in FY2009. The fee proposed to phase in charges to commercial barges of $50-$80 per lockage through the end of calendar year 2012 for lock chambers greater than 600 feet in length, and $30-$48 for chambers less than 600 feet. (See Table 2 .) Additionally, it proposed to tie IWTF balances to this user fee after the end of 2012 by raising lockage fees when the IWTF balance fell below $25 million, and lowering fees when the balance rose above $75 million. At the time, the Bush Administration argued that an approach which shifted the focus of user fees toward lock users would improve equity in waterborne commerce investments, since locks account for most IWS capital construction expenditures. Both the House and Senate appropriations committees rejected this approach, noting that a lock fee would pose an unacceptable burden on lock users, who would pay considerably more under the Bush proposal than they currently pay. Congress instead provided temporary relief through stopgap measures (as previously mentioned) and requested that the executive branch revisit its approach. The Obama Administration's budget requests to Congress have each proposed some form of new user fee for inland waterways. The FY2010 budget included a proposal similar to the aforementioned Bush Administration proposal, with the only major change being an option for the Corps to further increase fees at high-traffic locks. The Administration argued that such a fee would increase both efficiency (by reducing traffic at these locks) and revenues. In its consideration of FY2010 appropriations, Congress rejected the proposal. More recent Obama Administration budgets have continued to propose user fees to replace or supplement the fuel tax, while at the same time requesting an appropriation level based only on current-year expected fuel tax revenues ($75 million-$95 million in recent years). Congress has generally rejected the user fee proposals, but has agreed with the Administration's approach of limiting revenues in lieu of a long-term solution for inland waterways financing. Most recently, the FY2013 and FY2014 budgets each assumed approximately $80 million in new revenues resulting from an unspecified inland waterway user fee (potentially similar to the system described below). To date, none of these proposals have been enacted. In addition to the aforementioned budget proposals, the 2011 Obama Administration plan for deficit reduction included a new inland waterway financing structure among its recommendations to Congress. The proposal was notable for its specificity, as it included more detail than most of the aforementioned budget proposals. The Administration proposed to maintain the existing fuel tax and institute a "two-tier" annual fee for commercial shippers that would be set by the Corps to achieve a revenue target. Under the proposed structure, all inland waterway shippers would be subject to a new annual fee in addition to the existing fuel tax. Vessels using inland waterway locks would pay a higher fee than those not using locks. In its proposed legislation that would have instituted this fee, the Administration did not specify an amount for the fee, but instead stipulated revenue targets to be achieved, which are shown in Table 3 . The Obama Administration estimated that the 2011 proposal would result in approximately $1 billion in additional revenues for the IWTF over 10 years. While the balance of IWTF receipts available for appropriation would increase under this plan, the overall cost share between the General Revenue Fund of the Treasury and the IWTF would not change. The Obama Administration proposal included several other changes associated with the IWS, including the addition of 39 individual segments of varying lengths to the existing inland waterway system. Most of these proposed new segments are contiguous with the current system of inland waterways, but are not likely to achieve significant new revenues. As was the case with the aforementioned budget proposals, this fee was opposed by the user industry and was not enacted. In 2010, the Inland Waterways Users Board (IWUB) adopted and transmitted to Congress a proposal of its own. The report of its Inland Marine Transportation Systems Capital Investment Strategy Team, Inland Marine Transportation Systems Capital Projects Business Model (hereinafter referred to as the IWUB report), has come to represent the preferred alternative of the inland waterway user industry and has been introduced as legislation in the 112 th and 113 th Congress (see below section, " Issues for Congress "). Although the report was prepared at the request of the IWUB and credited participation by some Corps employees, it was not formally endorsed by the Corps or the Administration, and many of its primary recommendations have been opposed by the Obama Administration. Based on its own research and analysis and input by some Corps employees, the IWUB report recommended a new financing system and a number of other proposed changes for inland waterways. The report's primary recommendations can generally be divided into four categories: Increase User Fees . Increase the existing IWTF fuel tax by $0.06-$0.09 per gallon (30% to 45% above the current tax of $0.20 per gallon). The exact increase would depend on future fuel tax revenues. Increase the Federal Share of Inland Waterway Costs . Modify the subset of inland waterway investments subject to IWTF cost-share requirements (see Table 4 ) and make a corresponding overall shift to a larger portion of IWTF projects being funded solely by the General Revenue fund. Increase Overall Spending on Inland Waterways . Increase the overall investment on inland waterways. Other R ecommendations . Increase IWUB involvement in project planning and construction, and other recommendations, including the promulgation of regulations that would formally adopt the report's prioritization criteria. The most prominent component of the IWUB report is a proposed increase to the inland waterway fuel tax rate (currently $0.20 per gallon) of between $0.06-$0.09 per gallon. The increase would depend on actual fuel tax collections over the next several years (i.e., if collections are below recent averages, the tax would be higher). Overall, the report projects that the new tax level would generate approximately $112 million per year in fuel tax revenues for the IWTF, an increase over revenues from the last 10 years (approximately $85 million annually). Despite this increase, most of the new revenue would not be spent until future years, which would allow the IWTF to replenish its balances. As was the case with the original tax of $0.20 per gallon, the proposed increase to the fuel tax would not be indexed for inflation and would not include a capital recovery mechanism linking future taxes to expenditures. The IWUB report also proposes to shift more of the cost for inland waterway projects toward the federal government by increasing the number of investments on inland waterways that are funded solely by the federal government and decreasing the projects that are subject to 50/50 cost-sharing. Under the report's recommendations, all dam-related expenses (construction and rehabilitation), as well as rehabilitation projects on locks with costs less than $100 million, would be exempt from WRDA 1986 cost-sharing requirements. The IWUB report also proposes to establish a "cap" on the use of IWTF funds at authorized levels to discourage construction cost overruns. Critics point out that this is an additional hidden cost, as currently all cost overruns are funded equally between the federal government and the IWTF. Cumulatively, these changes would affect the overall cost-share for IWTF projects. The subset of projects no longer requiring cost sharing under the proposal would in effect increase the overall federal share for new and major rehabilitation investments over the next 25 years from current levels (50%) to approximately 70% for the same subset of projects. Differences between the current arrangement and the report's proposals are outlined by project type in Table 4 . The IWUB report proposes an overall increase in funding for inland waterways, including increases in funding both from the IWTF and the General Revenue fund. As proposed in the IWUB report, full funding for this suite of investments requires that annual expenditures (from the GR fund and the IWTF) average approximately $380 million, a significant increase over historical averages. This would necessitate an increase above average total expenditures since 1994, which have been approximately $234 million annually, and a significant increase over FY2011 expenditures, which were estimated to be approximately $170 million under the aforementioned "stopgap" measures. In the immediate future, most of the increase needed to fund the proposed portfolio of $380 million per year would be derived from the GR fund (in order to allow the trust fund balance to rebuild). For instance, to meet the IWUB proposal's requirements over the first five years, federal funding would need to be $1.33 billion, or 74% of the total funding required for the report's proposed projects over this time period. Around 2020, the proportion of funds derived from the trust fund would gradually increase, although federal requirements would still exceed 50% of the required investments. Although the report calls for an increased investment from both sources, on the whole, more new funding would be required from the federal government (through the GR fund) than the IWTF. Expected trends under the user proposal are shown in Figure 4 . The report proposed several reforms for improving cost-effectiveness of IWTF projects overseen by the Corps. These recommendations would increase the involvement of the IWUB in the Corps project delivery process for IWTF investments, thereby expanding the board's current roles and responsibilities. The report recommends appointing IWUB representatives to the project design teams for individual projects, where they would oversee planning for IWTF investments and report back to the IWUB. The report also recommends obtaining sign-off from the IWUB on plans for projects funded by the IWTF, as well as providing the IWUB with status updates on all relevant project planning documents. The IWUB seeks these changes as representatives of the nonfederal cost-sharers. However, the degree of involvement by nonfederal entities in development of studies by a federal agency could raise concerns related to conflicts of interest and whether the federal government may lose control of the planning process. The IWUB report also delineated a list of specific projects to receive funding once its proposed changes to the IWTF financing system are made. According to the report, projects were prioritized for selection based on a number of factors, including asset condition, likelihood of diminished performance, consequence of diminished performance, and the degree to which new projects would improve system performance. The report did not propose mandatory funding for these projects. That is, the final decision on whether projects in the list would receive funding would still need to be made by Congress in the annual appropriations process (or by the Corps when it allocates discretionary appropriations for a given year that are not specified at the project level by Congress). The proposal attempts to render selection of these projects more likely by recommending that the Corps promulgate selection criteria for inland waterway projects that are similar to those used in the report. In the past, some have advocated for changes that would shift costs away from the federal government and increase the user-financed share of inland waterway costs, by decreasing the federal share of either O&M (currently 100% federal) or construction (currently 50% federal). These groups have pointed to inequalities in spending relative to the value of certain segments of the inland waterway system. An analysis by the Congressional Budget Office (CBO) in the early 1990s found that the current uniform tax throughout the inland waterway system failed to cover fixed operational costs and thus distorted the actual costs of maintaining the system. CBO concluded that a user fee structure that recovered the true costs for inland waterway operations would increase economic efficiency of the system. Such a fee would result in increased costs for waterways with low traffic-to-expense ratios, since federal costs for maintaining these waterways are greater than fuel tax receipts currently generated. Figure 5 shows estimated fuel tax revenues on major inland waterway segments relative to O&M costs and ton-miles. Several entities have pushed for significant increases to inland waterway fees as a means to achieve savings to the federal government. Recent proposals include the following: A coalition of taxpayer watchdog and environmental nongovernmental organizations recommended in its 2011 "Green Scissors" report that Congress increase user contributions for inland waterway expenditures. The report estimated savings from this proposal to be $1 billion over the next five years. The National Commission on Fiscal Responsibility and Reform included in its initial list of illustrative savings a proposal to make the inland waterways "self-funding." The commission estimated $500 million in savings from this proposal over the next five years. In its 2011 budget options report, CBO included a proposal to increase user fees on inland waterways to a level sufficient to cover the costs of construction, operations, and maintenance. CBO projected that such a change would save approximately $4 billion over a 10-year horizon. These proposals, which would all institute significant increases in the user share of inland waterways financing, have generally stopped short of providing specific recommendations regarding the exact structure of the user fees that would raise new revenues. The aforementioned 1992 CBO report noted that new user fees could take a variety of forms beyond an increase to the fuel tax, but should better reflect the price to operate individual segments of inland waterways. Such a fee could take one or more forms, including annual licensing fees, congestion pricing, tolls, and/or lockage fees. The proposals discussed above differ in important ways and bring up a number of issues for Congress. Each proposal claims to resolve ongoing issues associated with the IWTF by proposing new investment levels and revenue sources that would fundamentally alter the current financing system for inland waterways. An overarching question for Congress is what level of new and ongoing investment is warranted (or desired) for the inland waterway system. Other questions include whether to change the current fuel tax (either in the form of an increase or decrease of the fuel tax, or incorporating a new fee) and whether to alter the cost-share arrangements for inland waterways projects. Changes to inland waterways financing have been enacted in the 113th Congress. Specifically, the Water Resources Reform and Development Act of 2014 ( P.L. 113-121 ) made limited changes to inland waterways. It authorized the project delivery recommendations of the IWUB proposal, made the federal government responsible for paying all rehabilitation costs less than $20 million out of the General Revenue fund (previously the General Fund only covered costs less than $8 million), and reduced the cost-sharing requirement for the Olmsted Locks and Dam Project from 50% from the IWTF to 15% from the IWTF (thereby increasing the proportion of project funding from the General Fund, and theoretically freeing up IWTF monies for other projects). It did not alter the inland waterways fuel tax. The bill also authorized efforts to provide more information about inland waterways policy options, including a study of the efficiency of revenue collection on the inland waterways system, a study on the potential use of bonds and/or new fees to finance the IWTF, and the convening of a stakeholder roundtable to review and evaluate alternatives related to the future of inland waterways. The House and Senate have also included changes related to inland waterways in recent appropriations bills. In its recommendation for FY2015, the House Appropriations Committee funded the Olmsted Project under the newly enacted WRRDA cost-sharing requirement of 15% (rather than 50%) from the IWTF. The reduced cost-sharing requirements for the Olmsted Project allowed the House to provide significant funding for other inland waterways construction projects (at the traditional 50/50 cost-share level) for the first time in five years. Most observers agree that the changes enacted in WRRDA will be insufficient to finance all of the needed waterway upgrades in the long-term. Therefore, some continue to support enactment of part or all of the aforementioned user proposals to address the long-term solvency of the IWTF. Stand-alone legislation of this type has been proposed in the 113 th Congress, including: H.R. 1149 (the Waterways Are Vital for the Economy, Energy, Efficiency, and Environment Act of 2013, also known as the WAVE4 Act), would authorize the primary recommendations of the IWUB proposal, including its project delivery recommendations and a $0.06 per gallon increase to the fuel tax. The bill would also authorize alterations to IWTF cost-sharing that would make the federal government responsible for 100% of dam construction and any rehabilitation expenditure less than $100 million. S. 407 , the Reinvesting in Vital Economic Rivers and Waterways Act of 2013 (RIVER Act) would, similar to H.R. 1149 , authorize the primary recommendations of the IWUB proposal, except the fuel tax increase would be $0.09 per gallon. Under this bill, the federal government would be responsible for 100% of dam construction and any rehabilitation expenditure less than $50 million. Some of the issues for Congress posed by these and other inland waterways proposals that could be considered by Congress are discussed below. A central issue for Congress is the level and urgency of infrastructure investments on federal waterways. Commercial users, including shippers and some agricultural interests, have argued that additional investment is justified because of aging infrastructure, the need for expanded capacity, and positive environmental externalities associated with inland waterway shipping compared to other forms of shipping. These users argue that the benefits of inland waterways are widespread. Their claims are countered by a number of other groups, including taxpayer and environmental advocacy groups, who argue against increased federal funding for inland waterways. These groups contend that the shipping industry often misrepresents or overstates the benefits of these investments and that major funding increases for inland waterway projects are not warranted. Despite these disagreements, most entities agree that the current system of financing inland waterways is inadequate to address future needs (regardless of the precise level of those needs). As a result of the recent funding drawdown, the Corps is expected to have appropriations for just one ongoing lock replacement project (Olmstead Lock on the Ohio River) through at least FY2016 under its current baseline for IWTF revenues. Barring a new source of revenue or supplemental federal appropriations by Congress, new or ongoing IWTF construction projects may be put on hold by the Corps, regardless of their urgency. The condition of Corps inland waterway facilities has been a primary driver behind the call for increased investment on inland waterways. The Institute for Water Resources (part of the Corps of Engineers) notes that the majority of locks in the United States are now past their intended design age of 50 years. The Corps has connected this aging infrastructure to an overall decline in the efficiency of its assets on inland waterways, noting that overall lock unavailability (both scheduled and unscheduled) has increased in recent years. In some cases, the user industry favors new lock construction and expanded capacity over ongoing maintenance for a number of reasons. Other groups argue against significant new investments for inland waterway projects. In arguing against new locks on the Upper Mississippi River, a coalition of environmental groups noted that while the design life of new investments is usually only 50 years, regular maintenance can extend the life of existing locks for an additional 50 years at a considerably lesser cost than that for new construction. These groups generally argue that the costs of new lock construction greatly exceed the benefits of reduced waiting time and lock unavailability, and point out that issues associated with most aging inland waterways infrastructure can be overcome by improved small-scale and nonstructural improvements. The Corps has in the past noted that the justification for most new navigation alternatives depends greatly on traffic forecasts from future trade scenarios, which can themselves be difficult to predict. These forecasts often depend on a number of interrelated variables, such as commodity prices, the overall price sensitivity of shippers, and outside factors such as increases or decreases in the efficiency of other modes of freight transit. The Corps has noted that total domestic freight traffic is expected to increase by approximately 70% by 2020, but recently has avoided projections specific to inland waterway freight traffic. The Department of Transportation projects that the majority of this increase in freight traffic will be on freight rail and highway traffic, with annual waterway traffic projected to increase 2% per year between 2010 and 2035. Shipping interests point out that an overall increase in the efficiency of inland waterways could lessen anticipated pressure on highway and rail shipments, or at least maintain viability of inland waterways compared to these other forms of freight shipping. Future lock upgrades or new construction would likely increase demand for inland waterways. However, the extent to which these upgrades would have an effect on demand would likely also depend on a number of other external factors. Some groups have countered industry requests for new lock construction based on traffic projections by noting that traffic has been flat or decreasing at some individual locks on high-traffic portions of the inland waterway system. Observers, including former Corps employees, have also criticized previous projections of traffic increases by the Corps and as overly optimistic. To date, the Corps has avoided use of projected future traffic increases as a basis for changes to the overall level of investments on inland waterways. Shipping interests also argue for increased investment in inland waterways because of the overall value of inland waterways compared to other modes of shipping. They point to studies that have concluded that barge shipping in particular constitutes a transportation alternative that is more efficient and environmentally friendly than other forms of shipping, such as highway and rail. For example, previous industry studies have calculated that railroads are 28.3% less fuel-efficient than inland waterways. Additionally, they argue that inland waterways contribute significantly fewer greenhouse gas emissions per mile than other forms of freight transportation. Studies have also noted other benefits, including reduced highway congestion and noise reduction. Taxpayer and environmental groups have questioned studies citing environmental benefits as a basis for new investments in barge shipping. For instance, groups have disagreed with industry fuel-efficiency calculations, noting that many industry studies have not taken into account technical factors such as the directional constraints of river flow, or "circuity." They argue that the use of a conversion factor to account for circuity creates a more accurate picture of fuel efficiency among various modes. They have also noted that using the fuel efficiency for "unit grain trains" instead of an average for all rail shipping would allow for a more accurate comparison of fuel efficiency between barge and rail shipping. Environmental groups also note that inland waterway projects can negatively affect riparian habitat and species by altering natural flows. Structural changes to rivers such as locks and dams (which can create sedimentation, increase turbidity, and lead to other reservoir-like effects) and levees (which separate rivers from flood plains) affect the natural state of these bodies of water. Additionally, waterway traffic may also cause bank erosion through wave action. Thus, increased construction and expansion of inland waterways can have negative environmental effects. In addition to deciding whether additional investment is needed, Congress may also consider changes to the system that finances these investments, including options for additional revenue that were recently proposed to Congress. These options are the IWUB's proposal (an increase to the fuel tax), the White House's proposal to the Joint Committee on Deficit Reduction (new annual fees in addition to the current fuel tax), or other options such as a lock usage fee or some kind of toll system. The IWUB-proposed increase to the existing fuel tax would be somewhat in keeping with the current system for user fees and revenue collection. Combined with increased federal responsibility for some inland waterway costs, the IWUB argues, this proposal would rebuild the trust fund balance and also fund new investments. While the tax would generate additional revenue, some taxpayer and environmental groups argue that the associated increases to federal cost share responsibilities tied to this proposal are unacceptable. The user industry has not indicated whether it would accept increases to the fuel tax without the proposed changes to cost-sharing arrangements. The user fees proposed by the Obama Administration in 2011 would address the issue of inadequate revenues by raising new fees from commercial users operating on the inland waterway system. Under the proposed new system of fees, all commercial users would continue to pay costs to utilize the inland waterway system in the form of fuel taxes and new fees for non-lock users, while lock users would also continue to pay the fuel tax, but would pay an even greater fee. The Administration also proposes to add new waterway segments to the list of fuel-taxed waterways on the inland waterway system, further raising revenues. The Administration argues that since commercial shippers are the primary beneficiary of waterway investments, they should continue to pay the costs for new capital investments. Furthermore, since lock users benefit the most, they should pay the most. The IWUB and Congress have previously rejected lock usage fees and similar proposals as posing unfair burdens on a subset of waterway users, and have opposed the new Administration proposal. The IWUB argues that targeting users of individual segments runs counter to the idea of the inland waterways as a whole "system" whose interconnectivity benefits the nation. Additionally, users note that major fee increases will significantly affect shippers operating within the system. Finally, the user industry has also argued against the proposed new fee because it delegates the authority to set fees to the Secretary of the Army, with certain restrictions. Previously, other means to raise revenue have also been considered by Congress. Early forms of the Inland Waterways Revenue Act of 1978 proposed a lock usage fee in lieu of the fuel tax included in the final bill, and other fees have subsequently been proposed as replacements or supplements to the fuel tax. In addition to lock usage fees, options such as annual licensing fees, systemwide and segment-specific tolls, ton-mile charges, and lock charges for the most congested portions of the system have previously been discussed as a potential means to raise revenues on inland waterways. Theoretically, some of these items could also be combined with the current fuel tax or other proposals. A separate financing concept, known as "capital recovery," was represented in the original 1978 legislation but was not enacted in the final bill. Under this framework, user fees would automatically adjust to recover capital investments by the government. For instance, user fees might increase when the IWTF balance drops below a certain level. Alternatively, annualized or per-use fees could be structured to recover capital costs at individual facilities over time. Such a fee could render less likely future shortfalls in the trust fund. It might also force users to narrow those projects pursued to only the most vital authorizations. The concept appears to be represented in the Obama Administration proposal, in which user fees would be tied to trust fund balances after FY2022. Users have previously argued against capital recovery, noting that it is difficult to plan for a tax that is constantly changing, and that such an increase could create an "upward spiral" of cost increases in which a shrinking user base is responsible for more and more costs. Congress could also consider additional means to increase the reliability of the revenue stream for inland waterways. An automatic adjustment for inflation has previously been discussed and could be incorporated into either a fuel tax increase or a new lockage fee. An inflation adjustment could provide additional future revenues and increase the real purchasing power of IWTF funds, which has decreased substantially since 1994. Some argue that such an automatic adjustment amounts to hidden (and therefore unacceptable) tax increases in the future. (See box above.) If no long-term solution is enacted to address the IWTF revenue shortfall, Congress may again be forced to take measures to ensure the solvency of the trust fund. Previously, some of these options have included capping IWTF withdrawals at the level of current year fuel tax revenues or putting a temporary hold on all new contracts and focusing on ongoing work. Both of these options would curtail investments on the inland waterway system to some extent. Congress might also stipulate that some or all of the subset of IWTF investments be exempted from WRDA 1986 cost-sharing requirements (similar to the exemption provided by Congress in FY2009 enacted appropriations). However, an exemption such as this would have an additional cost to taxpayers in the form of funds from the General Revenue account. A related question before Congress is whether the current cost-share arrangement for inland waterway projects is adequately balanced. As previously mentioned, WRDA 1986 established cost-sharing requirements for construction and major lock rehabilitation projects. Under WRDA 1986, construction and major rehabilitation were cost-shared, while "routine" operations and maintenance was a 100% federal cost. Several years later, WRDA 1992 ( P.L. 102-580 ) established that "major rehabilitation" should be defined as any upgrade requiring more than $8 million in total funding (among other requirements). The IWUB proposal would significantly modify current cost-sharing arrangements. As previously mentioned, it would change the existing cost-share arrangement to exclude dams and minor rehabilitation from cost-share requirements, shifting funding for these types of projects to 100% federal funding from the General Revenue stream. Notably, the IWUB reasons that costs for dams should be a federal responsibility because significant segments of the U.S. population benefit from these structures. The IWUB also proposes a new threshold for what it considers to be major lock rehabilitation, specifying $100 million as the new cut-off between routine operations and maintenance and major rehabilitation. In short, the IWUB proposes to redefine the $8 million threshold established for projects in WRDA 1992, and replace it with a threshold of $100 million. This would in effect greatly increase the number of maintenance and rehabilitation projects that are federally funded. Additionally, the report proposes to make all cost overruns for IWTF construction projects a 100% federal responsibility. While some note that this provides project managers within the Corps an added incentive to keep projects within budget, critics note that the change represents an additional hidden cost to the federal government that is not reflected in the IWUB report's estimates. The overall effect of the IWUB's proposed changes would be to shift the overall costs for inland waterway projects toward the federal government. Assuming the proposed project list in the IWUB report, CRS calculates that the cost-share arrangement for IWTF construction projects would shift from the current 50/50 arrangement to approximately 68% federal, 32% non-federal. While commercial waterway users and the IWUB favor this shift in order to distribute the cost-share burden, taxpayer and environmental groups note that the IWTF already benefits from significant federal support in the form of 100% federal funding for investigations (studies) and operations and maintenance. In recent years, this support has represented an additional $500 million-$650 million annually of federal expenses with no cost-sharing requirements. Assuming existing funding trends for other Corps work supporting inland waterways (e.g., operations & maintenance and investigations), CRS calculates that federal costs for inland waterways under the proposal could rise to more than 90% of the total costs for the system. Currently, the federal government is responsible for about 80%-85% of these costs annually, with some variation. As noted above, the Obama Administration's proposals have all recommended alteration of the type and amount of user fees levied but not the overall cost-share between the federal and nonfederal expenditures. Thus, although these proposals would require new revenues from users, appropriations from the IWTF would still need to be matched with funds from the General Revenue fund, and the cost-share structure for the IWTF system would remain at 50/50. As previously noted, some have argued in favor of shifting cost shares away from the federal government and increasing user responsibility not only for construction, but also for operations and maintenance of inland waterways. These groups, including some of the aforementioned environmental and taxpayer interest groups, have argued that waterway users should not only pay for 50% of construction and major rehabilitation costs, but also pay for some or all operations and maintenance costs, which are currently fully funded by the general treasury revenues. While Congress has in the past rejected these proposals, they may once again be considered in the context of overall government cost-cutting efforts. The IWUB has also asked Congress to weigh in to provide reforms to Corps IWTF planning processes. Among other things, the IWUB proposed a number of reforms to increase its involvement and improve project prioritization. Industry users argue that many of these reforms will decrease the likelihood of cost overruns, which have in the past been a problem for IWTF projects. A previous study by the Corps concluded that in several cases, a number of factors contributed to cost overruns, including inaccurate construction schedules and costs, general cost escalation, and non-optimal funding. However, the degree of involvement by a non-federal entity in the planning and decision-making process could raise concerns related to conflicts of interest. A related item that may receive congressional attention is the Corps' method for prioritization of all inland waterway projects. As noted in the IWUB report, IWTF investments to date have usually been considered in isolation; that is, there is no formal set of criteria used to make decisions among investments competing for IWTF funds. Instead, these decisions are largely left to the Corps and the Administration (in the annual budget formulation process) and Congress (in the appropriations process). The IWUB proposes to alter this practice by adopting a priority ranking system, which is described in detail in the IWUB report. Significantly, the IWUB report recommends that this system be promulgated as a regulation. This could fundamentally affect the role of Congress in the project selection and funding process. Currently, Congress decides on project-specific authorizations and appropriations for Corps inland waterway projects. If a system for prioritizing investments, such as that recommended in the IWUB report, is promulgated as a regulation, the Corps would utilize these criteria to select projects for funding, and the role of Congress could be limited to providing project authorizations and overall funding levels. Such a role would be a departure from Congress's previous role in directing Corps projects, although some might argue that it is consistent with the federal approach to project allocations for other agency programs, such as the Environmental Protection Agency's state revolving fund programs for drinking water and wastewater. | Inland waterways are a significant part of the nation's transportation system. Because of the national economic benefits of maritime transport, the federal government has invested in navigation infrastructure for two centuries. Commercial barge shippers and other waterway users receive significant support through federal funding for operational costs, capital expenditures, and major rehabilitation on inland waterways. Since the Water Resources Development Act of 1986, expenditures for construction and major rehabilitation projects on inland waterways have been cost-shared on a 50/50 basis between the federal government and commercial users through the Inland Waterways Trust Fund (IWTF). Operations and maintenance costs for inland waterways (which typically exceed construction and major rehabilitation costs) are a 100% federal responsibility. Future financing for the inland waterway system is uncertain. The IWTF is supported by a $0.20 per gallon tax on commercial barge fuel, but its balance has declined significantly since 2005 due to a combination of increased appropriations, cost overruns, and decreased revenues. Without changes to the current financing system, IWTF spending is likely to be limited. The Obama Administration recommends replacing the fuel tax with user fees that would increase revenues and potentially allow for more spending on inland waterways projects. Similar to prior administrations, the Obama Administration has regularly submitted proposals to Congress to raise inland waterways user fees. Congress and industry interests have rejected these proposals. In 2010, the Inland Waterways Users Board (IWUB), a federal advisory committee advising the U.S. Army Corps of Engineers on inland waterways, endorsed an alternative proposal that is supported by many barge industry interests. The proposal would increase the fuel tax by $0.06-$0.09 per gallon, but would require the federal government to cover all project costs for dams and rehabilitation that are currently shared with the IWTF. To date, no major changes to the inland waterway financing system have been enacted. The user industry (including the barge industry and agricultural groups) argues that its recommended changes are necessary to shore up the trust fund, improve deteriorating infrastructure, and distribute costs equitably among beneficiaries (e.g., more funding for dams by federal taxpayer beneficiaries). The Obama Administration agrees that infrastructure upgrades are needed, but argues against shifting these costs to the federal government and instead proposes higher user fees. Some taxpayer and environmental groups favor increasing nonfederal costs not just for construction, but also for operation and maintenance expenses that are not cost-shared. Changes to inland waterways financing have been enacted in the 113th Congress. The Water Resources Reform and Development Act of 2014 (WRRDA, P.L. 113-121), enacted in June 2014, authorized changes to the project delivery process, altered cost-sharing requirements for some rehabilitation projects, and partially exempted from IWTF cost-sharing requirements a project (the Olmsted Locks and Dam) that has required the majority of IWTF appropriations in recent years. It did not alter the fuel tax or IWTF requirements for other projects. Two other bills in the 113th Congress, S. 407 and H.R. 1149, would attempt to address long-term issues with the IWTF by enacting much of the user proposal, including fuel tax increases of $0.09 and $0.06 per gallon, respectively. In considering legislation related to inland waterways, Congress may consider the appropriate cost share between the federal government and users, the appropriate type of user fee to fund the nonfederal share, preferred funding levels, and other related questions. |
Changing economic, social, and political conditions at home and abroad have led some analysts to question whether the United States will remain globally competitive in the coming decades. The possibility that the United States has lost or could lose its historical advantages in scientific and technological advancement—and the prosperity and security attributed to that advancement—has become a primary 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 research and development, education, workforce development, tax, patent, immigration, economic development, telecommunications, or other policy issues perceived as critical to the U.S. scientific and technological enterprise. The 2007 America COMPETES Act ( P.L. 110-69 ) is 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 between FY2008 and FY2010 for programs and activities in physical sciences and engineering research and in science, technology, engineering, and mathematics (STEM) education. Congress reauthorized certain provisions of P.L. 110-69 —including funding for physical sciences and engineering research and STEM education—when it passed the America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ). The 2010 COMPETES Act authorized $45.5 billion in appropriations between FY2011 and FY2013. Given the pivotal role that funding levels played in the design, implementation, and congressional debate about the COMPETES Acts, policymakers have paid close attention to trends in these accounts. This report, which was written to aid Congress in tracking these trends, includes two tables summarizing authorization levels and funding for selected COMPETES-related accounts across both authorization periods (i.e., FY2008 to FY2010 and FY2011 to FY2013). Readers interested in an analysis of the COMPETES Acts and related policy issues are referred to the following publications: CRS Report R41819, Reauthorization of the America COMPETES Act: Selected Policy Provisions, Funding, and Implementation Issues , by [author name scrubbed]. CRS Report R42642, Science, Technology, Engineering, and Mathematics (STEM) Education: A Primer , by [author name scrubbed] and [author name scrubbed]. CRS Report R42470, An Analysis of STEM Education Funding at the NSF: Trends and Policy Discussion , by [author name scrubbed]. CRS Report R41951, An Analysis of Efforts to Double Federal Funding for Physical Sciences and Engineering Research , by [author name scrubbed] CRS Report R43061, The U.S. Science and Engineering Workforce: Recent, Current, and Projected Employment, Wages, and Unemployment , by [author name scrubbed] This report has been updated to reflect FY2009 to FY2013 final funding for COMPETES-related accounts. | Changing economic, social, and political conditions at home and abroad have led some analysts to question whether the United States will remain globally competitive in the coming decades. In response to these and closely related concerns, Congress enacted the 2007 America COMPETES Act (P.L. 110-69), as well as its successor, the America COMPETES Reauthorization Act of 2010 (P.L. 111-358). These acts were broadly designed to invest in innovation through research and development and to improve U.S. competitiveness. More specifically, the acts authorized increased funding for certain physical science and engineering research accounts and STEM (science, technology, engineering, and mathematics) education activities. Congressional debate about the COMPETES Acts focuses closely on authorized and appropriated funding levels. To aid this debate, this CRS report tracks accounts and activities authorized by the 2007 and 2010 COMPETES Acts during each act's authorization period. It includes only those accounts and activities for which the acts provide a defined (i.e., specific) appropriations authorization. Table 1 includes FY2008 to FY2010 authorizations and final funding for accounts in the 2007 COMPETES Act; Table 2 includes FY2011 to FY2013 authorizations and final funding for accounts in the 2010 COMPETES Act. |
The federal budget consists of four basic fund groups—the general fund, special funds, revolving funds, and trust funds. The first three are often referred to as the federal funds group. General funds are not earmarked for a specific purpose and, consequently, there is no direct link between revenues (primarily tax revenues) and the goods and services paid for out of those funds. Both special and revolving funds receive dedicated monies for spending on specific purposes. Trust funds are an accounting mechanism that records revenues, offsetting receipts, or collections earmarked for the purpose of the specific fund. Trust funds generally share three common features: (1) they are established for programs serving long-term purposes, (2) monies are used for a single purpose, and (3) users are charged to finance the trust fund. Federal trust funds are an important part of the budget. About 40% of all federal outlays were through trust funds and about 37% of all federal receipts came to trust funds in fiscal year (FY) 2012. Despite the name, federal trust funds do not necessarily share all the same attributes as private sector trust funds. A trust in the private sector is "a fiduciary relationship in which one person (the trustee) holds property for the benefit of another (the beneficiary)." The trustee must follow the express terms of the trust instrument and administer the trust for the benefit of the beneficiary. In contrast, most federal trust funds are not based on a legal fiduciary relationship. Congress creates trust funds that involve a commitment to use monies for a specific purpose, but can alter the terms (e.g., receipts, outlays, or purpose) of the trust fund at any time. The Office of Management and Budget tracks approximately 120 trust funds and trust fund aggregates. While most trust funds are associated with a particular program, some trust funds were established to carry out a conditional gift or bequest. Many trust funds are relatively small with balances of less than $100 million. A federal trust fund often represents a long-term commitment to use specific funds for a certain purpose. It has been argued that the creation of a trust fund is one way for Congress to politically "commit" future Congresses to fund a specific program or "to make long-term promises stick." Generally, the largest source of funds for the trust fund is charges to users or future users. Most receipts for the two Social Security trust funds come from payroll taxes on current workers. In FY2012, payroll tax receipts to the Old-Age and Survivors Insurance trust fund amounted to 67% of total cash income. Payroll tax receipts amounted to 76% of the total for the Disability Insurance trust fund in the same year. The same is true for the Hospital Insurance trust fund (one of the two Medicare trust funds) with 81% of receipts coming from payroll taxes. Funds for the Airport and Airway trust fund come mainly from taxes on passengers and other users (98% of receipts). However, this is not true for all trust funds. For example, only about 26% of receipts for the Supplementary Medical Insurance trust fund come from premiums on current users and over 70% come from general revenues. The promise by Congress to fund a specific program in the future is not a legally binding commitment, but is more of a political commitment that future Congresses may find difficult to overturn. It has been argued that trust fund programs couple "the benefits and costs of these programs more closely, and it also lends a degree of assurance to beneficiaries and grantees that trust fund benefit or grant schedules once established will be protected." It has further been argued that, in addition to the expectations deriving from this political commitment, "a trust fund is only as secure as its beneficiaries are powerful." For example, in the creation of Social Security and unemployment insurance, President Franklin D. Roosevelt insisted that workers pay payroll taxes. Roosevelt reportedly said "[w]e put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program." Roosevelt's rhetoric indicates he wanted to create a large and powerful constituency for the program—workers and beneficiaries. The use of user fees or other earmarked revenues for trust fund programs may help explain why trust funds generally run an annual surplus whereas federal funds generally run annual deficits. Taxpayers may be more willing to pay earmarked taxes because they know what the taxes are used for, whereas they may have little idea of how general revenues are spent. Alice Rivlin, former director of the Congressional Budget Office and the Office of Management and Budget, argued that taxpayers may believe that general revenues are "spent wastefully or even fraudulently, or that a substantial part of it goes for services of which they disapprove." Each year, numerous bills are introduced in the House and Senate to create new trust funds. A trust fund can be created by simply designating it as such in the legislation by including a provision similar to the following language: "There is established in the Treasury of the United States a trust fund to be known as ... " Setting aside the political effects described above, whether a certain fund is designated as a trust fund or part of the federal funds group can be arbitrary and, in many cases, may not fundamentally affect the use of those funds or the operation of the program intended for use of those funds. Once a trust fund is created with a dedicated revenue source, Congress does not necessarily take a hands-off approach to the program. Congress frequently changes these programs, often to better align receipts with outlays, and in at least one instance to terminate the program (e.g., the General Revenue Sharing trust fund). Prior to FY1969, the federal budget consisted of three different budget concepts: the administrative budget, the cash budget, and the national income accounts budget. Much of the congressional, press, and public attention was focused on the administrative budget, which did not measure all federal government activities. The administrative budget omitted receipts and expenditures of federal trust funds. The 1967 President's Commission on Budget Concepts noted that the administrative budget, the consolidated cash budget, and the national income accounts budget have often been used as competing measures of the total scope of Federal activity; they are not unified and can be used together only with fairly elaborate reconciliation that tends to confuse more than it enlightens. In 1968, the Johnson Administration adopted the unified budget concept to account for all receipts and expenditures of the federal government. Subsequent administrations have continued using the unified budget concept, and focus on the surplus or deficit of all federal and trust funds together. In the annual appropriations process, Congress appropriates money, which gives agencies budget authority to enter into obligations (i.e., legal commitments to make a payment). Most trust fund based programs have permanent budget authority and all monies in the trust fund are available for obligation. Most trust funds lack the authority to incur obligations that exceed the monies in the trust fund. Some trust funds, however, are authorized to borrow from the general fund. Receipts in excess of outlays are added to the balance of the trust funds. The trust funds surplus (i.e., revenues in excess of outgo) in FY2012 amounted to $89.9 billion. This surplus is mostly invested in government obligations and transferred to the general fund to pay for other spending. By law, all trust funds except the Railroad Retirement fund must invest balances in government obligations. The Railroad Retirement fund is allowed to invest its balance in equities. The government securities held by trust funds are part of federal debt that is subject to the statutory federal debt limit. At the end of FY2012, the trust funds held $4,388.5 billion in government securities. The federal funds deficit for FY2012 was $1,176.8 billion, but because of the trust funds surplus, the unified federal budget deficit (what is widely reported in the press) was $1,087.0 billion. Trust fund receipts come from a variety of sources. Almost all trust funds receive monies from current or future beneficiaries. Most trust funds receive general revenues through direct payments or interest payments. In addition, some trust funds receive payments from other trust funds. For example, some railroad retirement benefits are financed by a payment from one of the Social Security trust funds (Old-Age and Survivors Insurance trust fund) to the Railroad Retirement trust fund. Table 1 shows the trust fund receipts coming from federal funds in FY2012, which amounted to $715.4 billion. The balances of the trust funds do not represent real resources available for spending. Rather they are future obligations of the federal government, and the federal government will have to divert revenues or borrow money from the public to redeem those obligations when they come due. Likewise, the interest on trust fund balances does not represent real resources available for spending—these payments are simply bookkeeping entries debiting one federal account and crediting another. If these interest payments to the trust funds are excluded, the trust funds would show a $38.6 billion deficit instead of an $89.9 billion surplus. Transfers between trust funds and federal funds, however, do not change the unified budget deficit or the level of federal debt. Figure 1 displays the evolution of trust fund surpluses since FY1962 and projections of trust fund balances through FY2018. With the exception of FY1962 (with a $299 million deficit), the trust funds have been in surplus. As a percentage of gross domestic product (GDP), the trust fund surplus reached a high of 2.4% in FY2000. The large increase in the trust fund surplus after 1982 is due to the 1983 Social Security amendments, which moved Social Security from primarily pay-as-you-go to partial prefunding by increasing the payroll tax rate and taxing Social Security benefits. The surplus fell dramatically from FY2009 through FY2013 because of the increased unemployment benefits paid and reduced payroll tax revenue due to the severe recession, which began in December 2007. Though the size of the trust fund surplus is projected to rebound over the next few years, the downward trajectory is set to resume near the end of the decade primarily due to the demands on trust fund outgo, primarily as a result of the retirement of the Baby Boomers. Interest payments to the trust funds are also shown in Figure 1 . These payments increased from about 0.2% of GDP in FY1962 to 1.5% of GDP by FY2002. Excluding interest payments from the calculation of the trust funds surplus produces a modified trust funds surplus. The modified trust fund surplus compares trust fund outgo with trust fund revenues (earmarked taxes, user fees, and legislatively dedicated general fund revenue). The modified trust fund surplus essentially shows the real resources of the federal government available for spending. The modified trust fund surplus, while following the same trend as the trust fund surplus, was negative in FY1962, FY1976, FY1980-1982, and FY2009-FY2013. Modified trust fund deficits are also projected for FY2014 and FY2015 before a projected return to surplus thereafter. The Office of Management and Budget (OMB) estimated that in FY2013 the trust funds would cumulatively collect $1,879 billion in revenue ($1,721 billion in non-interest revenue and $159 billion in interest revenue) and would outlay $1,811 billion. This would result in an overall $67.6 billion surplus in FY2013. Non-interest revenue to the trust funds would be $90.8 billion less than trust fund program expenditures—the modified trust fund surplus would be negative. OMB projects an aggregate $690.0 billion surplus over the FY2014-FY2018 period. Over the five-year period from FY2014-FY2018, non-interest revenues are projected to be $55.7 billion less than expenditures. The FY2012 income, outgo, and balances of the 13 largest trust funds are reported in Table 2 . The list represents those trust funds with balances in excess of $10 billion and account for over 99% of the balances of all trust funds. These 13 trust funds had a combined positive balance totaling $4,368.5 billion at the end of FY2012. Nine trust funds had income exceeding outgo in FY2012. The other four trust funds had a deficit. The largest deficits in FY2012 were in the Social Security Disability trust fund (-$29.7 billion) and the Medicare Hospital Insurance trust fund (-$16.5 billion). These trust funds are likely to remain in deficit on an annual basis until their projected insolvency unless action is taken to increase revenue to the trust funds or decrease expenditures. While nine of these trust funds recorded a surplus in FY2012, only six would still have been in surplus if interest payments from federal funds were excluded (military retirement, employees life insurance, employees and retired employees health benefits, foreign military sales, airport and airway, and railroad retirement). In total, the 13 trust funds would have had a FY2012 deficit of about $50 billion if interest payments were excluded. A brief description of the largest trust funds is provided in Table 3 , below. Overall, there were 39 trust funds with a deficit in FY2012. Together, these deficits totaled $58 billion. If interest payments from federal funds are excluded, the combined deficit of these 39 trust funds would be $80 billion. Most of this deficit (81%), however, is due to two trust funds—the Medicare Hospital Insurance (HI) and the Social Security Disability Insurance (DI) trust funds. Fifty trust funds had a FY2012 surplus with a combined surplus of $148 billion, but this would be only $41 billion if interest payments from federal funds were excluded (and five would be in deficit). Over the past few years, large budget deficits and the desire for fiscal sustainability have led to renewed efforts to reform the federal budget. This discussion included debate over how to address entitlements and related trust funds. Because entitlement spending comprises a major portion of federal outlays, significant changes to these programs may be included in a comprehensive reform package. Congress has often taken actions to increase a trust fund's revenues or reduce its outgo when it has faced imminent insolvency or exhaustion of its balances. Examples include the Social Security trust fund in 1983 and, more recently, the airport and airway trust fund. Policymakers can prevent insolvency of any trust fund simply by raising taxes and fees or by injecting general revenues into it. For example, injecting general revenue into a trust fund means reducing spending elsewhere in the budget, increasing the federal deficit, or raising taxes. Alternatively, payments to beneficiaries could be reduced. Making changes to the revenue or outlay structure of a trust fund often requires policymakers to face difficult choices that affect revenues and spending now and in the future. Table 4 , below, shows the income, outgo, and balances of all federal trust funds. In FY2012, total trust fund balances increased by $91 billion to $4,388.5 billion. Most trust funds had a positive balance at the end of FY2012. A handful of trust funds (15) had a zero balance at the end of the fiscal year. Eight of these trust funds had no income and outgo, three had income equal to outgo, and four had surpluses or deficits which resulted in balances of zero. In addition, seven trust funds had a positive end of FY2012 balance, but no income and outgo. Four trust funds—the Railroad Social Security Equivalent Benefit (SSEB) account, the Black Lung Disability trust fund, the Unemployment trust fund, and the Limitation on Administrative Expenses for the Social Security Administration—had negative balances at the end of FY2012 (totaling $20.2 billion). The Administration estimates the status of the larger trust funds for the upcoming fiscal year and the five subsequent years in its annual budget submission. In addition, the Social Security and Medicare Trustees produce two annual reports that project the financial status of the Social Security and Medicare trust funds for the next 75 years. According to OMB projections, by the end of FY2018, all but one of the trust funds listed in Table 2 are projected to have a positive balance. However, several of the balances in these trust funds remain flat or shrink over this period. Specifically, the balances of the Railroad Retirement, Medicare Hospital Insurance (HI), and Social Security Disability Insurance (DI) trust funds are expected to decrease. In the 2013 Trustees reports, the Trustees project that the Social Security and Medicare trust funds will be exhausted within the next 30 years: the Old-Age and Survivors Insurance (OASI) trust fund in 2035, the Disability Insurance (DI) trust fund in 2016, and the Hospital Insurance (HI) trust fund in 2026. The Supplementary Medical Insurance (SMI) trust fund is projected to be adequately financed indefinitely because under current law general fund financing is automatically provided to meet next year's expected costs. Once the trust funds are exhausted, the trust fund programs in any year will have the authority to obligate only the revenues received that year (in the absence of any legislation). For example, after trust fund exhaustion in 2033, Social Security will have tax revenue sufficient to pay about 75% of scheduled benefits, which would entail reducing Social Security beneficiaries' monthly benefits by 25%, absent other changes. Trust funds and trust fund programs can have both short-term and long-term effects on the economy. In the short term, many trust fund programs provide monetary benefits through outlays to the public, which are in turn spent on goods and services. A change in these benefits will increase or decrease consumer spending and thus economic activity. For example, government spending for unemployment compensation increases during recessions, which acts as a short-term fiscal stimulus. Unemployment compensation is what is known as an automatic stabilizer. The long-term effect is through the impact the trust funds have on national saving. Saving is the portion of national output that is not consumed and represents resources that can be used to increase, replace, or improve the nation's capital stock. Consequently, saving can increase the productive capacity of the nation, future income, and the amount of goods and services consumed in the future. National saving is the sum of private saving (by households and businesses) and public saving (by federal, state, and local governments). It has been argued that trust funds and trust fund programs (especially Social Security) can adversely affect both private and public saving. First, in a widely cited and influential article, Martin Feldstein estimated that Social Security has had the effect of lowering personal saving (a component of private saving) by 20% - 50% through an asset-substitution effect and the inducement-to-retire effect. However, Feldstein's results were questioned by Dean Leimer and Selig Lesnoy who found that Feldstein's work was flawed because of a computer programming error. After correcting the error, they concluded that the data show that Social Security had very little effect on personal saving. In a subsequent paper, Feldstein reestimated his model with updated data and obtained essentially the same results as in his earlier paper. Dennis Coates and Brad Humphreys, and Philip Meguire, however, showed that Feldstein's results are not robust to alternative specifications. In a review of the literature, the Congressional Budget Office (CBO) concluded that for each dollar of Social Security wealth, private wealth is reduced by between zero and 50 cents; however, CBO could not rule out higher or lower effects. Second, two studies suggest that trust fund surpluses in general and the Social Security trust funds in particular tend to increase federal deficits and reduce public saving. Kent Smetters estimated that for each dollar increase in the Social Security surplus, the non-Social Security federal budget deficit increased by more than $2.00. Sita Nataraj and John Shoven examined all trust fund surpluses rather than just the Social Security trust fund surplus and estimated that each dollar increase in trust fund surpluses is offset by a $1.50 increase in the federal funds deficit. The authors blame the shift to the unified budget concept after FY1969. Subsequent research, however, has questioned these findings. Peter Orszag showed that the results of Nataraj and Shoven are sensitive to the variables used and time period examined. Thomas Hungerford shows that previous researchers (Smetters, and Nataraj and Shoven) paid insufficient attention to the statistical properties of their variables, and, consequently, their results appear to be spurious. After correcting the methodological problems, he found no support for the argument that trust fund surpluses increased federal funds deficits. The mixed evidence seems to support the claim that trust fund surpluses reduce the federal government deficit and increase public saving. This becomes important at the time when trust funds need to redeem the Treasury obligations held by the trust fund to cover outgo. The Treasury obligations in the trust fund are claims on the government and the government will have to find real resources (by raising revenue, decreasing spending, or issuing more debt) to cover these claims when the obligations are redeemed. | The federal budget consists of four basic fund groups—the general fund, special funds, revolving funds, and trust funds. The first three are often referred to as the federal funds group. Trust funds are an accounting mechanism that records revenues, offsetting receipts, or collections earmarked for the purpose of the specific fund. Trust funds generally share three common features: (1) they are established for programs serving long-term purposes, (2) monies are used for a single purpose, and (3) users are charged to finance the trust fund. About 40% of all federal outlays were through trust funds and about 37% of all federal receipts came to trust funds in fiscal year (FY) 2012. A federal trust fund often represents a long-term commitment to use specific funds for a certain purpose. It has been argued that the creation of a trust fund is one way for Congress to "commit" future Congresses to fund a specific program or "to make long-term promises stick." Dedicated revenues are used to fund the program and the revenues usually come from the beneficiaries of the program. The Office of Management and Budget tracks approximately 120 trust funds and trust fund aggregates. The 13 largest trust funds account for nearly all (over 99%) of the income to, outgo from, and balances of all trust funds. Trust fund receipts come from a variety of sources. Almost all trust funds receive monies from current or future beneficiaries. Most trust funds receive general revenues in terms of direct payments or interest payments. In addition, some trust funds receive payments from other trust funds. Most trust fund programs have permanent budget authority and all monies in the trust fund are available for obligation. The outgo of a trust fund is comprised of payments made to the public or to another trust fund. Cumulatively, trust fund surpluses (i.e., revenues in excess of outgo) in FY2012 amounted to $89.9 billion. This surplus is mostly invested in government obligations and transferred to the general fund to pay for other spending. By law, all trust funds except the Railroad Retirement fund must invest balances in government obligations. The Railroad Retirement fund is allowed to invest its balance in equities. The government securities held by trust funds are part of federal debt that is subject to the statutory federal debt limit. At the end of FY2012, the trust funds held $4,388.5 billion in government securities. The federal funds deficit for FY2012 was $1,176.8 billion, but because of the trust fund surplus, the unified federal budget deficit (what is widely reported in the press) was $1,087.0 billion. Some observers have argued that trust fund programs increase the federal deficit and reduce national saving. There is evidence, however, to support the claim that trust fund surpluses reduce the federal government deficit and increase public saving. This becomes important when a trust fund's revenues are less than its outgo and the Treasury securities held by the trust fund need to be redeemed to cover outgo. The Treasury securities in the trust fund are claims on the government and the government will need to find real resources (by raising revenue, decreasing spending, or issuing more debt) to cover these claims when the obligations are redeemed. |
Given its size, energy resources, experience in counterterrorism, and large military, Algeria has drawn interest from U.S. investors and attention from U.S. officials seeking to respond to security challenges in North and West Africa. The Obama Administration has tried to balance a bilateral relationship that is highly focused on counterterrorism and on Algeria's oil and gas sector with measured encouragement of greater political and economic openness. This balance has taken on added significance amid unrest and political transitions in neighboring states, during which Algeria's political structure has remained largely unchanged. A U.S.-Algeria "Bilateral Strategic Dialogue" was initiated in 2012 and focuses on four areas: Counterterrorism and Regional Security, Political Issues, Economic Issues and Trade, and Education and Civil Society. In April 2014, Secretary of State John Kerry visited Algiers for a session of the dialogue and stated that "there is much to be done to be able to advance our mutual interests," adding, "We need to build trust." Broadly, Algeria has the financial and human resources to support its claims to regional leadership. Yet Algerian officials are often preoccupied with domestic politics, and the country's opaque internal decision-making processes and regional rivalries have, at times, limited its ability to fulfill such aspirations in practice. Tensions within the elite establishment could signal potential fracture points if new pressures arise, for example, from succession disputes, security threats, large-scale public unrest, or regional developments. U.S. concerns with security threats in the region surrounding Algeria have heightened since 2011 as violent extremist groups such as Al Qaeda in the Islamic Maghreb (AQIM)—an Algerian-led network and U.S.-designated Foreign Terrorist Organization (FTO)—have exploited regional political instability and gaps in state capacity to expand their activities and influence. AQIM has spawned several splinter factions and offshoots in recent years, while reportedly pursuing ties to extremist groups operating in Libya, Tunisia, Nigeria, and potentially farther afield. The United States has attempted to work through regional partners, such as Algeria, to counter violent extremist groups in Africa, with mixed results. U.S. officials have also debated the degree to which the United States can or should intervene directly against terrorist actors in the region. Large-scale terrorist attacks within Algeria have significantly decreased in frequency over the past 15 years, although terrorist threats persist. In January 2013, an AQIM splinter-faction carried out a mass hostage-seizure in southeast Algeria in which three Americans were killed. In April 2014, AQIM claimed responsibility for killing 14 Algerian soldiers in Kabylie, a mountainous area east of Algiers where the group's leadership is reportedly based. Amid rising insecurity along Algeria's borders, preventing the spillover of political and security crises in Libya and Mali is likely to absorb Algerian policymakers' attention. Algeria has increased its military presence along the Libyan and Tunisian borders and is mediating peace talks in Mali. Proceeds from oil and gas production have allowed Algeria to accrue the world's 14 th - largest foreign reserves and a hydrocarbon stabilization fund (Fund for the Regulation of Receipts or FRR) reportedly worth tens of billions of dollars, which the government has used to fund domestic spending. However, Algeria has struggled to offer its preponderantly young workforce sufficient opportunities, contributing to a high rate of emigration. Long-term prosperity would likely require some combination of economic diversification, reduced restrictions on business creation and foreign investment, and education reforms to fit 21 st century needs. Algeria has weathered ongoing regional turmoil without significantly altering its political system. While economic and political grievances have driven some domestic unrest, popular enthusiasm for dramatic political change appears limited. In response to sporadic protests, which are often highly localized and motivated by demands framed as socioeconomic grievances, Algerian leaders have initiated some political reforms as well as social programs to provide new public housing and grants for educated youth. Disillusionment with the government and with the aging political elite appears to be widespread. Yet, an analysis of recent public opinion trends in Algeria suggested that although most Algerians are dissatisfied with the regime, they are much more satisfied than they were in the months following the Arab Spring. Now, unlike in early 2011, the vast majority of citizens want gradual reform, suggesting the public's appetite for mass anti-regime protests has declined... The overall rate of satisfaction with the economic situation has also risen dramatically... [T]here appears to be an increasing sense that the existing system is better than any of the viable alternatives. Still, recent protests and bouts of ethnic violence in the resource-rich but generally quietist south of the country point to high public expectations that the state-centric economy should deliver tangible socioeconomic benefits. They may also suggest the potential for unexpected developments to emanate from traditionally overlooked regions and constituencies. President Abdelaziz Bouteflika's reelection to a fourth five-year term in April 2014 underscored Algeria's political continuity, while focusing attention on succession issues. Bouteflika, 77, reportedly suffered a stroke in 2013, which led him to seek medical treatment in France for several months. He has been largely confined to a wheelchair in rare public appearances since then—including when casting his vote in April 2014 and subsequently taking the oath of office. A number of opposition parties reflecting a range of political ideologies boycotted the 2014 election, as did a youth-led protest movement. Since the election, opposition groups from across the ideological spectrum have attempted to form a new coalition to call for deep changes to Algeria's political system. Whether such efforts will garner popular support and influence, and whether they can be sustained amid deep differences of worldview among many of the primary actors, remains to be seen. Bouteflika won 82% of the vote in April 2014; his closest rival, former Prime Minister Ali Benflis, received about 12%. Benflis alleged that the election was marred by fraud and "serious irregularities," and some opposition figures claimed that official turnout figures of 52% were inflated. Some analysts noted that official turnout was nonetheless lower than in the past four presidential elections, and that Bouteflika had thus apparently received millions fewer votes than in his last reelection in 2009. Still, for some analysts, the results demonstrated that Bouteflika has few opponents of national stature, and that he remains broadly popular. After the vote, the president reappointed as Prime Minister Abdelmalek Sellal, a technocrat who has served in that position since 2012 and has a reputation for competence. Algeria's political system is dominated by a strong presidency and security apparatus. Bouteflika first ran for president as an independent, but he is strongly connected to the National Liberation Front (FLN), the former nationalist movement and, for decades, the sole legal political party (see " Background "). Algeria's factionalized and opaque decision-making process often appears to inhibit a clear trajectory on political and economic reforms, as well as a more proactive Algerian foreign policy. Algeria also faces an uncertain transition as members of the "revolutionary generation" that fought for independence from France either retire or pass away. Algerians refer to Le Pouvoir (the powers-that-be) to designate opaque political and military elite networks that are broadly thought to control major policy decisions. Many analysts view President Bouteflika as having sought to (re-)establish the authority of the presidency by diminishing the influence of senior military commanders in state decision-making. Yet, the military intelligence service or DRS (after its French acronym) appears to wield significant power. Networks within Le Pouvoir are widely viewed as internally divided, with the DRS, at times, seeming to oppose Bouteflika's presidency. The DRS is led by General Mohamed "Toufik" Mediène, reportedly the sole general involved in the 1992 military coup to have remained in the same leadership position since then. Starting in 2013, Bouteflika has taken steps to reorganize the military command structure in an apparent effort to exercise more direct control over operations and decisions. He has also reshuffled several DRS directors and removed from the DRS's mandate several key authorities—reportedly including a role in investigating state corruption. The latter had enabled several high-profile investigations of Bouteflika allies, particularly in the energy sector, and broadly appeared to provide DRS leaders with leverage over rival factions. The cumulative practical impact of Bouteflika's actions is difficult to assess; some commentators have portrayed them as routine and/or an empty effort to portray the president as acting decisively. The bicameral, multiparty parliament is weak. The presidency plays a prominent role in drafting legislation, initiating reforms, and making budget decisions. The president also appoints the Prime Minister as well as one-third of the upper house of parliament, known as the Council of the Nation. (The remaining two-thirds are selected by indirect elections.) Members of the 462-seat lower chamber or National People's Assembly are directly elected to five-year terms, most recently in 2012. While some observers expected the 2012 legislative elections to empower Islamist parties, the results instead favored the FLN and the National Rally for Democracy (RND), considered close to the military. Islamists, in contrast, were unable to unite around a shared platform and, in the end, trailed in the polls. Notably, a coalition led by the Movement of Society for Peace (MSP)—a party that participated in the pro-Bouteflika ruling coalition until shortly before the election—performed below some observers' expectations. Bouteflika has initiated a process to revise Algeria's constitution, which many observers expect to provide clues on potential succession should he die or become incapacitated while in office. A presidentially-appointed commission released a number of proposed changes in May and July 2014, having sought the input of a wide range of political and socioeconomic stakeholders. The publicly released proposals would notably reintroduce presidential term limits (abolished in 2008 to allow Bouteflika to run for a third term), permit the president to delegate executive powers to the Prime Minister, and provide greater prerogatives to the legislature and protections for civil liberties. The full scope of potential changes and the means through which they may be adopted remain to be seen. Some opposition parties and civil society figures have reportedly declined to participate in the ongoing constitutional revision process. Critics charge that the reform process is top-down, non-inclusive and has not addressed systemic issues such as the role of the military. The political opposition is diverse and divided: it includes leftist, Berber-led, Islamist, and regionally focused groups. Many parties—including the FLN—face significant internal divisions along ideological and/or personal lines. Some analysts argue that political Islam has lost its popular luster in Algeria due to the 1990s conflict, and/or that some Islamist leaders have lost credibility due to their accommodation with the regime. The Islamic Salvation Front (FIS), whose electoral gains in 1991 sparked a military coup and the ensuing civil conflict, remains banned. Religiously conservative Salafist social movements, most of which do not seek a direct role in politics, have grown in prominence in recent years. Civil society groups and the media represent a wide spectrum of opinions and are often critical of the government, despite a law on associations that some characterize as restrictive (see " Human Rights "). Algeria has a history of leftist economic policies, and the country's trade unions are influential political players. "Autonomous" unions, which portray themselves as resisting state cooption and control, have less influence over policy than the quasi-official General Union of Algerian Workers (UGTA). Some U.S.-funded civil society groups are active in Algeria, such as the National Democratic Institute (NDI). Human rights organizations include the independent Algerian League for the Defense of Human Rights (LADDH) and the state-backed National Consultative Commission for the Promotion and Protection of Human Rights. Algerians fought a protracted independence war between 1954 and 1962 against France, which had colonized Algeria starting in the early 19 th century, populated some areas with settlers, and incorporated its land as French national territory. The conflict was notable for its brutal tactics: the guerilla National Liberation Front (FLN) carried out urban terrorist attacks and violent retribution against competing factions, while French commanders oversaw torture, extrajudicial killings, and other abuses targeting the FLN and local civilians suspected of supporting it. After the war was brought to an end through an independence referendum on July 1, 1962, the FLN became the ruling party in a single-party system. Backed by the powerful military, it remained politically dominant until the 1980s. The anti-colonial struggle remains a key foundation of Algeria's political identity; many of the country's aging political and military elites view their political legitimacy as closely tied to their role as former freedom fighters. Algeria was a leader in the Non-Aligned Movement during the Cold War; the government was ideologically leftist and engaged in military cooperation with the Soviet Union. Infighting among the revolutionary leadership, first reflected during the anti-colonial struggle, continued after independence and foreshadowed factional competition within the government and security sector. The 1980s saw the rise of Islamist ideology, escalating from university activism into a growing challenge to the FLN's leadership. Economic hardships contributed to a sense, among many Algerians, that those who had led the country to independence, and their professed socialist ideology, had failed to deliver on a promised social contract. In October 1988, mass protests erupted, altering the political landscape. A violent crackdown by the military damaged its prestige and deepened popular frustrations. The government then changed tack by initiating rapid political liberalization, ushering in a new constitution in 1989 that opened the way to multiparty competition. These changes placed Algeria far ahead of other countries in the region, at the time, in terms of introducing the mechanisms of democratic governance. Amid this political upheaval, the Islamic Salvation Front (FIS) was formed as a broad and fractious coalition of Islamist groups. The movement used religious terms to criticize the FLN government from a populist and "moral" stance. FIS leaders also called for an Islamic state and denounced democracy as "infidel." The FIS was granted legal status and made huge gains in local/municipal elections in 1990. It performed well in parliamentary elections held in December 1991, and was expected to win a majority of seats in a run-off round of voting scheduled for early 1992. Instead, the army intervened in January 1992, forcing the president to resign and canceling the election. The FIS was banned and its leaders imprisoned or exiled; thousands of FIS activists were detained, many of them at prison camps in the Sahara. The thwarted Islamist movement fractured, with some factions turning to violence. A decade of conflict between security forces and Islamist insurgents ensued, resulting in as many as 200,000 deaths. During this period, factional competition within the government and security forces reportedly influenced politics and the conduct of the state's counterinsurgency campaign. The conflict was characterized by atrocities against civilians. Islamist militants, divided over tactics and ideology, targeted intellectuals, journalists, foreigners, artists, and musicians, along with ordinary citizens and each other. The Armed Islamic Group (GIA) engaged in an escalating cycle of brutality that included terrorist attacks in France and massacres of civilians. The Salafist Group for Preaching and Combat (GSPC), which split from the GIA, initially differentiated itself by disavowing attacks on civilians and focusing instead on the Algerian military. Questions remain about the government's culpability in violence against civilians during the conflict. Most analysts contend that the security forces committed serious abuses, including torture and disappearances. The government also restricted freedom of the press, assembly, and association. Some opposition parties sought common ground with exiled FIS leaders in support of a return to civilian governance and the democratic process. Others backed the military's strategy as necessary to neutralize the Islamists. Supporters argue that Algeria was unfairly isolated by Western critics for doing what they viewed as necessary to prevent the country's disintegration. Relative stability was restored by the early 2000s, aided by the introduction of an amnesty for former militants. An initiative of President Bouteflika after his 1999 election, the amnesty was approved in a referendum and was expanded, again by referendum, in 2005-2006. The Islamic Salvation Army (AIS), the armed wing of the FIS, declared a unilateral ceasefire in 1997. The GIA has been inactive since 2002, and is widely viewed as defunct. The GSPC, however, merged with Al Qaeda in 2006 and changed its name to Al Qaeda in the Islamic Maghreb (AQIM) (see " Terrorism ," below). In recent years, GSPC/AQIM attacks have targeted the military, state institutions, the police, and civilians, including Westerners in the region. AQIM and affiliated groups have also carried out attacks in neighboring Mauritania, Mali, and Niger, and appear to have ties to groups operating in Tunisia and Libya. The security situation has greatly improved since the civil conflict of the 1990s, but terrorism has not been eliminated. The State Department continues to assess that Al Qaeda in the Islamic Maghreb (AQIM), a regional network led primarily by Algerian nationals, represents the "most active terrorist threat" within Algeria, while indicating that an AQIM splinter faction known as Al Murabitoun "constitutes the greatest near-term threat" in the neighboring Sahel region of West Africa. AQIM's leadership is reportedly based in Kabylie, a mountainous region east of Algiers. The group's rhetoric focuses on replacing the Algerian state and other North African governments with an Islamic state, and on countering Western influence, especially that of France. After a string of large AQIM bombings in Algiers in 2007, Algerian security forces tightened their control over major urban centers. AQIM activities have since focused on Kabylie, southern Algeria, and the countries of the Sahel. AQIM and Al Murabitoun attacks in Algeria have included bombings (including suicide bombings), hostage-taking, and armed clashes with security forces. AQIM figures also reportedly engage in regional smuggling activities, kidnap-for-ransom, and other types of organized crime, leading some observers to question whether the group is motivated primarily by ideology or by money-making, or both. Obama Administration officials have stated that the threat posed by AQIM and its offshoots primarily affects the region of North and West Africa, while expressing concern about AQIM's role in arms trafficking and its ties to other Islamist extremist groups, including in Libya, Tunisia, and Nigeria. French military operations in Mali, initiated in 2013, have disrupted logistical networks used by AQIM and AQIM-linked groups, but these groups have not been eradicated. Algerian security forces conduct frequent domestic counterterrorism operations, regularly reporting that militants have been killed or captured. The military's presence in border regions has been bolstered amid crises in Mali and Libya. The government has also instituted de-radicalization programs and seeks to control the content of religious sermons. While it opposes direct foreign military intervention, Algiers welcomes indirect outside counterterrorism support, such as arms, surveillance equipment, and intelligence sharing. Algiers also regularly urges greater international efforts to impede AQIM's ability to extract large ransoms from Western (i.e., European) countries through kidnappings. The U.S. State Department considers the potential terrorist threat to U.S. personnel in Algiers "sufficiently serious to require them to live and work under significant security restrictions," and the Algerian government requires U.S. personnel to "seek permission to travel to the Casbah [old city] within Algiers or outside the province of Algiers and to have a security escort." AQIM-produced Internet videos have shown images of the U.S. Embassy and have condemned Algeria's security cooperation with the United States and France. Long-reported fractures within AQIM erupted in 2012, with several of AQIM's southern-based commanders joining or founding new groups. Notably, Mokhtar bel Mokhtar, a former Sahel-based GSPC/AQIM commander, split from AQIM and later founded Al Murabitoun. Bel Mokhtar claimed responsibility for the January 2013 In Amenas hostage seizure (see text-box below). Both AQIM and Al Murabitoun have reportedly pledged support for Al Qaeda in the context of its struggle for primacy against the Islamic State (formerly ISIL/ISIS), but some analysts have speculated that the issue is divisive among these groups' adherents. AQIM was formed when the Salafist Group for Preaching and Combat (GSPC), an Islamist insurgent faction in Algeria's 1990s civil conflict (see " Background "), declared allegiance to Al Qaeda in 2003 and, after Abdelmalik Droukdel became its leader, "united" with Al Qaeda on September 11, 2006, and renamed itself the following year. The practical meaning of AQIM's union with Al Qaeda is uncertain, and links between the two may be nominal but mutually beneficial. General Martin Dempsey, chairman of the Joint Chiefs of Staff, has suggested that AQIM resembles "a syndicate of groups who come together episodically, when it's convenient to them, in order to advance their cause." Algeria is a source of transnational terrorists, including in the Balkans, Afghanistan, Iraq, and Syria. At one time, 26 Algerians were held at the U.S. naval base in Guantanamo, Cuba. Most have been repatriated or sent to third countries, including two transferred to Algeria in August 2013 and one in March 2014. As a regional economic and military power, Algeria has sought to lead a response to terrorist threats in coordination with the poorer Sahel states of West Africa. At the same time, Algeria has a longstanding policy of refraining from conducting military operations beyond its borders, which some Algerian commentators have questioned in the context of burgeoning security threats in neighboring states. A desire to deter direct Western military intervention has often appeared to be a primary motivation for Algeria's regional cooperation efforts, although France has nevertheless recently established an enduring regional counterterrorism presence in the Sahel. Ultimately, the sometimes dissonant relations and differing priorities among Algeria and its poorer southern neighbors, along with France's influence, appear to have limited the success of cooperative regional security arrangements in practice. These include a joint command center established in the southern town of Tamanrasset in 2010, known as the CEMOC, which nominally coordinates security cooperation among Algeria, Mali, Mauritania, and Niger. An intelligence sharing center was also created in Algiers. Various other regional initiatives have been planned or announced in recent years. Due to strained bilateral ties, and because Algiers argues that the security of the Sahel does not concern Morocco, it has not invited its western neighbor to participate in its regional counterterrorism efforts. For its part, Morocco has recently increased its bilateral outreach to West African states, including defense cooperation and counter-radicalization assistance. The U.S. State Department's 2013 human rights report states that "the three most significant continuing human rights problems" include restrictions on freedom of assembly and association, lack of judicial independence, and overuse of pretrial detention. Other human rights concerns documented in the report include "limitations on the ability of citizens to change their government," "excessive use of force by police," "poor prison conditions," "widespread corruption," violence against women, and government restrictions on workers' rights. Algerian officials have criticized and disputed aspects of these annual reports. Despite the lifting of a 20-year "state of emergency" in 2011, a ban on protests in Algiers remains in place and has been used to justify breaking up political demonstrations. Human rights organizations have criticized the 2012 law on non-governmental associations as overly restrictive. The military and intelligence services play a role in domestic law enforcement, sometimes acting without apparent judicial or public oversight. Critics charge that amnesty policies adopted following the 1990s conflict have resulted in the freeing of terrorists and/or have failed to provide accountability for abuses committed by security forces. The State Department's 2014 International Religious Freedom Report states that "the constitution provides for the inviolable right to creed and opinion but declares Islam the state religion and prohibits state institutions from engaging in behavior incompatible with Islamic morality." Proselytizing by non-Muslims is a criminal offense, and the report notes that "non-Muslim groups experienced difficulty when attempting to register with the government" as legally required. While the government has technically allowed for the reopening of 25 synagogues shuttered during the 1990s conflict, none is reportedly in use, possibly due to the "shrinking" size of the Jewish community (as few as several hundred) and a fear of terrorism. The State Department's 2014 Trafficking in Persons Report ranks Algeria as "Tier 3" (lowest), reporting that Algeria "does not fully comply with the minimum standards for the elimination of trafficking and is not making significant efforts to do so." The ranking has implications for U.S. aid to Algeria (see " U.S. Assistance "). The report states that "the government did not demonstrate efforts to investigate, prosecute, or convict perpetrators of sex trafficking and forced labor," adding that the government "lacked adequate measures" to identify and protect victims. Algerian officials have stridently objected to these findings. Many Algerians' heritage reflects both Berber (Amazigh) and Arab influences, but the state has pursued "Arabization" policies in national education and language policies that are seen by some Berbers as disadvantageous. Berber groups in the Kabylie region east of Algiers have been particularly focused on articulating demands for language and cultural rights. Periodic unrest in Kabylie has been fueled by perceived official discrimination and neglect. AQIM activity in the region and related security measures have also made it difficult for businesses to operate in the area, entrenching its economic isolation. Hydrocarbons (oil and gas) are the engine of the Algerian economy, providing about two-thirds of public revenues, one-third of the gross domestic product (GDP), and over 90% of export earnings. Algeria is the leading natural gas producer in Africa and among the top three oil producers in Africa, and is the second-largest natural gas supplier to Europe. Oil and gas production have declined in recent years, and known hydrocarbon resources are projected to be depleted over the next 50 years. However, Algeria is expanding exploration, including of shale gas, of which it is estimated to hold the world's third-largest recoverable resources. High global energy prices over the past decade have boosted monetary reserves and economic growth, fueled a construction boom, eased unemployment somewhat, and allowed Algeria to reduce its external debt to 2% of GDP—an extremely low figure by global standards. However, chronic socioeconomic problems persist, such as high unemployment among young people and especially young college graduates; inadequate housing, health services, and infrastructure; inequality; and corruption. These conditions have sparked protests and labor unrest, and motivate a continuing tide of illegal Algerian immigrants to Europe. Labor productivity is stagnant, and many of those who have found work have done so in the relatively precarious informal sector. Algeria's economy is dominated by the state. Amendments since 2006 to the Hydrocarbon Act require the state-owned oil and gas company, SONATRACH, to hold 51% ownership in any hydrocarbon project. Algeria further requires 30% local ownership of foreign import companies. These laws—along with red tape, corruption concerns, and security threats—have reportedly dampened foreign investor interest. The International Monetary Fund (IMF) has praised Algeria's macroeconomic stability while criticizing a poor business climate, unsustainable fiscal policies (including high levels of subsidies for domestic consumption), controls on currency exchange that the IMF views as excessive, and a lack of diversification. Critics further point to the absence of a modern financial market, an underdeveloped stock exchange and banking system, and a failure to integrate into the global economy. Algeria has applied to join the World Trade Organization, but has yet to qualify for membership. Algerian officials argue that conditions on foreign investment are needed to encourage domestic companies. While many analysts and U.S. policymakers have called for economic reforms, these inefficiencies may benefit the ruling elite. After independence in 1962, Algeria was in the forefront of the Non-Aligned Movement, and was active in the Arab world and Africa. Its diplomacy was considerably less active in the 1990s, when the country was preoccupied by domestic turmoil. Under President Bouteflika, Algeria has reemerged as an important diplomatic player in Africa and in multilateral forums. Bouteflika has also pursued closer relations with the United States, France, and the European Union. Still, Algeria's foreign policy continues to be defined, in part, by a residual suspicion of Western motives. Political and military ties with Russia are extensive. Algeria plays a prominent role in the African Union (AU). Algerian politicians are generally extremely critical of Israel and of Israeli policy toward the Palestinians. Algeria's leaders criticized NATO's intervention in Libya and have urged a non-interventionist approach to the conflict in Syria. Algeria is influential in Mali, and has mediated peace talks between the Malian government and northern rebel groups. Relations with Morocco are strained over the issue of Western Sahara and due to a rivalry for regional power. The Western Sahara is a disputed territory claimed and largely administered by Morocco; Algeria hosts and supports the independence-seeking Popular Front for the Liberation of Saqiat al Hamra and Rio de Oro (Polisario) and its self-declared government-in-exile, the Sahrawi Arab Democratic Republic. Tens of thousands of Sahrawi (as the people of Western Sahara are known) live in refugee camps in the Tindouf area of southwest Algeria. The camps receive aid from the U.N. High Commissioner for Refugees (UNHCR) but are administered by the Polisario. Algeria considers the Western Sahara issue to be one of decolonization requiring resolution by the U.N., and maintains that it is not a party to the conflict. Talks between Morocco and the Polisario have been conducted under U.N. auspices since 2007, with no significant break-through. Algeria has not reopened its border with Morocco since closing it in 1994, after Morocco imposed visa restrictions on Algerian nationals and blamed Algeria for a terrorist attack. Algeria and France, its former colonizer, have complex, unpredictable relations. Economic ties are extensive, and millions of individuals of Algerian descent live in France. Yet France's restrictive immigration policies and the weight of history continue to trouble the relationship. French President François Hollande has pursued warmer ties, conducting a high-profile visit to Algeria in 2012. Algeria has an association agreement with the European Union (EU) and has participated in the Europe-Mediterranean Partnership (MEDA) since 1995. Trade negotiations with the EU have been slow, in part due to Algiers' reluctance to dismantle certain tariffs. The State Department indicates that the U.S.-Algeria relationship is "characterized by our shared interests to combat terrorism and facilitate greater stability in the region," and that U.S. policy is "also focused on developing a more robust trade and economic partnership and supporting the development of civil society groups." The Administration has sought to expand bilateral ties and to enlist Algeria's help in addressing regional security crises, including via the Bilateral Strategic Dialogue initiated in 2012. Yet, the two countries' foreign policy priorities often diverge. U.S. leverage may be further reduced by Algeria's often opaque decision-making, frequent preoccupation with internal affairs, ties to non-Western strategic players such as Russia, and storied reputation for resistance to outside pressure. Secretary of State Kerry stated during his visit to Algeria in April 2014 that "We will look to increase our security assistance." In a televised meeting, President Bouteflika urged Secretary Kerry to share "real-time" U.S. intelligence on the Sahel and Sahara. The United States and Algeria have a Joint Military Dialogue to foster exchanges, training, and joint exercises. Algeria participates in the NATO-Mediterranean dialogue and in NATO naval exercises. A bilateral contact group on counterterrorism was launched in 2011, and the two countries signed a mutual legal assistance treaty in 2010. Algeria has recently pursued purchases of U.S.-origin defense materiel and services, particularly related to enhancing its maritime and aerial surveillance capacity—part of an apparent Algerian effort to diversify its military acquisitions, for which it has historically relied primarily on Russia. Congressionally mandated end-use monitoring requirements have sometimes been an obstacle to U.S. arms sales, as Algeria considers them an infringement on its sovereignty. U.S. officials often refer to relations with Algeria as an important "partnership," a term that emphasizes mutual benefits and responds to Algerian concerns over sovereignty. U.S. military leaders, while pointing to the importance of bilateral cooperation, have also regularly emphasized that the United States does not seek to impose its views or install a military footprint in the region, in apparent recognition of Algerian sensitivities. U.S. officials also often note that the United States opposes paying ransoms for terrorist-held hostages, a policy that Algeria shares. The Obama Administration has occasionally publicly urged political and economic reforms. For example, Secretary of State Kerry stated that the United States would work with Algeria "in order to bring about the future that Algeria and its neighbors deserve. And that is a future where citizens can enjoy the free exercise of their civil, political, and human rights, and where global companies, businesses, are confident in being able to invest for the long haul." Then-Secretary of State Hillary Clinton referred to Algeria's May 2012 legislative elections as "a welcome step in Algeria's progress toward democratic reform," but later stated that "Algeria has a lot of work to do to uphold universal rights and create space for civil society." U.S.-Algerian ties date from a Treaty of Peace and Friendship in 1795. In 1860, after the Algerian anti-colonial resistance fighter El Emir Abd el Kader protected large numbers of Christians from attack, President Abraham Lincoln honored him with a gift of guns that remain on display in Algiers; the town of Elkader, Iowa, was named after the emir. Older Algerians have fond memories of President Kennedy's support for their independence struggle. Relations suffered later due to Cold War differences, although Algerian diplomats played a key role in facilitating the release of U.S. hostages from Iran in 1981. The United States imports Algerian crude oil, and was the largest destination for Algerian crude oil exports prior to a decline in 2013. U.S. investment is concentrated in the oil and gas sector, and U.S. Secretary of Energy Ernest Moniz led a U.S. delegation to the Algerian International Trade Fair in June 2014. U.S. firms specializing in shale gas exploration and production are reportedly particularly interested in Algerian opportunities. The United States and Algeria signed a Trade and Investment Framework Agreement (TIFA) in 2001, and to a limited extent, economic ties have also broadened beyond the energy sector, to include financial services, pharmaceuticals, and other industries. For example, in 2013, General Electric won a $2.7 billion contract to supply technology for Algerian power plants. In 2007, the two countries signed an agreement to cooperate in the peaceful use of nuclear energy, albeit with no apparent plans to build a U.S. reactor in Algeria. U.S. imports from Algeria totaled $4.8 billion in 2013, and U.S. bilateral exports totaled $1.8 billion, making Algeria the United States'56 th largest trading partner. Although Algeria's natural resources, sizable domestic market, and economic diversification efforts present potential substantial opportunities for U.S. investors, they continue to confront bureaucratic and policy obstacles. The State Department's latest Investment Climate Statement indicates that the climate for international investors has "stabilized" in the wake of laws enacted in recent years requiring at least 51% local ownership (see " The Economy "). However, the report relays investor complaints that "laws and regulations both are constantly shifting and are applied unevenly, raising the perception of commercial risk." It further notes that "business contracts are likewise subject to interpretation and revision, which has proved challenging to U.S. and international firms." The Office of the U.S. Trade Representative has listed Algeria on its "Priority Watch List" as a country of particular concern with regard to the protection of intellectual property rights. Algeria receives relatively little U.S. bilateral aid, but it participates in U.S. military and counterterrorism cooperation. In addition to aid administered on a bilateral basis, the State Department's Middle East Partnership Initiative (MEPI) has funded projects in Algeria to promote democratic governance, improved education, and an enhanced financial sector. The Administration has also sought to increase educational exchanges with young Algerians. Assistance for counter-extremism efforts and border security has been provided through the State Department-led multi-country Trans-Sahara Counter-Terrorism Partnership (TSCTP). The Defense Department also administers some security cooperation programs. Under the Trafficking Victims Protection Act (Division A of P.L. 106-386 ), as amended, Algeria's poor ranking in the State Department's annual Trafficking in Persons report potentially makes it ineligible for certain types of foreign aid. Aid to Algeria's central government has also been restricted under provisions in recent annual appropriations measures that pertain to budget transparency. A similar provision is contained in the FY2014 appropriations act ( P.L. 113-76 ). The Obama Administration has waived these restrictions, stating that continued assistance is in the U.S. "national interest." Counterterrorism is likely to remain a core focus of U.S. policy toward Algeria, particularly given the In Amenas attack in 2013 and the region's generally deteriorating security outlook. Concerns over the security of U.S. personnel in North Africa have heightened in the wake of the terrorist attacks against U.S. facilities in Benghazi in 2012. The Administration's FY2015 proposal for a global Counterterrorism Partnerships Fund could potentially lead to greater U.S. cooperation with Algeria, including, conceivably, increased intelligence-sharing, which the Algerians have requested. Still, cooperation may continue to face obstacles related to the opaque nature of Algerian decision-making, as well as occasionally divergent foreign policy priorities. Algeria's role in regional security is of potential interest to Congress, as is, potentially, the degree to which U.S. policy toward Algeria includes the encouragement of human rights and greater democracy. The role and influence of Algerian Islamist political parties and movements may also be of interest in the context of regional developments. Another area of potential interest concerns bilateral trade and investment. Algeria's energy resources, economic diversification and privatization efforts, and relatively large domestic market present opportunities to U.S. firms and prospective investors, although Algeria's business environment remains challenging. | U.S.-Algeria ties are highly focused on counterterrorism cooperation and U.S. interest in Algeria's oil and gas production. The Obama Administration has indicated a desire to deepen and broaden bilateral relations, including security assistance, while periodically urging greater political and economic openness. While both governments express appreciation for bilateral cooperation, U.S. officials may lack well-developed levers of influence in Algiers due to Algeria's economic self-reliance and ties to non-Western strategic players such as Russia, along with Algerian leaders' storied reputation for resistance to outside pressure. Congress appropriates and oversees small amounts of foreign aid and reviews notifications of occasional arms sales. Algeria's political system, which is dominated by a strong presidency and security apparatus, has remained stable amid ongoing regional upheaval. President Abdelaziz Bouteflika was first elected in 1999 amid the waning of Algeria's decade-long counterinsurgency against armed Islamist groups. His reelection to a fourth five-year term in April 2014, despite his evident ill health, has focused popular attention on succession issues. Bouteflika has initiated a process aimed at revising Algeria's constitution, but reforms proposed to date appear unlikely to substantially affect the political system. Algerians use the term Le Pouvoir (the powers-that-be) to refer to the opaque elite political and military networks that are widely viewed as driving policy decisions. Strong global prices for Algeria's energy resources have allowed the country to amass large foreign reserves as a buffer against economic instability, despite declining export volumes in recent years. However, bureaucratic red tape, corruption concerns, and stringent restrictions on foreign investment have inhibited growth and job creation. Localized public unrest over political and economic grievances periodically occurs, and ethnic violence has recently afflicted parts of the country. Yet public enthusiasm for dramatic political change appears limited, potentially due to factors such as the memory of violence during the 1990s and more recent examples of turmoil in Libya, Syria, and elsewhere. A terrorist attack at a natural gas compound in southeastern Algeria in January 2013, in which three Americans were killed, highlighted the challenges the United States faces in advancing and protecting its interests in an increasingly volatile region. The group that claimed responsibility is a breakaway faction of Al Qaeda in the Islamic Maghreb (AQIM), a regional network with Algerian roots and leadership. Given its large military, available financial resources, and desire to avert direct Western military intervention in neighboring states, Algeria has periodically sought to lead a regional response to security threats. Yet Algeria's complex and sometimes distrustful relations with neighboring states may hinder cooperation. Meanwhile, U.S. unilateral action in response to security threats may present significant risks and opportunity costs. Algeria's foreign policy has often conflicted with that of the United States. Strained relations with neighboring Morocco continue, due to the unresolved status of the disputed territory of Western Sahara and a rivalry for regional influence. Morocco claims Western Sahara; Algeria supports and hosts a long-running independence movement. The legacy of Algeria's anti-colonial struggle contributes to its leaders' stance on the Western Sahara, their emphasis on sovereignty as a principle of foreign relations, and their frequent skepticism of Western and NATO intentions. The strategic importance of Algeria's natural gas exports to Europe may increase amid efforts to reduce reliance on supplies from Russia. See also CRS Report RS20962, Western Sahara. |
This report provides Congress with official, unclassified, background data from U.S. government sources on transfers of conventional arms to developing nations by major suppliers for the period 2004 through 2011. It also includes some data on worldwide supplier transactions. It updates and revises CRS Report R42017, Conventional Arms Transfers to Developing Nations, 2003-2010 , by [author name scrubbed]. Data in this report provide a means for Congress to identify existing supplier-purchaser relationships in conventional weapons acquisitions. Use of these data can assist Congress in its oversight role of assessing how the current nature of the international weapons trade might affect U.S. national interests. For most of recent American history, maintaining regional stability and ensuring the security of U.S. allies and friendly nations throughout the world have been important elements of U.S. foreign policy. Knowing the extent to which individual arms suppliers are transferring arms to individual nations or regions provides Congress with a context for evaluating policy questions it may confront. Such policy questions may include, for example, whether to support specific U.S. arms sales to given countries or regions or to support or oppose arms transfers by other nations. The data in this report may also assist Congress in evaluating whether multilateral arms control arrangements or other U.S. foreign policy initiatives are being supported or undermined by the actions of arms suppliers. The principal focus of this report is the level of arms transfers by major weapons suppliers to nations in the developing world—where most analysts agree that the potential for the outbreak of regional military conflicts currently is greatest, and where the greatest proportion of the conventional arms trade is conducted. For decades, during the height of the Cold War, providing conventional weapons to friendly states was an instrument of foreign policy utilized by the United States and its allies. This was equally true for the Soviet Union and its allies. The underlying rationale given for U.S. arms transfer policy then was to help ensure that friendly states were not placed at risk through a military disadvantage created by arms transfers by the Soviet Union or its allies. Following the Cold War's end, U.S. arms transfer policy has been based on maintaining or augmenting friendly and allied nations' ability to deal with regional security threats and concerns. Data in this report illustrate global patterns of conventional arms transfers, which have changed in the post-Cold War and post-Persian Gulf War years. Relationships between arms suppliers and recipients continue to evolve in response to changing political, military, and economic circumstances. Whereas the principal motivation for arms sales by key foreign suppliers in earlier years might have been to support a foreign policy objective, today that motivation may be based as much, if not more, on economic considerations as those of foreign or national security policy. Nations in the developing world continue to be the primary focus of foreign arms sales activity by conventional weapons suppliers. During the period of this report, 2004-2011, conventional arms transfer agreements (which represent orders for future delivery) to developing nations comprised 73.7% of the value of all international arms transfer agreements . The portion of agreements with developing countries constituted 79.2% of all agreements globally from 2008 to 2011. In 2011, arms transfer agreements with developing countries accounted for 83.9% of the value of all such agreements globally. Deliveries of conventional arms to developing nations from 2008 to 2011 constituted 59.5% of all international arms deliveries. In 2011, arms deliveries to developing nations constituted 63.3% of the value of all such arms deliveries worldwide. The data in this new report supersede all data published in previous editions. Because these new data for 2004-2011 reflect potentially significant updates to and revisions of the underlying databases utilized for this report, only the data in this most recent edition should be used for comparison of data found in previous reports. The data are expressed in U.S. dollars for the calendar years indicated, and adjusted for inflation (see box note on page 3). U.S. commercially licensed arms export delivery values are excluded (see box note on page 19). Also excluded are arms transfers by any supplier to subnational groups. The definition of developing nations, as used in this report, and the specific classes of items included in its values totals are found in box notes below on page 2. The report's table of contents provides a detailed listing and description of the various data tables to guide the reader to specific items of interest. The value of all arms transfer agreements worldwide (to both developed and developing nations) in 2011 was $85.3 billion. This was an extraordinary increase in arms agreements values (91.7%) over the 2010 total of $44.5 billion. This total in 2011 is by far the highest worldwide arms agreements total since 2004 ( Figure 1 ) ( Table 1 ) ( Table 30 ) ( Table 31 ). In 2011, the United States led in arms transfer agreements worldwide, making agreements valued at $66.3 billion (77.7% of all such agreements), an extraordinary increase from $21.4 billion in 2010. The United States' worldwide agreements total in 2011 is the largest for a single year in the history of the U.S. arms export program. Russia ranked second with $4.8 billion in agreements (5.6% of these agreements globally), down significantly from $8.9 billion in 2010. The United States and Russia collectively made agreements in 2011 valued at over $71 billion, 83.3% of all international arms transfer agreements made by all suppliers ( Figure 1 ) ( Table 30 ) ( Table 31 , Table 32 , and Table 34 ). For the period 2008-2011, the total value of all international arms transfer agreements ($261.8 billion in current dollars) was higher than the worldwide value during 2004-2007 ($206.1 billion in current dollars). During the period 2004-2007, developing world nations accounted for 66.7% of the value of all arms transfer agreements made worldwide. During 2008-2011, developing world nations accounted for 79.2% of all arms transfer agreements made globally. In 2011, developing nations accounted for 83.9% of all arms transfer agreements made worldwide ( Figure 1 ) ( Table 30 ) ( Table 31 ). In 2011, the United States ranked first in the value of all arms deliveries worldwide, making nearly $16.2 billion in such deliveries or 36.5%. This is the eighth year in a row that the United States has led in global arms deliveries. Russia ranked second in worldwide arms deliveries in 2011, making $8.7 billion in such deliveries. The United Kingdom ranked third in 2011, making $3 billion in such deliveries. These top three suppliers of arms in 2011 collectively delivered nearly $27.9 billion, 62.9% of all arms delivered worldwide by all suppliers in that year ( Table 2 ) ( Table 36 , Table 37 , and Table 39 ). The value of all international arms deliveries in 2011 was nearly $44.3 billion. This is an increase in the total value of arms deliveries from the previous year from $41.2 billion. The total value of such arms deliveries worldwide in 2008-2011 (about $167 billion) was higher than the deliveries worldwide from 2004 to 2007 ($155.8 billion [ Table 2 ]) ( Table 36 and Table 37 ) ( Figure 7 and Figure 8 ). Developing nations from 2008 to 2011 accounted for 59.5% of the value of all international arms deliveries. In the earlier period, 2004-2007, developing nations accounted for 64.1% of the value of all arms deliveries worldwide. In 2011, developing nations collectively accounted for 63.3% of the value of all international arms deliveries ( Table 2 ) ( Table 15 , Table 36 , and Table 37 ). Worldwide weapons orders increased in 2011. The total of $85.3 billion was a substantial increase from $44.5 billion in 2010, or 91.7%. The United States' worldwide weapons agreements values increased greatly in value from $21.4 billion in 2010 to $66.3 billion in 2011. The U.S. market share increased greatly as well, from 48.1% in 2010 to 77.7% in 2011. The extraordinary total value of U.S. weapons orders in 2011 distorts the current picture of the global arms trade market. For while the United States retained its position as the leading arms supplying nation in the world, nearly all other major suppliers saw declines. The principal exception was France, whose worldwide agreements increased from $1.8 billion in 2010 to $4.4 billion in 2011. Meanwhile, Russia posted a significant decline in its global arms agreements values, falling from $8.9 billion in 2010 to $4.8 billion in 2011. Russia's market share of worldwide agreements fell from 20% in 2010 to 5.6% in 2011. The collective market share of worldwide arms agreements for the four major West European suppliers—France, the United Kingdom, Germany, and Italy—also fell from 12.2% in 2010 to 7.2% in 2011. Although the global total in weapons sales in 2011 was especially high—due primarily to the unusually large agreements value of the U.S. contracts with Saudi Arabia—the international arms market is not likely growing overall. The U.S. global total for arms agreements in 2011 seems a clear outlier figure. Moreover, there continue to be significant constraints on its growth, due, in particular, to the weakened state of the global economy. The Eurozone financial crisis and the slow international recovery from the recession of 2008 have generally limited defense purchases of prospective customers. Concerns over their domestic budget problems have led many purchasing nations to defer or limit the purchase of new major weapons systems. Some nations have chosen to limit their purchasing to upgrades of existing systems and to training and support services. Others have decided to emphasize the integration into their force structures of the major weapons systems they had previously purchased. That said, orders for weapons upgrades and support services can still be rather lucrative, and such sales can provide weapons suppliers with continued revenue, despite the reduction in demand for major weapons systems. As new arms sales have become more difficult to conclude in the face of economic factors, competition among sellers has become increasingly intense. A number of weapons-exporting nations are focusing not only on the clients with whom they have held historic competitive advantages, due to well-established military-support relationships, but also on potential new clients in countries and regions where they have not been traditional arms suppliers. As the overall market for weapons has stagnated, arms suppliers have faced the challenge of providing weapons in type and price that can provide them with a competitive edge. To overcome the key obstacle of limited defense budgets in several developing nations, arms suppliers have increasingly utilized flexible financing options and guarantees of counter-trade, co-production, licensed production, and co-assembly elements in their contracts to secure new orders. Given important limitations on significant growth of arms sales to developing nations—especially those that are less affluent—competition between European nations or consortia on the one hand and the United States on the other is likely to be especially intense where all these suppliers have previously concluded arms agreements with the more affluent states. Recent examples of this competition have been the contests for combat aircraft sales to the oil-rich Persian Gulf states and a major competition for the sale of a substantial number of combat aircraft to India. The more affluent developing nations have been leveraging their attractiveness as clients by demanding greater cost offsets in their arms contracts, as well as transfer of more advanced technology and provisions for domestic production options. Weapons contracts with the more wealthy developing nations in the Near East and Asia appear to be especially significant to European weapons suppliers, who have used foreign arms sales contracts as a means to support their own domestic weapons development programs and need them to compensate, wherever possible, for declining arms orders from the rest of the developing world. At the same time, nations in the developed world continue to pursue measures aimed at protecting important elements of their national military industrial bases by limiting arms purchases from other developed nations. This has resulted in several major arms suppliers emphasizing joint production of various weapons systems with other developed nations as an effective way to share the costs of developing new weapons, while preserving productive capacity. Some supplying nations have decided to manufacture items for niche weapons categories where their specialized production capabilities give them important advantages in the international arms marketplace. The strong competition for weapons contracts has also led to consolidation of certain sectors of the domestic defense industries of key weapons-producing nations to enhance their competiveness further. Although less-affluent nations in the developing world may be compelled by financial considerations to limit their weapons purchases, others in the developing world with significant financial assets continue to launch new and costly weapons-procurement programs. The increases in the price of oil since 2008 have provided a major advantage for major oil-producing states in funding their arms purchases. But at the same time, such oil price increases have also caused economic difficulties for many oil-consuming states, and contributed to their decisions to curtail or defer new weapons acquisitions. Despite the volatility of the international economy in recent years, some nations in the Near East and Asia regions have resumed or continued large weapons purchases. These purchases have been made by a limited number of developing nations in these two regions. Most recently they have been made by Saudi Arabia and the United Arab Emirates in the Near East—both pivotal partners in the U.S. effort to contain Iran—and India in Asia. For certain developing nations in these regions, the strength of their individual economies appears to be a key factor in their decisions to proceed with major arms purchases. A few developing nations in Latin America, and, to a much lesser extent, in Africa, have sought to modernize key sectors of their military forces. In recent years, some nations in these regions have placed large arms orders, by regional standards, to advance that goal. Many countries within these regions are significantly constrained by their financial resources and thus limited to the weapons they can purchase. Given the limited availability of seller-supplied credit and financing for weapons purchases, and their smaller national budgets, most of these countries will be forced to be selective in their military purchases. As a consequence, few major weapons systems purchases are likely to be made in either region, but especially not in Africa. The value of all arms transfer agreements with developing nations in 2011 was $71.5 billion, a substantial increase from the $32.7 billion total in 2010 ( Figure 1 ) ( Table 1 ) ( Table 3 ) ( Table 4 ). In 2011, the value of all arms deliveries to developing nations ($28 billion) was an increase over the value of 2010 deliveries ($26.1 billion), and the highest delivery total since 2004 ( Figure 7 and Figure 8 ) ( Table 2 ) ( Table 15 ). Most recently, from 2008 to 2011, the United States and Russia have dominated the arms market in the developing world, with both nations either ranking first or second for all four years in terms of the value of arms transfer agreements. From 2008 to 2011, the United States made nearly $113 billion of these agreements, or 54.5%. During this same period, Russia made $31.1 billion, 15% of all such agreements, expressed in current dollars. Collectively, the United States and Russia made 69.5% of all arms transfer agreements with developing nations during this four-year period. France, the third-leading supplier, from 2008 to 2011 made nearly $17.3 billion or 8.3% of all such agreements with developing nations during these years. In the earlier period (2004-2007) Russia ranked first with $41.4 billion in arms transfer agreements with developing nations or 30.1%; the United States made $32.2 billion in arms transfer agreements during this period or 23.4%. The United Kingdom made $20.4 billion in agreements or 14.8% ( Table 4 ) ( Table 5 ). From 2004 to 2011, in any given year, most arms transfers to developing nations were made by two or three major suppliers. The United States ranked first among these suppliers for five of the eight years of this period, notably the last five. Russia has been a strong competitor for the lead in arms transfer agreements with developing nations, ranking first every year from 2004 through 2006, and second every year since. Although Russia has lacked the larger traditional client base for armaments held by the United States and the major West European suppliers, it has been a major source of weaponry for a few key purchasers in the developing world. Russia's most significant high-value arms transfer agreements continue to be with India. Russia has also had some success in concluding arms agreements with clients in the Near East and in Southeast Asia. Russia has increased its sales efforts in Latin America with a principal focus on Venezuela. With the strong support of its President Hugo Chavez, Venezuela has become Russia's major new arms client in this region. Russia has adopted more flexible payment arrangements, including loans, for its prospective customers in the developing world generally, including a willingness in specific cases to forgive outstanding debts owed to it by a prospective client in order to secure new arms purchases. At the same time Russia continues efforts to enhance the quality of its follow-on support services to make Russian weaponry more attractive and competitive, attempting to assure potential clients that it will provide timely and effective service and spare parts for the weapon systems it sells. Among the four major West European arms suppliers, France and the United Kingdom have been most successful in concluding significant orders with developing countries from 2004 to 2011, based on either long-term supply relationships or their having specialized weapons systems available for sale. Germany, however, has shown particular success in selling naval systems customized for developing nations. The United Kingdom has had comparable successes with aircraft sales. Despite the competition the United States faces from other major arms suppliers, it appears likely it will hold its position as the principal supplier to key developing world nations, especially with those able to afford major new weapons. From the onset of the Cold War period, the United States developed an especially large and diverse base of arms equipment clients globally with whom it is able to conclude a continuing series of arms agreements annually. It has also for decades provided upgrades, spare parts, ordnance, and support services for the wide variety of weapon systems it has previously sold to this large list of clients. This provides a steady stream of orders from year to year, even when the United States does not conclude major new arms agreements for major weapon systems. It also makes the United States a logical supplier for new-generation military equipment to these traditional purchasers. Major arms-supplying nations continue to center their sales efforts on the wealthier developing countries, as arms transfers to the less-affluent developing nations remain constrained by the scarcity of funds in their defense budgets and the unsettled state of the international economy. From 2004 to 2008, the value of all arms transfer agreements with developing nations increased from year to year. These agreements reached a peak in 2011 at $71.5 billion. The increase in agreements with developing nations from 2003 to 2008, and particularly in 2011, has been driven to an important degree by sales to the more affluent developing nations, especially key oil-producing states in the Persian Gulf, which actively sought new advanced weaponry during these years, as part of a U.S. effort to enhance the militaries of its key partners there. More recently, the less-traditional European and non-European suppliers, including China, have been successful in securing some agreements with developing nations, although at lower levels and with uneven results, compared to the major weapons suppliers. Yet, these non-major arms suppliers have occasionally made arms deals of significance, such as missile sales and light combat systems. While their agreement values appear larger when they are aggregated as a group, most of their annual arms transfer agreement values during 2004-2011 have been comparatively low when they are listed as individual suppliers. In various cases, these suppliers have been successful in selling older generation or less-advanced equipment. This group of arms suppliers is more likely to be the source of small arms and light weapons and associated ordnance, rather than routine sellers of major weapons systems. Most of these arms suppliers do not rank very high in the value of their arms agreements and deliveries, although some will rank among the top 10 suppliers from year to year ( Table 4 , Table 9 , Table 10 , Table 15 , Table 20 , and Table 21 ). The total value—in real terms—of United States arms transfer agreements with developing nations registered an extraordinary increase from $14.3 billion in 2010 to $56.3 billion in 2011. The U.S. market share of the value of all such agreements was 78.7% in 2011, an extraordinary increase from a 43.6% share in 2010 ( Figure 1 , Figure 7 , and Figure 8 ) ( Table 1 , Table 3 , Table 4 , and Table 5 ). In 2011, the total value of U.S. arms transfer agreements with developing nations was comprised primarily of major new orders from clients in the Near East and Asia. The U.S. arms agreements with Saudi Arabia were extraordinary and represent, by far, the largest share of U.S. agreements with the world or the developing world in 2011. The United States also concluded high-value agreements with Persian Gulf states such as the U.A.E. and Oman. In Asia the United States reached key agreements with India and Taiwan. The United States also continued to secure orders for significant equipment and support services contracts with a broad number of U.S. clients globally. The $56.3 billion arms agreement total for the United States in 2011, while dominated by the orders from Saudi Arabia, also reflects the continuing U.S. advantage of having well-established defense support arrangements with many weapons purchasers worldwide, based upon the existing U.S. weapon systems that the militaries of these clients utilize. U.S. agreements with all of its customers in 2011 include not only sales of very costly major weapon systems, but also the upgrading and the support of systems previously provided. It is important to emphasize that U.S. arms agreements involve a wide variety of items, such as spare parts, ammunition, ordnance, training, and support services, that can have significant costs associated with them. The larger valued arms transfer agreements the United States concluded in 2011 with developing nations included multiple agreements with Saudi Arabia to provide 84 new F-15SA fighter aircraft, the upgrading of 70 of the existing Saudi F-15S fleet, and a variety of associated weapons, ammunition, missiles, and long-term logistics support for more than $29 billion. Also included among sales to Saudi Arabia were dozens of AH-64D Apache helicopters, including the Apache Longbow variant, and UH-60M Blackhawk helicopters; with the United Arab Emirates (U.A.E.) for Terminal High Altitude Area Defense (THAAD) System Fire Units, including radars, for $3.49 billion, and with the U.A.E. for 16 CH-47F Chinook helicopters for $939 million; with Oman for 18 F-16 block 50/52 fighter aircraft for $1.4 billion; with Iraq for 18 F-16IQ fighter aircraft for $1.4 billion; with Egypt for co-production of M1A1 main battle tanks and support for over $1 billion; with India for 10 C-17 Globemaster III aircraft for $4.1 billion; and with Taiwan for Patriot Advanced Capability-3 (PAC-3) Firing Units and missiles for $2 billion. Other 2011 U.S. contracts included several score of missile, ordnance, and weapons systems support cases worth tens of millions of dollars each with U.S. customers in every region of the developing world. The total value of Russia's arms transfer agreements with developing nations in 2011 was $4.1 billion, a substantial decrease from $7.7 billion in 2010, placing Russia second in such agreements with the developing world. Russia's share of all developing world arms transfer agreements also declined significantly from 23.5% in 2010 to 5.7% in 2011 ( Figure 1 , Figure 7 , and Figure 8 ) ( Table 1 , Table 3 , Table 4 , Table 5 , and Table 10 ). Russia's arms transfer agreement totals with developing nations have been notable during the eight years covered in this report, reaching a peak in 2006 of $15.3 billion (in current dollars). During the 2008-2011 period, Russia ranked second among all suppliers to developing countries, making nearly $31.1 billion in agreements (in current dollars) ( Table 9 ). Russia's status as a leading supplier of arms to developing nations reflects a successful effort to overcome the significant industrial production problems associated with the dissolution of the former Soviet Union. The major arms clients of the former Soviet Union were generally less wealthy developing countries. In the Soviet era, several client states received substantial military aid grants and significant discounts on their arms purchases. Confronted with a limited arms client base in the post-Cold War era and stiff competition from Western arms suppliers for new markets, Russia adapted its selling practices in the developing world in an effort to regain and sustain an important share among previous and prospective clients in that segment of the international arms market. In recent years, Russia has made significant efforts to provide more creative financing and payment options for prospective arms purchasers. Russia has agreed to engage in counter-trade, offsets, debt-swapping, and, in key cases, to make significant licensed production agreements in order to sell its weapons. Russia's willingness to agree to licensed production has been a critical element in several cases involving important arms clients, particularly India and China. Russia's efforts to expand its arms customer base elsewhere have met with mixed results. Some successful Russian arms sales efforts have occurred in Southeast Asia. Here Russia has signed arms agreements with Malaysia, Vietnam, Burma, and Indonesia. Russia has also concluded major arms deals with Venezuela and Algeria. Elsewhere in the developing world, Russian military equipment continues to be competitive because it ranges from the most basic to the highly advanced. Russia's less expensive armaments have proven attractive to less affluent developing nations. Missiles and aircraft continue to provide a significant portion of Russia's arms exports, less so naval systems. Nevertheless, the absence of substantial funding for new research and development efforts in these and other military equipment areas has hampered Russia's longer-term foreign arms sales prospects. Weapons research and development (R&D) programs exist in Russia, yet other major arms suppliers have advanced much more rapidly in developing and producing weaponry than have existing Russian military R&D programs, a factor that may deter expansion of the Russian arms client base. This was illustrated by Russia's decision to acquire French technology through purchase of the Mistral amphibious assault ship, rather than relying on Russian shipbuilding specialists to create a comparable ship for the Russian Navy. Nonetheless, Russia has had important arms development and sales programs, particularly involving India and, to a lesser extent, China, which should provide it with sustained business for a decade. During the mid-1990s, Russia sold major combat fighter aircraft and main battle tanks to India, and has provided other major weapons systems through lease or licensed production. It continues to provide support services and items for these various weapons systems. But more recently, Russia has lost major contracts to other key weapons suppliers, threatening its long-standing supplier relationship with India. Sales of advanced weaponry in South Asia by Russia have been a matter of ongoing concern to the United States because of long-standing tensions between Pakistan and India. The United States has been seeking to expand its military cooperation with and arms sales to India as part of the U.S. strategic shift to the Asia-Pacific region. A key Russian arms client in Asia has been China, which purchased advanced aircraft and naval systems. Since 1996, Russia has sold China Su-27 fighter aircraft and agreed to their licensed production. It has sold the Chinese quantities of Su-30 multi-role fighter aircraft, Sovremenny-class destroyers equipped with Sunburn anti-ship missiles, and Kilo-class Project 636 diesel submarines. Russia has also sold the Chinese a variety of other weapons systems and missiles. Chinese arms acquisitions seem aimed at enhancing its military projection capabilities in Asia, and its ability to influence events throughout the region. One U.S. policy concern is to ensure that it provides appropriate military equipment to U.S. allies and friendly states in Asia to help offset any prospective threat China may pose to such nations. There have been no especially large recent Russian arms agreements with China. The Chinese military is currently focused on absorbing and integrating into its force structure the significant weapon systems previously obtained from Russia, and there has also been tension between Russia and China over China's apparent practice of reverse engineering and copying major combat systems obtained from Russia, in violation of their licensed production agreements. The largest arms transfer agreements Russia made in 2011 were with Syria for 36 Yak-130 fighter/trainer aircraft for $550 million and with China for 123 AL-31FN jet aircraft engines for $500 million. Russia made other arms contracts of varying sizes and values for a range of Russian equipment with a number of traditional Russian clients in the developing world. It was not until the Iran-Iraq war in the 1980s that China became an important arms supplier, one willing and able to provide weaponry when other major suppliers withheld sales to both belligerents. During that conflict, China demonstrated that it was willing to provide arms to both combatants in quantity and without conditions. Subsequently, China's arms sales have been more regional and targeted in the developing world. From 2008 to 2011, the value of China's arms transfer agreements with developing nations has averaged over $2 billion annually. During the period of this report, the value of China's arms transfer agreements with developing nations was highest in 2005 and 2007 at $2.7 billion and $2.5 billion, respectively (in current dollars). China's arms agreements total in 2011 was $2.1 billion. China's totals can be attributed, in part, to continuing contracts with Pakistan, a key historic client. More broadly, China's sales figures reflect several smaller-valued weapons deals in Asia, Africa, and the Near East, rather than to especially large agreements for major weapons systems ( Table 4 , Table 10 , and Table 11 ) ( Figure 7 ). Comparatively, few developing nations with significant financial resources have purchased Chinese military equipment during the eight-year period of this report. Most Chinese weapons for export are less advanced and sophisticated than weaponry available from Western suppliers or Russia. China, consequently, does not appear likely to be a key supplier of major conventional weapons in the developing world arms market in the immediate future. That said, China has indicated that increasingly it views foreign arms sales as an important market in which it wishes to compete, and has increased the promotion of its more advanced aircraft in an effort to secure contracts from developing countries. China's weapons systems for export seem based upon designs obtained from Russia through previous licensed production programs. Nonetheless, China's likely client base will be states in Asia and Africa seeking quantities of small arms and light weapons, rather than major combat systems. China has also been an important source of missiles to some developing countries. For example, China has supplied battlefield and cruise missiles to Iran and surface-to-surface missiles to Pakistan. According to U.S. officials, the Chinese government no longer supplies other countries with complete missile systems. However, Chinese entities are suppliers of missile-related technology. Such activity raises questions about China's willingness to fulfill the government's stated commitment to act in accordance with the restrictions on missile transfers set out in the Missile Technology Control Regime (MTCR). Because China has military products—particularly its missiles—that some developing countries would like to acquire, it can present an obstacle to efforts to stem proliferation of advanced missile systems to some areas of the developing world. China continues to be a source of a variety of small arms and light weapons transferred to African states. The prospects for significant revenue earnings from these arms sales are limited. China likely views such sales as one means of enhancing its status as an international political power, and increasing its ability to obtain access to significant natural resources, especially oil. The control of sales of small arms and light weapons to regions of conflict, especially to some African nations, has been a matter of concern to the United States and others. The United Nations also has undertaken an examination of this issue in an effort to achieve consensus on a path to curtail this weapons trade comprehensively. During July 2012, the U.N. attempted to reach agreement on the text of an Arms Trade Treaty (ATT), aimed at setting agreed standards for member states regarding what types of conventional arms sales should be made internationally, and what criteria should be applied in making arms transfer decisions. At the end of the month-long period set aside for negotiations, this effort failed to achieve the necessary consensus on a treaty draft, and the future success of this effort is in doubt. China, while not a member of the group of U.N. states negotiating the final draft, made it publicly clear that it did not support any treaty that would prevent any state from making its own, independent, national decision to make an arms sale. France, the United Kingdom, Germany, and Italy—the four major West European arms suppliers—have supplied a wide variety of sophisticated weapons to a number of purchasers. They are potential sources of armaments for nations that the United States chooses not to supply for policy reasons. The United Kingdom, for example, sold major combat fighter aircraft to Saudi Arabia in the mid-1980s, when the United States chose not to sell a comparable aircraft. More recently, India made European aircraft suppliers finalists in its competition for a major sale of combat aircraft—a competition ultimately won by France. The contending U.S. and Russian aircraft were rejected. Moreover, Saudi Arabia recently purchased 72 Eurofighter Typhoon fighter aircraft from the United Kingdom, an aircraft built by four European nations—the U.K, Germany, Italy and Spain. During the Cold War, NATO allies of the United States generally supported the U.S. position in restricting arms sales to certain nations. In the post-Cold War period, however, their national defense export policies have not been fully coordinated with the United States as was the case previously. Key European arms supplying states, especially France, view arms sales foremost as a matter for national decision. Economic considerations appear to be a greater driver in French arms sales decision-making than matters of foreign policy. France has also frequently used foreign military sales as an important means for underwriting development and procurement of new weapons systems for its own military forces. The potential for policy differences between the United States and major West European supplying states over conventional weapons transfers to specific countries has increased in recent years because of a divergence of views over what is an appropriate arms sale. Such a conflict resulted from an effort led by France and Germany in 2004-2005 to lift the arms embargo on arms sales to China adhered to by members of the European Union. The United States viewed this as a misguided effort, and vigorously opposed it. Ultimately, the proposal to lift the embargo was not adopted. However, this episode proved to be a source of significant tension between the United States and some members of the European Union. The arms sales activities of major European suppliers, consequently, will continue to be of interest to U.S. policymakers, given their capability to make sales of advanced military equipment to countries of concern in U.S. national security policy. The four major West European suppliers (France, the United Kingdom, Germany, and Italy), as a group, registered a decrease in their collective share of all arms transfer agreements with developing nations between 2010 and 2011. This group's share fell from 14.9% in 2010 to 5.7% in 2011. The collective value of this group's arms transfer agreements with developing nations in 2011 was $4.1 billion compared to a total of nearly $4.8 billion in 2010 (in current dollars). Of these four nations, France was the leading supplier with $2.7 billion in agreements in 2011. Italy, meanwhile, registered $1.1 billion in arms agreements in 2011, down from $1.8 billion in 2010 ( Figure 7 and Figure 8 ) ( Table 4 and Table 5 ). In the period from 2004 to 2011, the four major West European suppliers were important participants in the developing world arms market. Individual suppliers within the major West European group have had notable years for arms agreements during this period: France in 2009 ($9.2 billion) and in 2005 ($5.4 billion); the United Kingdom in 2007 ($9.5 billion) and 2004 ($4.1 billion); Germany ($4.7 billion) in 2008 and in 2006 ($2.4 billion); and Italy in 2010 ($1.8 billion). In the cases of all of these West European nations, large agreement totals in one year have usually resulted from the conclusion of large arms contracts with one or a small number of major purchasers in that particular year ( Table 4 and Table 5 ). The major West European suppliers, individually, have enhanced their competitive positions in weapons exports through strong government marketing support for their foreign arms sales. All of them can produce both advanced and basic air, ground, and naval weapons systems. The four major West European suppliers have sometimes competed successfully for arms sales contracts with developing nations against the United States, which has tended to sell to several of the same major clients, especially to the Persian Gulf states that see the United States as the ultimate guarantor of Gulf security. The continuing demand for U.S. weapons in the global arms marketplace, from a large established client base, has created a more difficult environment for individual West European suppliers to secure large new contracts with developing nations on a sustained basis. Yet, as the data indicate, the major West European suppliers continue to make significant arms transfer contracts each year. An effort to enhance their market share of the arms trade in the face of the strong demand for U.S. defense equipment, among other considerations, was a key factor in inducing European Union (EU) member states to adopt a new code of conduct for defense procurement practices. This code was agreed on November 21, 2005, at the European Defense Agency's (EDA's) steering board meeting. Currently voluntary, the EU hopes it will become mandatory, and through its mechanisms foster greater cooperation within the European defense equipment sector in the awarding of contracts for defense items. By successfully securing greater intra-European cooperation in defense program planning and collaboration in defense contracting, the EU hopes that the defense industrial bases of individual EU states will be preserved, thereby enhancing the capability of European defense firms to compete for arms sales throughout the world. Some European arms companies have begun, and others completed the phasing out of production of certain types of weapons systems. These suppliers have increasingly sought to engage in joint production ventures with other key European weapons suppliers or even client countries in an effort to sustain major sectors of their individual defense industrial bases—even if a substantial portion of the weapons produced are for their own armed forces. Examples are the Eurofighter and Eurocopter projects. A few European suppliers have also adopted the strategy of cooperating in defense production ventures with the United States, such as the Joint Strike Fighter (JSF), rather than attempting to compete directly, thus meeting their own requirements for advanced combat aircraft while positioning themselves to share in profits resulting from future sales of this new fighter aircraft. The leading markets for arms in regions of the developing world have been predominately in the Near East and Asia. Latin American and African nations, by contrast, have not been major purchasers of weapons, with rare exceptions. The regional arms agreement data tables in this report demonstrate this. United States policymakers have placed emphasis on helping to maintain stability throughout the regions of the developing world. Consequently, the United States has made and supported arms sales and transfers it has argued would advance that goal, while discouraging significant sales by other suppliers to states and regions where military threats to nations in the area are minimal. Other arms suppliers do not necessarily share the U.S. perspective on what constitutes an appropriate arms sale, and in some instances the financial benefit of the sale to the supplier overrides other considerations. The regional and country specific arms-transfer data in this report provide an indication of where various arms suppliers are focusing their attention and who their principal clients are. By reviewing these data, policymakers can identify potential developments that may be of concern, and use this information to assist a review of options they may choose to consider, given the circumstances. What follows below is a review of data on arms-transfer agreement activities in the two regions that lead in arms acquisitions, the Near East and Asia. This is followed, in turn, by a review of data regarding the leading arms purchasers in the developing world more broadly. The Persian Gulf crisis of August 1990-February 1991 was the principal catalyst for major new weapons purchases in the Near East made during the last 20 years. This crisis, culminating in a U.S.-led war to expel Iraq from Kuwait, firmly established the United States as the guarantor of Gulf security and created new demands by key purchasers such as Saudi Arabia, Kuwait, the United Arab Emirates, and other members of the Gulf Cooperation Council (GCC) for a variety of advanced weapons systems. Subsequently, concerns over the growing strategic threat from Iran, which have continued into the 21 st century, have become the principal basis of GCC states' advanced arms purchases. Because GCC states do not share a land border with Iran, their weapons purchases have focused primarily on air, naval, and missile defense systems. Egypt and Israel have also continued their military modernization programs by increasing their purchases of advanced weaponry, primarily from the United States. Most recently, Saudi Arabia has been the principal arms purchaser in the Persian Gulf region. In the period from 2008 to 2011, Saudi Arabia's total arms agreements were valued at $52.1 billion (in current dollars). Also placing substantial orders during this same period was the U.A.E., making $17.2 billion in agreements (in current dollars) ( Table 11 and Table 12 ). The Near East has generally been the largest arms market in the developing world. In the earlier period (2004-2007), it ranked first with 47.9% of the total value of all developing nations' arms transfer agreements ($60.3 billion in current dollars). The Asia region ranked second in 2004-2007 with 41.6% of these agreements ($57.2 billion in current dollars). During 2008-2011, the Near East region again placed first with 56.2% of all developing nations' agreements ($116.6 billion in current dollars). The Asia region ranked second in 2008-2011 with $60.3 billion of these agreements or 29.1% ( Table 6 and Table 7 ). The United States ranked first in arms transfer agreements with the Near East during the 2004-2007 period with 30.3% of their total value ($16.1 billion in current dollars). The United Kingdom was second during these years with 26.5% ($17.5 billion in current dollars). Recently, from 2008 to 2011, the United States dominated in arms agreements with this region with almost $92 billion (in current dollars), a 78.9% share. Russia accounted for 5.2% of the region's agreements in the most recent period ($6 billion in current dollars) ( Figure 5 ) ( Table 6 and Table 8 ). The data on regional arms-transfer agreements from 2004 to 2011 reflect that Asia, after the Near East, is the second-largest region of the developing world for orders of conventional weaponry. Throughout Asia, several developing nations have been engaged in upgrading and modernizing defense forces, and this has led to new conventional weapons sales in that region. Beginning in the mid-1990s, Russia became the principal supplier of advanced conventional weaponry to China for about a decade—selling it fighters, submarines, destroyers, and missiles—while establishing itself as the principal arms supplier to India. Russian arms sales to these two countries have been primarily responsible for much of the increase in Asia's overall share of the arms market in the developing world during much of the period of this report. Russia has also expanded its client base in Asia, securing aircraft orders from Malaysia, Vietnam, Burma, and Indonesia. It is notable that India, while the principal Russian arms customer, during recent years has sought to diversify its weapons supplier base, purchasing the Phalcon early warning defense system aircraft in 2004 from Israel and numerous items from France in 2005, in particular six Scorpene diesel attack submarines. In 2008 India purchased six C130J cargo aircraft from the United States. In 2010, the United Kingdom sold India 57 Hawk jet trainers for $1 billion. In 2010 Italy also sold India 12 AW101 helicopters. In 2011, France secured a $2.4 billion contract with India to upgrade 51 of its Mirage-2000 combat fighters, and the United States agreed to sell India 10 C-17 Globemaster III aircraft for $4.1 billion. This pattern of Indian arms purchases indicates that Russia will likely face strong new competition from other major weapons suppliers for the India arms market, and it can no longer be assured that India will consistently purchase its major combat systems. Indeed, India in 2011 had eliminated Russia from the international competition to supply a new-generation combat fighter aircraft, a competition won by France. Other major arms agreements with Asia in recent years have included sales to Pakistan by the United States of a multi-billion dollar order of new F-16 fighter aircraft, weapons, and aircraft upgrades and a sale by Sweden of a SAAB-2000 based AWACS airborne radar system. In 2007, Pakistan contracted with China for production of J-17 fighter aircraft; in 2008 it purchased an AWACS aircraft from China. In 2009, Pakistan also purchased J-10 fighters from China. Meanwhile, in 2010 the United States sold 60 UH-60M Blackhawk helicopters to Taiwan, and in 2011 sold it the Patriot (PAC-3) air defense system for $2 billion. Asia has traditionally been the second-largest developing-world arms market. In 2008-2011, Asia ranked second, accounting for 29.1% of the total value of all arms transfer agreements with developing nations ($60.3 billion in current dollars). Yet in the earlier period, 2004-2007, the Asia region ranked second, accounting for 41.6% of all such agreements ($57.2 billion in current dollars) ( Table 6 and Table 7 ). In the earlier period (2004-2007), Russia ranked first in the value of arms transfer agreements with Asia with 36.5% ($20.9 billion in current dollars)—primarily due to major combat aircraft and naval system sales to India and China. The United States ranked second with 18.4% ($10.5 billion in current dollars). The major West European suppliers, as a group, made 19.6% of this region's agreements in 2004-2007. In the later period (2008-2011), the United States ranked first in Asian agreements with 30.1% ($18.1 billion in current dollars), and Russia ranked second with 27% ($16.3 billion in current dollars). The major West European suppliers, as a group, made 15.6% of this region's agreements in 2008-2011 ( Figure 6 ) ( Table 8 ). Saudi Arabia was the leading developing world arms purchaser from 2004 to 2011, making arms transfer agreements totaling $75.7 billion during these years (in current dollars). In the 2004-2007 period, India ranked first in arms transfer agreements at $25.3 billion (in current dollars). In 2008-2011 Saudi Arabia ranked first in arms transfer agreements, with a substantial increase to $52.1 billion from $23.6 billion in the earlier 2004-2007 period (in current dollars). These increases reflect the military modernization efforts by both Saudi Arabia and India, underway since the 1990s. The total value of all arms transfer agreements with developing nations from 2004 to 2011 was $344.7 billion (in current dollars). Thus Saudi Arabia alone accounted for almost 22% of all developing-world arms transfer agreements during these eight years. In the most recent period, 2008-2011, Saudi Arabia made $52.1 billion in arms transfer agreements (in current dollars). This total constituted 25.1% of all arms transfer agreements with developing nations during these four years ($207.3 billion in current dollars). India ranked second in arms transfer agreements during 2008-2011 with $21.3 billion (in current dollars), or 10.3% of the value of all developing-world arms-transfer agreements ( Table 3 , Table 6 , Table 12 , and Table 13 ). During 2004-2007, the top 10 recipients collectively accounted for 69.3% of all developing world arms transfer agreements. During 2008-2011, the top 10 recipients collectively accounted for 68.2% of all such agreements. Arms transfer agreements with the top 10 developing world recipients, as a group, totaled $58.9 billion in 2011 or 82.4% of all arms transfer agreements with developing nations that year. These percentages reflect the continued concentration of major arms purchases by developing nations among a few countries ( Table 3 , Table 12 , and Table 13 ). Saudi Arabia ranked first among all developing world recipients in the value of arms transfer agreements in 2011, concluding $33.7 billion in such agreements. India ranked second in agreements with $6.9 billion. The United Arab Emirates ranked third with $4.5 billion in agreements. Six of the top 10 recipients were in the Near East region; four were in the Asian region ( Table 13 ). Saudi Arabia was the leading recipient of arms deliveries among developing world recipients in 2011, receiving $2.8 billion in such deliveries. India ranked second in arms deliveries in 2011 with $2.7 billion. Pakistan ranked third with $1.8 billion ( Table 24 ). Arms deliveries to the top 10 developing nation recipients, as a group, were valued at $17.1 billion, or 61.1% of all arms deliveries to developing nations in 2010. Seven of these top 10 recipients were in the Near East; two were in Asia, one was from Latin America ( Table 14 and Table 24 ). Regional weapons delivery data reflect the diverse sources of supply and type of conventional weaponry actually transferred to developing nations. Even though the United States, Russia, and the four major West European suppliers dominate in the delivery of the 14 classes of weapons examined, it is also evident that the other European suppliers and some non-European suppliers, including China, can be leading suppliers of selected types of conventional armaments to developing nations ( Tables 25- 29 ). Weapons deliveries to the Near East, historically the largest purchasing region in the developing world, reflect the quantities and types delivered by both major and lesser suppliers. The following is a summary of weapons deliveries to this region for the period 2008-2011 from Table 27 : United States 348 tanks and self-propelled guns 170 APCs and armored cars 35 supersonic combat aircraft 36 helicopters 647 surface-to-air missiles Russia 50 tanks and self-propelled guns 130 APCs and armored cars 40 supersonic combat aircraft 2 submarines 30 helicopters 3,480 surface-to-air missiles 50 surface-to-surface missiles 110 anti-ship missiles China 60 tanks and self-propelled guns 160 APCs and armored cars Major West European Suppliers 130 APCs and armored cars 31 minor surface combatants 20 supersonic combat aircraft 50 helicopters 50 anti-ship missiles All Other European Suppliers 70 tanks and self-propelled guns 300 APCs and armored cars 1 major surface combatant 19 minor surface combatants 80 supersonic combat aircraft All Other Suppliers 10 tanks and self-propelled guns 250 APCs and armored cars 14 minor surface combatants 10 helicopters 40 anti-ship missiles These data indicate that substantial quantities of major combat systems were delivered to the Near East region from 2008 to 2011, in particular tanks and self-propelled guns, armored vehicles, supersonic combat aircraft, helicopters, air defense, and anti-ship missiles. While the United States, Russia, and the European suppliers were the ones who delivered the greater number of these significant combat systems, other suppliers provided important naval systems and ground equipment as well. Both aircraft platforms and naval craft are particularly expensive, and constitute a large portion of the dollar values of arms deliveries of all suppliers to this region during the 2008-2011 period. While not necessarily as expensive as aircraft or naval vessels, other weapon systems possess deadly capabilities and create important security threats in the Near East region. Such systems include anti-ship and surface-to-surface missiles. In these categories Russia delivered 110 anti-ship and 50 surface-to-surface missiles to the Near East from 2008-2011. The four major West European suppliers collectively delivered 50 anti-ship missiles. A supplier or suppliers in the other, non-major, and non-European, supplying group delivered 40 anti-ship missiles during this four-year period. Tables 3 through 13 present data on arms transfer agreements with developing nations by major suppliers from 2004 to 2011. These data show the most recent trends in arms contract activity by major suppliers. Delivery data, which reflect implementation of sales previously concluded, are provided in Tables 14 through 24 . Table 30 , Table 31 , Table 32 , Table 33 , and Table 34 provide data on worldwide arms transfer agreements from 2004 to 2011, while Table 35 , Table 36 , Table 37 , Table 38 , and Table 39 provide data on worldwide arms deliveries during this period. To use these data regarding agreements for purposes other than assessing general trends in seller/buyer activity is to risk drawing conclusions that can be readily invalidated by future events—precise values and comparisons, for example, may change due to cancellations or modifications of major arms transfer agreements previously concluded. These data sets reflect the comparative magnitude of arms transactions by arms suppliers with recipient nations expressed in constant dollar terms, unless otherwise noted. Illustrative pie and bar charts are provided in this section to give the relative market share of individual arms suppliers globally, to the developing world, and to specific regions. Table 1 provides the value of worldwide arms transfer agreements for 2004-2007, 2008-2011, and 2011, and the suppliers' share of such agreements with the developing world . Table 2 provides the value of worldwide arms deliveries for 2004-2007, 2008-2011, and 2011, and the suppliers' share of such deliveries with the developing world . Specific content of other individual data tables is described below. Table 3 shows the annual current dollar values of arms transfer agreements to developing nations by major suppliers from 2004 to 2011. This table provides the data from which Table 4 (constant dollars) and Table 5 (supplier percentages) are derived. Regional Arms Transfer Agreements, 200 4-2011 Table 6 gives the values of arms transfer agreements between suppliers and individual regions of the developing world for the periods 2004-2006 and 2008-2011. These values are expressed in current U.S. dollars. Table 7 , derived from Table 6 , gives the percentage distribution of each supplier's agreement values within the regions for the two time periods. Table 8 , also derived from Table 6 , illustrates what percentage share of each developing world region's total arms transfer agreements was held by specific suppliers during the years 2004-2007 and 2008-2011. Arms Transfer Agreements With Developing Nations, 200 4 - 2011: Leading Suppliers Compared Table 9 gives the values of arms transfer agreements with the developing nations from 2004 to 2011 by the top 11 suppliers. The table ranks these suppliers on the basis of the total current dollar values of their respective agreements with the developing world for each of three periods—2004-2007, 2008-2011, and 2004-2011. Arms Transfer Agreements With Developing Nations in 201 1 : Leading Suppliers Compared Table 10 ranks and gives for 2011 the values of arms transfer agreements with developing nations of the top 11 suppliers in current U.S. dollars. Arms Transfer Agreements With Near East 200 4 -201 1 : Suppliers and Recipients Table 11 gives the values of arms transfer agreements with the Near East nations by suppliers or categories of suppliers for the periods 2004-2007 and 2008-2011. These values are expressed in current U.S. dollars. They are a subset of the data contained in Table 3 and Table 6 . Arms Transfers to Developing Nations, 200 4 -201 1 : Agreements With Leading Recipients Table 12 gives the values of arms transfer agreements made by the top 10 recipients of arms in the developing world from 2004 to 2011 with all suppliers collectively. The table ranks recipients on the basis of the total current dollar values of their respective agreements with all suppliers for each of three periods—2004-2007, 2008-2011, and 2004-2011. Arms Transfers to Developing Nations in 201 1 : Agreements With Leading Recipients Table 13 names the top 10 developing world recipients of arms transfer agreements in 2011. The table ranks these recipients on the basis of the total current dollar values of their respective agreements with all suppliers in 2011. Developing Nations Arms Delivery Values Table 14 shows the annual current dollar values of arms deliveries (items actually transferred) to developing nations by major suppliers from 2004 to 2011. The utility of these particular data is that they reflect transfers that have occurred. They provide the data from which Table 15 (constant dollars) and Table 16 (supplier percentages) are derived. Regional Arms Delivery Values, 200 4 -201 1 Table 17 gives the values of arms deliveries by suppliers to individual regions of the developing world for the periods 2004-2007 and 2008-2011. These values are expressed in current U.S. dollars. Table 18 , derived from Table 17 , gives the percentage distribution of each supplier's deliveries values within the regions for the two time periods. Table 19 , also derived from Table 17 , illustrates what percentage share of each developing world region's total arms delivery values was held by specific suppliers during the years 2004-2007 and 2008-2011. Arms Deliveries to Developing Nations, 200 4 -201 1 : Leading Suppliers Compared Table 20 gives the values of arms deliveries to developing nations from 2004 to 2011 by the top 11 suppliers. The table ranks these suppliers on the basis of the total current dollar values of their respective deliveries to the developing world for each of three periods—2004-2007, 2008-2011, and 2004-2011. Arms Deliveries to Developing Nations in 201 1 : Leading Suppliers Compared Table 21 ranks and gives for 2011 the values of arms deliveries to developing nations of the top 10 suppliers in current U.S. dollars. Arms Deliveries to Near East, 200 4 -201 1 : Suppliers and Recipients Table 22 gives the values of arms delivered to Near East nations by suppliers or categories of suppliers for the periods 2004-2007 and 2008-2011. These values are expressed in current U.S. dollars. They are a subset of the data contained in Table 14 and Table 17 . Arms Deliveries to Developing Nations, 200 4 -201 1 : The Leading Recipients Table 23 gives the values of arms deliveries made to the top 10 recipients of arms in the developing world from 2004 to 2011 by all suppliers collectively. The table ranks recipients on the basis of the total current dollar values of their respective deliveries from all suppliers for each of three periods—2004-2007, 2008-2011, and 2004-2011. Arms Transfers to Developing Nations in 201 1 : Agreements With Leading Recipients Table 24 names the top 10 developing world recipients of arms transfer agreements in 2011. The table ranks these recipients on the basis of the total current dollar values of their respective agreements with all suppliers in 2011. Other useful data for assessing arms transfers are those that indicate who has actually delivered specific numbers of specific classes of military items to a region. These data are relatively "hard" in that they reflect actual transfers of military equipment. They have the limitation of not giving detailed information regarding either the sophistication or the specific name of the equipment delivered. However, these data show relative trends in the delivery of important classes of military equipment and indicate who the leading suppliers are from region to region over time. Data in the following tables set out actual deliveries of 14 categories of weaponry to developing nations from 2004 to 2011 by the United States, Russia, China, the four major West European suppliers as a group, all other European suppliers as a group, and all other suppliers as a group. The tables show these deliveries data for all of the developing nations collectively, for Asia, for the Near East, for Latin America, and for Africa. Care should be taken in using the quantitative data within these specific tables. Aggregate data on weapons categories delivered by suppliers do not provide precise indices of the quality and/or quantity of the weaponry delivered. The history of recent conventional conflicts suggests that quality and/or sophistication of weapons can offset quantitative advantage. Further, these data do not provide an indication of the relative capabilities of the recipient nations to use effectively the weapons delivered to them. Superior training—coupled with good equipment, tactical and operational proficiency, and sound logistics—may, in the last analysis, be a more important factor in a nation's ability to engage successfully in conventional warfare than the size of its weapons inventory. Ten tables follow. Table 30 , Table 31 , Table 32 , Table 35 , Table 36 , and Table 37 provide the total dollar values for arms transfer agreements and arms deliveries worldwide for the years 2004-2011. These tables use the same format and detail as Table 3 , Table 4 , Table 5 , Table 14 , Table 15 , and Table 16 , which provide the total dollar values for arms transfer agreements with and arms deliveries to developing nations . Table 33 , Table 34 , Table 38 , and Table 39 provide a list of the top 11 arms suppliers to the world based on the total values (in current dollars) of their arms transfer agreements and arms deliveries worldwide during calendar years 2004-2007, 2008-2011, and 2011. These tables are set out in the same format and detail as Table 9 and Table 10 for arms transfer agreements with, and Table 21 for arms deliveries to developing nations, respectively. Total Worldwide Arms Transfer Agreements Values, 200 4-2011 Table 30 shows the annual current dollar values of arms transfer agreements worldwide. Since these figures do not allow for the effects of inflation, they are, by themselves, of limited use. They provide, however, the data from which Table 31 ( constant dollars) and Table 32 (supplier percentages) are derived from data in Table 31 . Total Worldwide Delivery Values 200 4 -201 1 Table 35 shows the annual current dollar values of arms deliveries (items actually transferred) worldwide by major suppliers from 2004-2011. The utility of these data is that they reflect transfers that have occurred. They provide the data from which Table 36 ( constant dollars) and Table 37 (supplier percentages) are derived from data in Table 36 . Tanks and Self-propelled Guns: This category includes light, medium, and heavy tanks; self-propelled artillery; self-propelled assault guns. Artillery: This category includes field and air defense artillery, mortars, rocket launchers, and recoilless rifles—100 mm and over; FROG launchers—100mm and over. Armored Personnel Carriers (APCs) and Armored Cars: This category includes personnel carriers, armored and amphibious; armored infantry fighting vehicles; armored reconnaissance and command vehicles. Major Surface Combatants: This category includes aircraft carriers, cruisers, destroyers, frigates. Minor Surface Combatants: This category includes minesweepers, subchasers, motor torpedo boats, patrol craft, motor gunboats. Submarines: This category includes all submarines, including midget submarines. Guided Missile Patrol Boats: This category includes all boats in this class. Supersonic Combat Aircraft: This category includes all fighter and bomber aircraft designed to function operationally at speeds above Mach 1. Subsonic Combat Aircraft: This category includes all fighter and bomber aircraft designed to function operationally at speeds below Mach 1. Other Aircraft: This category includes all other fixed-wing aircraft, including trainers, transports, reconnaissance aircraft, and communications/utility aircraft. Helicopters: This category includes all helicopters, including combat and transport. Surface-to-air Missiles: This category includes all ground-based air defense missiles. Surface-to-surface Missiles: This category includes all surface-surface missiles without regard to range, such as Scuds and CSS-2s. It excludes all anti-tank missiles. It also excludes all anti-ship missiles, which are counted in a separate listing. Anti-ship Missiles: This category includes all missiles in this class such as the Harpoon, Silkworm, Styx, and Exocet. | This report is prepared annually to provide Congress with official, unclassified, quantitative data on conventional arms transfers to developing nations by the United States and foreign countries for the preceding eight calendar years for use in its policy oversight functions. All agreement and delivery data in this report for the United States are government-to-government Foreign Military Sales (FMS) transactions. Similar data are provided on worldwide conventional arms transfers by all suppliers, but the principal focus is the level of arms transfers by major weapons suppliers to nations in the developing world. Developing nations continue to be the primary focus of foreign arms sales activity by weapons suppliers. During the years 2004-2011, the value of arms transfer agreements with developing nations comprised 68.6% of all such agreements worldwide. More recently, arms transfer agreements with developing nations constituted 79.2% of all such agreements globally from 2008 to 2011, and 83.9% of these agreements in 2011. The value of all arms transfer agreements with developing nations in 2011 was over $71.5 billion. This was a substantial increase from $32.7 billion in 2010. In 2011, the value of all arms deliveries to developing nations was $28 billion, the highest total in these deliveries values since 2004. Recently, from 2008 to 2011, the United States and Russia have dominated the arms market in the developing world, with both nations either ranking first or second for each of these four years in the value of arms transfer agreements. From 2008 to 2011, the United States made nearly $113 billion in such agreements, 54.5% of all these agreements (expressed in current dollars). Russia made $31.1 billion, 15% of these agreements. During this same period, collectively, the United States and Russia made 69.5% of all arms transfer agreements with developing nations ($207.3 billion in current dollars) during this four-year period. In 2011, the United States ranked first in arms transfer agreements with developing nations with over $56.3 billion or 78.7% of these agreements, an extraordinary increase in market share from 2010, when the United States held a 43.6% market share. In second place was Russia with $4.1 billion or 5.7% of such agreements. In 2011, the United States ranked first in the value of arms deliveries to developing nations at $10.5 billion, or 37.6% of all such deliveries. Russia ranked second in these deliveries at $7.5 billion or 26.8%. In worldwide arms transfer agreements in 2011—to both developed and developing nations—the United States dominated, ranking first with $66.3 billion in such agreements or 77.7% of all such agreements. This is the highest single year agreements total in the history of the U.S. arms export program. Russia ranked second in worldwide arms transfer agreements in 2011 with $4.8 billion in such global agreements or 5.6%. The value of all arms transfer agreements worldwide in 2011 was $85.3 billion, a substantial increase over the 2010 total of $44.5 billion, and the highest worldwide arms agreements total since 2004. In 2011, Saudi Arabia ranked first in the value of arms transfer agreements among all developing nations weapons purchasers, concluding $33.7 billion in such agreements. The Saudis concluded $33.4 billion of these agreements with the United States (99%). India ranked second with $6.9 billion in such agreements. The United Arab Emirates (U.A.E) ranked third with $4.5 billion. |
This report focuses on the relationship between intellectual property rights (IPRs) provisions pursued through international and U.S. trade policy and access to medicines. Patents, a form of IPR, constitute the most common method by which governments encourage research and development (R&D) in order to find treatments and cures for diseases and other illnesses. A patent is a legal, exclusive right granted for the invention of a new product, process, organism, design, or plant that allows the right holder to exclude others from making, using, or selling the protected invention for a period of 20 years. By granting a temporary, exclusive right to the market for the protected product, a patent enables the right holder to generate profits to recover the costs for investment in R&D and to invest in future innovations. However, some express concerns that patents enable right holders to price drugs at levels that greatly surpass marginal costs of R&D and production, raising questions about the role of patents in affecting access to medicines and public health. IPR protection and enforcement have evolved from an area primarily of national concern to an area of international trade policy. The World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) established minimum standards for IPR protection and enforcement. Countries have advanced IPR protection and enforcement efforts through multilateral, regional, and bilateral free trade agreements (FTAs) and unilateral trade policies. Congress makes and shapes U.S. trade policy by passing statutory authorities that authorize trade programs, governing trade policy in a range of issue areas, setting trade negotiating objectives into law, engaging in consultations with the Executive Branch on trade negotiations, and conducting oversight hearings on U.S. trade policy and programs. Within Congress, there has been significant interest in promoting and protecting IPRs through trade policy for economic, health and safety, and national security reasons. IPR-based industries are viewed as an important contributor to U.S. innovation, productivity, economic growth, employment, and international trade. Advocates of a strong international IPR regime claim that counterfeiting and piracy inflict billions of dollars of revenue and trade losses annually on U.S. IPR-based industries. Some policymakers also have expressed concern about the health and safety implications of counterfeit goods, including pharmaceutical drugs. In addition, there is concern that trade in IPR-infringing products may feed into cross-border organized criminal networks. The Office of the U.S. Trade Representative (USTR) considers the protection and enforcement of international IPR standards to be a high priority for U.S. trade policy. As such, the USTR has pursued strong IPR regimes by participating in multilateral, regional and bilateral FTAs, as well as through unilateral trade policy tools, namely the Special 301 process and the Generalized System of Preferences (GSP). IPR provisions in trade policies are among the range of social, economic, and political factors that may affect public health. While patents may provide incentives for innovation, their granting of market exclusivities and impact on prices raise questions about the affordability of medicines, particularly for (but not limited to) low-income countries and their populations. Through their possible impact on innovation and drug prices, patents may affect the ability of countries to provide medicines to their populations and for populations in general to access medicines. For some observers, this may represent a conflict between free market and public health policies. While the commercialization of public health may promote innovation and efficiency, the laws of supply and demand may cause some people to be "priced out" of a given market. According to the World Health Organization (WHO), about one-third of the world's population, primarily residing in poorer parts of Africa and Asia, lacks regular access to essential medicines. Infectious diseases are major contributors of illness, death, and poverty in the developing world. At the end of 2008, an estimated 33.4 million people were living with HIV/AIDS, with about two-thirds of them in Sub-Saharan Africa. Other infectious diseases, such as tuberculosis, malaria, and influenza, present critical global health challenges as well. Over one billion people, primarily among the world's poorest, also are afflicted with neglected tropical diseases, which largely are infectious parasitic diseases prevalent in "impoverished" environments. With the global economic crisis, access to medicines may deteriorate. In 2000, the United Nations established eight Millennium Development Goals (MDGs), to which the United States is a signatory, in an effort to end poverty by year 2015. One of the U.N. targets is to achieve universal access to treatment for HIV/AIDS by 2010 and to have halted and reversed the spread of HIV/AIDS, malaria, and other major diseases by 2015. While prevention is key to combating infectious diseases, access to treatment is also critical to controlling epidemics. As such, another MDG target is to cooperate with pharmaceutical companies to provide access to affordable essential drugs in developing countries. Access to medicines has improved dramatically over the past couple of decades. For example, of the approximately 9.5 million people in need of treatment for HIV/AIDS in 2008 in low- and middle-income countries, 42% had access, compared to 33% in 2007. Although access to medicines is an important goal and is the focus of the discussion at hand, some public health professionals caution that "over-access" also can be a problem. Proponents of this view assert that that the availability of medicines due to lower prices may promote misuse, leading to the faster onset of drug resistance and shorter duration of the drug's usefulness. There is ongoing debate within Congress about the impact that IPR provisions in international and U.S. trade policies may have on access to medicines and public health. At the center of the debate is the question of how to balance providing long-term incentives for innovation through patents and addressing the short-term need to provide affordable access to medicines. The debate over the role of patents and trade policy in affecting access to medicines often has been framed as one in which high-income, developed countries and innovator ("brand name") pharmaceutical companies are pitted against low-income, developing countries and global health advocates. However, the number of stakeholders is more diverse, and includes middle-income, industrializing countries, and generic drug manufacturers. In addition, there is debate within the governments of countries about how to balance advancing economic interests and public health outcomes through trade policy. The debate over IPRs and access to medicines represents one component of a broader debate over the relationship between international trade policy and global public health. Over time, these two arenas have shown increasing overlap. In some cases, the linkages have been clear. For instance, international trade in goods that contain dangerous pathogens or counterfeit substances presents clear threats to public health. In other cases, as in the debate at hand, the linkages may not be so clear-cutting, or trade issues may only form one component of the public health issue. The global pharmaceutical industry is classified as a high-technology industry by the Organization for Economic Cooperation and Development (OECD). As a high-technology manufacturing industry, the pharmaceutical industry spends a high proportion of its revenues on R&D, which can lead to innovative solutions to treat global health problems. The pharmaceutical industry is heavily reliant on protection of intellectual property rights, specifically patents. Patents are the most common way for governments to encourage R&D and to foster innovation. A patent is a time-limited, legal, exclusive right granted for the invention of new products, processes, organisms, designs, and plants that allows the right holder to exclude others from making, using, or selling the protected invention for a period of 20 years. A patent does not necessarily provide the right holder with the "right to sell" the protected invention, as the right holder may need to comply with other regulatory laws. For example, pharmaceutical drugs generally also must be reviewed by a regulatory body (in the case of the United States, the Food and Drug Administration, FDA) for other considerations, such as health and safety, before it may be sold to consumers. By granting time-limited, exclusive monopolies on the market for a product, patents generate above-market financial returns that are believed to enable pharmaceutical inventors to recoup the costs of R&D and to invest in future innovations. By some estimates, the cost to drug researchers and manufacturers for creating a single new medicine is upwards of $800 million. Pointing to the high costs and uncertainty associated with R&D, supporters of patents argue that they are important for innovation in medicine by allowing right holders to recoup the costs of R&D, earn profits, and invest in future R&D. Proponents maintain that financial incentives for innovation may be even more critical now with the global economic downturn. Some fear that tighter credit markets may compel pharmaceutical companies to reduce current R&D spending. For example, the World Intellectual Property Organization (WIPO) reported a drop of 4.5% in international patent filings in 2009. Others are skeptical of the reportedly high estimates of the costs of R&D in the creation of new medicines. Some critics argue that PhRMA's cost estimate includes both the actual expenditures and the economic opportunity costs of developing new drugs. They also contend that a growing proportion of the financial returns generated from patented drugs is not directed toward new innovations, but rather to commercial marketing and political lobbying activities. Additionally, pharmaceutical companies often use publicly-funded research to develop drugs for commercialization. For instance, in the United States, the National Institutes of Health (NIH) and the Centers for Disease Control (CDC) provide funding for health-related research. In general, the public sector funds R&D that is focused on basic scientific research. Pharmaceutical companies then build on this research to develop products that are patentable and commercially marketable. While patents may provide incentives for innovation, some argue that the economic premise behind patents only holds in situations where markets offer sufficient financial incentives for a return on investment. Many developing countries may be unable to provide a profitable market for treatments against diseases that disproportionately affect their populations. The WHO "Global Strategy and Plan of Action of Public Health, Innovation and Intellectual Property" acknowledges that IPRs serve an important incentive function, but notes, "This incentive alone does not meet the need for the development of new products to fight diseases where the potential paying market is small or uncertain (WHA61.21.6)." According to a classification system used by the WHO, there are three main types of diseases that vary in the level of market-based incentives they offer for R&D. Type I diseases ("chronic diseases"), such as cancer, diabetes, and cardiovascular disease, are prevalent in developed countries and increasingly in developing countries. Pharmaceutical companies have a strong financial incentive to invest in treatments for these diseases. Type II diseases are prevalent in developing countries. Pharmaceutical companies may have incentives to invest in such diseases if there is sufficient demand by high-income countries for research, as in the case of HIV/AIDS. For other Type II diseases, such as malaria and tuberculosis, high-income country demand for treatments is limited and consequently, market-based incentives are not sufficient for pharmaceutical companies to invest in R&D. Type III diseases, such as dengue fever and African sleeping sickness, are those that have virtually no developed country demand. These diseases (often referred to as "neglected tropical diseases"), largely are concentrated in impoverished areas in developing countries. Pharmaceutical companies have little financial incentive to invest in R&D for these diseases, but may have social motivations. According to one commonly cited statistic, less than 10% of global expenditures on health research and development is directed toward the major health problems of 90% of the world's population (the so-called "10/90 gap"). Some point out that low rates of R&D investment in "developing country diseases" may be one of many factors affecting health conditions in impoverished areas. For instance, some neglected tropical diseases are prevalent due to poverty-related conditions such as unsafe water, poor sanitation, and lack of basic health care infrastructure. Some of the pharmaceutical needs of developed and developing countries are increasingly converging. For example, many Type I diseases, typically associated with high-income countries ("age" diseases), also now account for a growing share of the disease burden in developing countries as they experience economic growth and development. The WHO estimates that 80% of the burden of chronic diseases is concentrated in low- and middle-income countries. Additionally, increasing outbreaks of infectious diseases, such as the H5N1 "avian influenza" and H1N1 "swine influenza," and growing resistance to highly infectious diseases, such as tuberculosis, may lead to R&D for diseases that affect all populations. Pharmaceutical patents are among the many factors that may affect the price of medicines. Other factors include the level of economic development, taxes, tariffs, efficiency of global supply and distribution chains, government procurement plans, national health policies, and national and industry pricing decisions. These factors also are potentially significant determinants of drug pricing, but are beyond the scope of this paper. By granting a time-limited monopoly on the sale of a pharmaceutical drug, patents may raise the cost of the drug by delaying the entry of generic competitors into the market. Although the time-limited, exclusive right may serve an incentive function, some public health advocates are critical of the prices charged for patented medicines, arguing that patents enable right holders to price drugs at levels that greatly surpass marginal costs of R&D and production. Generic medicines—typically defined as copies of a patented drugs, predominantly of drugs whose patents have expired —tend to lower the price of drugs in the global marketplace in a number of ways. In general, generic manufacturers do not have to repeat research and clinical trials conducted by name brand pharmaceutical companies in order to obtain regulatory approval, but rather only need to demonstrate the "bioequivalence" of their product to the patented, branded medicine. In the United States, the Drug Price Competition and Patent Restoration Act of 1984 (the "Hatch-Waxman Act of 1984"), among other provisions, permits the FDA to provide marketing approval for generics on the basis of "bioequivalence" data rather than more costly, clinical data. Without this obligation, generic manufacturers are able to enter the market more quickly once patents have expired and to offer the drugs at lower prices. By serving as market competitors, generics also encourage innovator pharmaceutical companies to lower the prices of their branded drugs. In addition, the entry of generic drugs into a market may encourage innovator companies to develop newer drugs, thus increasing the supply of medicines. The public health landscape has changed dramatically over the past 30 years. The world has witnessed the emergence of the HIV/AIDS pandemic in the 1980s, as well as an increasing resistance to treatments against malaria, tuberculosis, and a host of bacteria over the past couple of decades. While HIV/AIDS is a global pandemic, it disproportionately affects developing countries. In addition, many other communicable and infectious diseases have afflicted the developing world. Public health outcomes depend on a wide variety of often inter-related social, economic, and political factors, one of which is access to medicines. According to the U.N. Millennium Development Goals, access to medicines is defined as "having medicines continuously available and affordable at public or private health facilities or medicine outlets that are within one hour's walk from the homes of the population." In discussing access to medicines, many public health advocates focus on "essential medicines." Given that national governments face resource constraints in providing health care, some argue that governments should rationalize their public health policy choices, including the provision of medicines. According to the WHO, essential medicines are those that satisfy the priority health care needs of the population. They are selected with due regard to public health relevance, evidence on efficacy and safety, and comparative cost-effectiveness. Essential medicines are intended to be available within the context of functioning health systems at all times in adequate amounts, in the appropriate dosage forms, with assured quality and adequate information, and at a price the individual and the community can afford. The implementation of the concept of essential medicines is intended to be flexible and adaptable to many different situations; exactly which medicines are regarded as essential remains a national responsibility. For low-income countries and populations, pharmaceutical drug prices may constitute a significant barrier in accessing essential and other medicines. In most parts of the world, health services are offered through a combination of public and private health services. Oftentimes, in developing countries (and in some cases, developed countries such as the United States), consumers bear much of their health care costs directly. In contrast, some countries, such as Thailand, Japan, Turkey, and France, have more publicly-funded pharmaceutical markets, reducing the costs borne by consumers. However, in situations where the government is funding a larger share of health care, higher-priced drugs may add limits to the government's ability to provide public health care. There is considerable debate on the extent to which patent protection affects access to essential medicines. The complexity is fueled by differing definitions of what is meant by "essential medicines" and "access to medicines." For instance, there often are no agreed-upon units of analysis for evaluating access to essential medicines. Since 1977, the WHO has maintained a Model Essential Medicines List (EML) to assist national governments to select medicines to address their public health needs and to develop national lists. While the WHO EML often is used as a basis for analysis, some global health activists express concern that the EML may not be comprehensive. They argue that the EML may exclude essential medicines based on cost concerns. They contend that patents raise the cost of medicines, and that the EML includes very few medicines currently under patent. However, the EML notes that cost is not a reason to automatically exclude a medicine and points out that multiple criteria are considered in the decision process. Moreover, some argue that the number of essential medicines under patent is under "constant flux" because patents will expire for existing medicines, new patents will be sought for new medicines, new medicines will be added to the WHO's Model Essential Medicines List, and others will be removed from the EML. Like many other IPR-sensitive industries, the pharmaceutical industry is heavily involved in international trade. IPR-sensitive products generally rank among the fastest-growing trade commodities. International trade in pharmaceutical products is heavily dominated by the developed world, both in terms of supply and demand. The global pharmaceutical market is expected to grow by 4-6% in 2010, down from 7% in 2009. The international economic downturn poses uncertainties and may affect international demand for pharmaceuticals. Although demand for pharmaceutical products tends to be more price-inelastic than for other commodities, the global pharmaceutical market is not wholly insulated from factors affecting the global economy. The international economic slowdown may constrain performance in some pharmaceutical markets more so than others. For instance, the pharmaceutical markets of countries in which consumers bear a large degree of the cost of health care may be particularly susceptible to global economic changes. However, emerging market economies are predicted to fuel growth in the pharmaceutical market sales over the next five years. According to the most recent statistics compiled by the National Science Foundation (NSF), total global production in the pharmaceuticals industry was about $319 billion in 2007 (see Table 1 ). The United States ranked as the largest single-country contributor to global value-added of the pharmaceutical industry, accounting for about one-third (32%) of the world market share. The European Union accounted for another third (31%) of the global share. Other significant contributors to pharmaceutical production were China (9%), Japan (8%), and Korea (3%). The global pharmaceutical industry is comprised mainly of a small number of multinational corporations "who negotiate with buyers and set prices and volumes for drugs." The top corporations are concentrated in the United States, the United Kingdom, Germany, Switzerland, and France. Industry consolidation among branded companies has become more prevalent as generic companies have made greater inroads into the global pharmaceutical market. While high-income countries constitute the largest source of pharmaceuticals, developing countries have accounted for a growing share of global production in the pharmaceutical industry. For instance, China's share of total pharmaceutical production in 2007 was three times its share in 1997. Likewise, India's share in 2007 was six-fold greater than a decade ago. India and China have become important exporters of generic drugs and active pharmaceutical ingredients. Several industrializing countries—primarily Brazil, China, Cuba, India, among others—also are developing innovative capacity for biomedical research. In terms of demand for pharmaceutical products, the multi-billion dollar global pharmaceutical market is highly polarized. The United States is the world's largest pharmaceutical market, and along with Japan and Europe, account for about 75% of global sales of pharmaceutical products. In total, the thirty wealthiest countries in the OECD account for 80% to 90% of global sales of patented medications. In contrast, the developing world, which comprises over 80% of the world's population, represents about 10% of global pharmaceutical sales. However, the geographic balance may be shifting toward emerging market economies. A report by IMS Health, a market research firm, identified 17 countries as "pharmerging" markets. These 17 countries are expected to generate the largest amount of pharmaceutical market growth over the next five years. The shift in the global pharmaceutical market may be due to a number of factors, including changes in the global economy, such as growing middle classes in some countries; changes in the health care environment, including greater access to health care; and the growth of the generic drug market. In the report, IMS Health categorizes the countries into three levels. China, the only country to be in the first tier, is expected to contribute an additional $40 billion in annual pharmaceutical sales by 2013. The second tier is comprised of Brazil, India, and Russia, which are expected to generate between $5 billion to $15 billion each annually in sales over the next five years. Another thirteen countries (Argentina, Egypt, Indonesia, Mexico, Pakistan, Poland, Romania, Thailand, Turkey, Ukraine, and Venezuela) in the third tier are predicted to contribute between $1 billion to $5 billion each in annual sales in the next five years. Collectively, these seventeen countries are expected to contribute about 48% of annual market growth in 2013. For the United States, the pharmaceutical industry contributes to U.S. economic growth and employment. After experiencing lower levels of growth in the past few years amid the global and U.S. economic downturn, the U.S. pharmaceutical market is expected to rebound in 2010. Consumer spending on pharmaceuticals is forecasted to grow by 3.3% in 2010. Generic drugs are expected to apply downward pressure on the overall prices for the industry, while making more products available to the public and raising sales. Following a slowdown over the past couple of years, pharmaceutical industrial production is predicted to grow by 7.2% in 2010. Recent trends in international trade in the U.S. pharmaceutical industry are similar to those of U.S. high technology industries overall. Through the 1980s and early 1990s, the U.S. high technology industries were net exporters. However, since the late 1990s, the United States has become a net importer of pharmaceuticals. For the U.S. pharmaceutical industry, total trade has grown as both exports and imports of pharmaceuticals have grown. However, imports have grown faster than exports, resulting in a U.S. trade deficit (see Table 2 ). Some observers question whether this is a signal of a decline in the U.S. pharmaceutical industry's competitiveness or simply an indication of the growing role of other countries in the global pharmaceutical industry. Also, these data do not reflect which pharmaceutical products traded by the United States are high-technology and which are low-technology. Historically, intellectual property rights have been a matter of U.S. national concern, but over time, have evolved into a cornerstone of international trade agreements. At the center of the present international IPR system is the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS Agreement"). The conclusion of the Uruguay Round (1986-1994) of the General Agreement on Tariffs and Trade (GATT) resulted in the creation of the WTO, an international organization established in 1995 as the successor to the GATT. The Uruguay Round also culminated in numerous WTO agreements on trade in goods, services, investment and other non-tariff barriers to trade, one of which was the TRIPS Agreement. The TRIPS Agreement sets minimum standards of protection and enforcement for patents, copyrights, trademarks and other forms of intellectual property. The agreement is based on three core commitments of the WTO: minimum standards, national treatment, and most-favored-nation treatment. Adherence to the TRIPS Agreement is a prerequisite for WTO membership, and provisions of the agreement can be enforced through the WTO's Dispute Settlement Understanding Mechanism (DSM). Efforts by the United States, European countries, and the IPR business community in the late 1980s were important in elevating IPR as a trade issue on the agenda of the Uruguay Round of the GATT. They argued that the prevailing international IPR regime, largely administered through "unenforceable" international treaties, was ineffective. U.S. industry criticized the lack of consistency in the promotion, protection, and enforcement of IPR across countries. Others contended that IPR protection and enforcement should not be viewed as a trade issue. Among those who held this view, some may have agreed that the movement of counterfeit and pirated goods across national borders could be a trade issue, but may have questioned the inclusion of a wider-ranging set of IPR issues on the Uruguay Round agenda. Among the debates about the implications of the TRIPS Agreement, one of the most controversial is its impact on public health. Prior to the TRIPS Agreement, developing country governments regulated public health with little involvement of international IPR regimes. This is because developing countries either did not have IPR systems in place or excluded pharmaceutical products from patents. Proponents of the TRIPS Agreement, mainly developed countries, argued that IPR protection and enforcement contribute to economic growth and development by promoting trade, investment, and technology transfer. Developed countries also asserted that patent protection is critical to public health because patents provide financial incentives for R&D to find pharmaceutical solutions for diseases. In contrast, critics of the TRIPS, including many developing countries and civil society organizations, asserted that developed countries, which are the major producers of intellectual property, would be the prime beneficiaries of the TRIPS Agreement. Some also held the view that the TRIPS Agreement would raise the costs of IPR-sensitive goods, such as public health goods, constrain the ability of governments to provide health services to their populations, and hinder innovation and economic development for low-income countries. In addition, many developing countries preferred to discuss IPR issues under the auspices of the World Intellectual Property Organization (WIPO) instead of the WTO. WIPO is a United Nations agency that administers all international IPR treaties with the exception of TRIPS. Ultimately, developing countries acceded to the TRIPS Agreement, after being granted delayed compliance periods and after negotiating goals on other issues in the Uruguay Round such as textiles and clothing. They also favored the prospect of operating under a rules-based trading system. Nevertheless, many stakeholders continue to be critical of the TRIPS Agreement. They argue that the IPR regime's architecture is biased toward IP right holders. They also contend that, in negotiations, high-income countries had greater bargaining power than lower-income countries, which are often dependent on developed countries economically. In addition, some argue that the interests of such groups as IP users, consumers, small- and medium-sized manufacturers, and public health advocates were not sufficiently represented in the TRIPS Agreement negotiations. In agreeing to launch the Doha Round of the WTO trade negotiations, trade ministers adopted a "Declaration on the TRIPS Agreement and Public Health" (the "Doha Declaration") on November 14, 2001. The Declaration sought to alleviate developing country dissatisfaction with aspects of the TRIPS regime, confirming that the "TRIPS Agreement does not and should not prevent members from taking measures to protect public health." The Declaration committed member states to interpret and implement the agreement to support public health and to promote access to medicines for all. The provisions in the TRIPS Agreement and the Doha Declaration that affect pharmaceuticals continue to be the subject of ongoing debate. Issues of concern include the transitional implementation of the TRIPS Agreement, compulsory licensing provisions, parallel importing, and trade in counterfeit pharmaceuticals. In many ways, the TRIPS Agreement was modeled on the IPR standards of developed countries. Many developing countries would have to devote more resources, to develop more technical expertise and capacity, and to make more significant changes to their laws and enforcement practices to become compliant with the TRIPS Agreement than developed countries. The Doha Declaration acknowledged the burden differential by allowing developing countries to delay implementation of the TRIPS Agreement until 2005, and allowing least developed countries (LDCs) to delay implementation until 2016. The WTO does not designate countries by level of development, and under the Doha Declaration, countries are able to self-identify themselves as developing countries. The TRIPS Agreement does not apply to inventions that already were in the public domain during the time that the Agreement became effective. As such, pharmaceutical inventions that were open to generic competition prior to the implementation of TRIPS do not receive patent exclusivity under TRIPS. Some public health advocates express concerns about how full implementation of the TRIPS Agreement will affect international trade in generic medicines. For example, in the case of HIV/AIDS treatment, most first-line (initial treatments) ARV treatments are off-patent, available through lower-priced generic suppliers, or are offered at significantly discounted prices by innovator pharmaceutical companies. However, second- and third-line (newer products, often developed due to increasing resistance to initial treatments) ARVs tend to be more recent innovations that are patentable under the TRIPS Agreement. In addition, observers point out that new pharmaceutical solutions for infectious diseases, such as malaria and tuberculosis, and non-communicable diseases such as coronary disease, cancer, diabetes, and asthma may be subject to patents. Critics of the TRIPS Agreement maintain that implementation of the agreement will affect countries with strong domestic generic drug industries. For example, in 2005, India began implementing its national patent law as part of its TRIPS Agreement requirements. Accordingly, India has started offering patents (including for the larger number of "mailbox" patent applications that were held during the transitional period) for pharmaceutical products. Some question how this provision of patents may affect India's generic supplies of future pharmaceuticals for second-line and third-line ARVS, as well as for new treatments of other diseases. Some public health advocates express concern that full implementation of the TRIPS Agreement will affect the ability of countries to take advantage of generic goods from countries that serve as generic suppliers. For instance, the ability of Brazil and Thailand to provide HIV/AIDS treatments and other medicines to their nationals largely has been a result of access to India's low-priced generic supplies. Others argue that full implementation of the TRIPS Agreement may not greatly change access to medicines, given that a multitude of other social, political, and economic factors affect access to medicines. Others also point out that while many WTO signatories have been amenable to changing their laws to increase IPR protection, enforcement of these IPR laws has sometimes been weak or inconsistent. Compulsory licenses are issued by governments to authorize the use or production of a patented item by a domestic party other than a patent holder (without the permission of the right holder). They are authorized by Article 31 of TRIPS, which places certain limitations on their use, scope, and duration in an attempt to balance promotion of pharmaceutical innovation and access to new medicines. A government can only issue a compulsory license under certain conditions intended to protect the right of the patent holder. The government must have "made efforts to obtain authorization from the right holder on reasonable commercial terms and conditions." This requirement to first seek authorization can be waived in a time of "national emergency," "other circumstances of extreme urgency," "public non-commercial use," or to address anti-competitive practices (Article 31(b)). If a compulsory license is issued, then "the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization" (Article 31(h)). The TRIPS Agreement also predominantly restricts production authorized by compulsory licenses to the domestic market (Article 31(f)). Some public health advocates view compulsory licenses as an important mechanism for national governments to provide access to medicines at affordable prices. Supporters of strong IPR regimes argue that, while compulsory licensing may increase short-term access to medicines in developing countries, their widespread use may harm long-term access to medicines. Pharmaceutical companies may opt not to offer their products in countries that consistently break or threaten to break patents in the future. In addition, pharmaceutical companies may not be as willing to invest in finding cures for diseases prevalent in developing countries if their profits are undermined. Others contend that because developing country markets are small, issuing compulsory licenses in these markets does not markedly affect pharmaceutical industry profits or research directions. Part of the controversy surrounding compulsory licenses centers on the definition of a "national emergency" under Article 31(b) of the TRIPS Agreement. According to the Doha Declaration, each WTO member country has the right to grant compulsory licenses and to determine the grounds upon which such licenses are issued, including defining what constitutes a national emergency or other cases of extreme urgency. The Doha Declaration cites crises related to HIV/AIDS, tuberculosis, malaria, and other epidemics as situations of potential national emergency or extreme urgency. Low-income countries have issued compulsory licenses for pharmaceutical drugs under patents on a limited basis. Some speculate that the "underuse" of Article 31 of the TRIPS Agreement is due to the prospect of foreign trade sanctions and/or the threat of corporate litigation. While national governments and multinational companies have expressed support for the Doha Declaration, they reportedly often have opposed the "practical implementation" of compulsory licensing provisions under Article 31 of the TRIPS Agreement. Others suggest that low-income countries may not issue compulsory licenses due to a dearth in administrative or legal resources. Some also suggest that low-income countries may be concerned that issuing compulsory licenses may raise concerns about their business environment and deter foreign investment. In contrast, middle-income countries such as Brazil and Thailand, have threatened to issue compulsory licenses for pharmaceutical products in order to negotiate price reductions. Some assert that compulsory license threats may be a viable option limited to countries with sufficient manufacturing capacity and a sizeable market that can affect pharmaceutical companies' profits. During the Doha Round of the WTO, the requirement under Article 31(f) of the TRIPS Agreement that compulsory licenses must be issued predominantly for the domestic market became a focal point of negotiations. In effect, Article 31(f) conveys the right of compulsory licensing only to countries with the capability to manufacture a given product and precludes countries without domestic manufacturing capability to take advantage of the flexibility. The Doha Declaration acknowledged that "WTO members with insufficient or no manufacturing capacities in the pharmaceutical sector could face difficulties in making effective use of compulsory licensing under the TRIPS Agreement." As such, the Declaration ("Paragraph 6") directed the WTO members to formulate a solution to address the use of compulsory licensing by countries with insufficient or inadequate manufacturing capability. Prior to the WTO Cancun Ministerial in August 2003, WTO members agreed on a decision to waive the domestic market provision of the TRIPS article on compulsory licensing (Article 31(f)) for exports of pharmaceutical products for "HIV/AIDS, malaria, tuberculosis and other epidemics" to LDCs and countries with insufficient manufacturing capacity. This decision was incorporated as an amendment to the TRIPS agreement at the Hong Kong Ministerial in December 2005. The amendment must be ratified by two-thirds of the 153 WTO member states. Until then, the 2003 waiver continues in force. To date, 54 countries/regions (the United States, Switzerland, El Salvador, South Korea, Norway, India, the Philippines, Israel, Japan, Australia, Singapore, Hong Kong, China, the 27 countries of the European Union, Mauritius, Egypt, Mexico, Jordan, Brazil, Morocco, Albania, Macau-China, Canada, Bahrain, Colombia, Zambia, Pakistan, and the Former Yugoslav Republic of Macedonia) have ratified the amendment. The deadline for ratification has been extended to December 31, 2011. The system established by the WTO allows LDCs and countries without sufficient manufacturing capacity to issue a compulsory license to a company in a country that can produce such a good. After a matching compulsory license is issued by the producer country, the drug can be manufactured and exported subject to various notification requirements, quantity and safeguard restrictions. Under the safeguard provisions, the drugs issued must be specially marketed or packaged with identifiable characteristics, such as distinguishable colors or shapes "provided that such distinction is feasible and does not have a significant impact on price." It also declared that importing countries should take measures "within their means" to prevent trade diversion. While the TRIPS Agreement waiver arguably represents a lowering of IPR standards, its supporters assert that the waiver effectively balances the need to promote innovation and protect IPRs with the need for countries with insufficient manufacturing capacity to access medicines through trade. For some public health advocates, the extensive safeguard provisions raise concerns about whether or not manufacturing companies will have sufficient financial incentives to develop such drugs. Moreover, developing countries may not have the resources to protect against the illegitimate export of such drugs to other countries. Some observers argue that the requirements may pose extreme burdens on developing countries that are politically unstable. Some commentators also criticize the case-by-case, country-by-country nature of the notification requirements, which must be fulfilled for every request for parallel importing under a compulsory license. While several exporting countries have established laws and procedures for implementing this system, only Rwanda has availed itself to use the WTO system to import HIV/AIDS medicines from a generic manufacturer in Canada. An ongoing issue is the extent to "middle-income" countries, such as Brazil, Thailand, India, and China, can or should take advantage of TRIPS Agreement waiver. Developing countries range from the poorest, least-developed, and low-income countries to industrializing, middle-income countries. Some supporters of a strong IPR regime argue that a hard line should be drawn between low-income and middle-income countries. Others hold that international trade policies on innovation should acknowledge the unique needs and capacities of middle-income countries. Some observers have expressed concern that compulsory licensing may be used as an "industrial policy" tool. Countries may issue compulsory licenses for pharmaceuticals in order to develop their domestic pharmaceutical industries. Parallel ("grey market") imports are products marketed by the right holder or with the right holder's permission in one country and imported into another country without the approval of the patent owner. Supporters of parallel trade of pharmaceuticals argue that the practice enables public health providers to take advantage of international differences in the prices of patented drugs. For some countries, importing drugs may be a more cost-effective way of accessing lower-priced medicines than manufacturing them directly. Others contend that parallel importing policies avoid addressing "root" problems in countries' national drug pricing strategies or manufacturing capacity. Some pharmaceutical companies that oppose parallel importation of pharmaceuticals allege that the practice prevents them from offering tiered-pricing for medicines within and among countries. For instance, some pharmaceutical companies may opt to charge lower prices for drugs in least developed countries compared to other countries. In addition, pharmaceutical companies express concern that, in the process, such drugs may be diverted to higher-income markets. Some also express concern about the impact of parallel importing on the supply of medicines in exporting countries. In the United States, there has been an ongoing debate on parallel importing of pharmaceuticals. U.S. innovator pharmaceutical industries have tended to oppose U.S. imports of generic medicines. In order to increase U.S. access to more affordably-priced medicines, the 111 th Congress introduced several bills that would allow Americans to import prescription drugs from foreign countries for personal use. Although debated, no such provisions were included in the final health care legislation ( P.L. 111-148 , P.L. 111-152 ). If such provisions were passed, Canada likely would be a leading source of parallel imports of prescription drugs. Some U.S. consumers and other groups support parallel importation on the basis that it allow Americans to access less expensive drugs. They argue that allowing such importation would reduce drug prices. Prescription drug costs in Canada and the United States may differ due to factors such as government price controls, purchasing power, and negotiating ability. Although "grey market" importation of pharmaceuticals is currently prohibited in the United States, Americans are able to do so through Internet pharmacies that enable such transactions. Prosecution of these individuals has been limited. While parallel importation may exert pressure on the price of drugs, some consumers contend that it does not address broader issues in the pricing of drugs in the United States. Pharmaceutical drug companies have raised concerns that allowing such importation may lead to health and safety threats based on counterfeiting concerns. Canada has expressed concerns that parallel importation has led to shortages of drugs. Because some drug companies reportedly restrict the supply of their products to Canada, the Canadian government has threatened to clamp down on the export of drugs to the United States. Debates about parallel trade raise a question of at what point of sale is the patent right exhausted. The TRIPS Agreement does not address the issue of IPR exhaustion. The Doha Declaration further says that the TRIPS Agreement implies that WTO members can chose their own IPR exhaustion regime. In the international supply and distribution of pharmaceuticals, there are concerns about the quality of medicines traded. There is broad-based concern about trade in counterfeit pharmaceuticals, which are manufactured and/or sold with the intent to deceive consumers about their origin, legitimacy, and effectiveness. Both brand name and generic medicines can be vulnerable to counterfeiting. Examples of counterfeit drugs include those that are mislabeled, have no or incorrect active pharmaceutical ingredients (APIs), or have correct APIs but in incorrect quantities. It is difficult to estimate the extent to which counterfeiting occurs. The very nature of IPR infringement—secretive and illicit—makes it difficult to track production and trade in counterfeit goods. Data compiled on counterfeiting comes from many different streams, including national regulatory authorities, enforcement agencies, pharmaceutical companies, non-government organizations, and other groups across geographic regions. These various groups may use different methods to gather their data, which can complicate efforts to compile and compare statistics. In addition, in some cases, companies may be reluctant to release information about IPR infringement problems that they face with their products out of concern that such public information may affect the marketing of their products. According to previous estimates by the WHO, many countries in Africa, Asia, and Latin America have areas where 10% to 30% of medicines sold are counterfeit. In contrast, in many developed countries, which tend to have stronger regulatory systems, the prevalence of counterfeit drugs is significantly lower. By some estimates, in developed countries, counterfeit medicines constitute less than 1% of market value. In over half of cases in which medicine is purchased over the Internet from unauthorized sites that do not disclose their physical address, the medicines have been found to be counterfeit. Generic medicines are distinguished from counterfeit medicines in that they are legitimately produced, generally copies of off-patent drugs, and their sale or distribution is not intended to deceive consumers about their origin, authenticity, or effectiveness. While generic medicines are legitimately produced, some innovator pharmaceutical companies and public health advocates express concerns that some generic medicines may be sub-standard. Some industrialized countries have begun to detain shipments of generic medicines for inspection due to concerns that the drugs are counterfeit. On the one hand, increased IPR seizures may limit instances of counterfeit drugs, thus mitigating health and safety risks. On the other hand, confusion between counterfeit and legitimate generic goods may result in increased incidences of seizures of legitimate generics in transit and delay delivery of medicines. Some non-governmental organizations (NGOs) also assert that industrialized countries are using this strategy to discourage generic drug production and have urged the WTO and the WHO to take action to address this issue. The U.S. government has placed significant priority on pursuing stronger international IPR protection and enforcement through U.S. trade policy. In addition to participating in multilateral trade policy negotiations regarding IPRs, the United States seeks stronger international IPR protection and enforcement through regional and bilateral free trade agreements (FTAs) and unilateral trade policy tools. In pursuing IPR provisions in regional and bilateral FTAs, USTR is guided by three main goals: (1) to promote strong IPR protection and enforcement in FTAs; (2) to secure market access opportunities for U.S. businesses that rely on IPR protection; and (3) to respect the Doha Declaration on the TRIPS Agreement and Public Health. Currently, the United States has two regional FTAs and nine bilateral FTAs in force. Three FTAs (Panama, Colombia, and Korea) have been negotiated and are pending congressional approval. In negotiating FTAs, the USTR frequently has sought levels of protection that exceed the minimum standards of the TRIPS Agreement (the so-called "TRIPS-plus" provisions). For pharmaceutical-related IPR provisions in FTAs, the USTR generally has pursued requirements on data exclusivity, patent term extensions, and patent linkage. In some cases, the USTR also has sought provisions to limit the issuance of compulsory licenses and parallel importing, particularly when negotiating FTAs with middle-income countries. The USTR asserts that strong IPR provisions ultimately promote access to medicines for developing countries by encouraging innovation. However, the adoption of "TRIPS-plus" provisions in FTAs has garnered much criticism from public health advocates and developing countries. Some critics contend that the FTAs and unilateral U.S. trade actions (discussed below) are eroding developing countries' abilities to exercise their legal rights to issue compulsory licenses and engage in parallel importing under the TRIPS Agreement. Public health advocates also express concerns that these TRIPS-plus standards run contrary to the spirit of the Doha Declaration. Under this viewpoint, these standards "limit national strategies to provide affordable medicines and limit market access for generic medicines, irrespective of the country's level of development or disease burden." In addition, some argue that U.S. rigidity regarding IPRs may take away from potential U.S. gains in other areas of trade negotiation. For, FTA negotiations between the United States and Thailand, initiated in 2003, reportedly have been hampered by U.S. concerns about deficiencies in Thailand's IPR regime and Thailand's concern about the impact that raising IPRs may have on public health in Thailand, including the government's ability to provide generic versions of HIV/AIDS medicines to its population. Because U.S. trade partners have expressed reservations about the stringent IPR standards pursued by the United States, some question why countries would want to enter into FTAs with the United States. Some argue that for low-income and middle-income countries, "Securing favorable market access for exports has usually outweighed public-health priorities—even when benefits are likely to be short lived and eroded as tariffs decrease." In response to concerns that U.S. trade negotiations may affect public health in developing countries, among other concerns (including environmental issues and labor rights), there has been somewhat of a shift in U.S. trade policy regarding pharmaceutical IPRs. A May 10, 2007 bipartisan trade deal between former President George W. Bush and congressional leaders yielded changes to the provisions in the U.S. FTA template, which is the basic text with which the United States begins FTA negotiations. The deal made optional the previously mandatory requirements for patent linkage and patent term extensions. In addition, the deal includes provisions that may shorten the period of data exclusivity used for providing marketing approval. The bipartisan trade deal scaled down IPR provisions for pharmaceutical patents in U.S. FTAs with Peru, Panama, and Colombia. The Obama Administration is reviewing U.S. trade policy, including IPRs and pharmaceuticals. Domestic trade policy tools also are available for U.S. efforts to advance international patent protection and enforcement. Such trade policy tools are often effective in influencing developing countries' decisions because the United States is a significant market for some trade partners. However, the use of these tools has been criticized by various interest groups. The most prominent of these tools is the USTR "Special 301" Report. Pursuant to Section 182 of the Trade Act of 1974, as amended ( P.L. 93-618 ), the USTR identifies countries with inadequate IPR protection and enforcement regimes in its yearly Special 301 Report. USTR country identifications under Special 301 consider all forms of IPR and take into account a host of factors, including the level and scope of the country's IPR infringement; the impact of infringement on the U.S. economy; the strength of the country's IPR laws and enforcement of IPR laws; the progress made by the country in improving IPR protection and enforcement; and the sincerity of the country's commitment to multilateral and bilateral trade agreements. The USTR can identify a country as denying sufficient intellectual property protection even if the country is complying with its commitments under the TRIPS Agreement. The USTR identifies countries through a three-tier system, depending on the severity of the country's IPR violations. If a country is named as a "Priority Foreign Country," the USTR must launch an investigation into that country's IPR practices, and the country is subjected potentially to trade sanctions, including the suspension of trade concessions or the imposition of import restrictions or duties. "Priority Watch List" countries are those whose acts, policies, and practices warrant concern, but do not meet all of the criteria for identification as a Priority Foreign Country. "Watch List" countries have intellectual property protection inadequacies that are less severe than those on the Priority Watch List, but still warrant U.S. attention. Countries identified for "Section 306" are monitored for compliance with bilateral intellectual property agreements used to resolve investigations under Section 301. Oftentimes, USTR identification of countries on the Special 301 list prompts countries to take actions to change their IPR practices. The USTR also launches out-of-cycle reviews (OCRs) to monitor certain countries' progress on intellectual property issues. These reviews are conducted on countries that USTR considers to require further review and may result in status changes for the following year's Special 301 report. Another domestic policy tool used to protect intellectual property rights is the Generalized System of Preferences (GSP). The United States may consider a developing country's IPR policies and practices as a basis for granting preferential duty-free entry to certain products from the country, and can suspend GSP benefits if IPR protection is lacking. For 2008, the USTR was scheduled to continue evaluating IPR protection in Russia, Lebanon, and Uzbekistan on the basis of petitions by the International Intellectual Property Alliance (IIPA) for ongoing GSP reviews. The citation of a country on the USTR Special 301 watch lists may be grounds for withdrawing GSP benefits from that country. Because it is trade preferences that are being withdrawn, countries are unable to raise the removal of trade concessions as a WTO violation. The USTR holds the view that its pursuit of a strong international IPR regime advances U.S. economic interests while at the same time supports public health. However, the U.S. government does not necessarily view trade policy as the primary policy tool to promote public health. According to a recent GAO report, "Trade and IP efforts are only one small part of the larger U.S. government effort to increase access to medicines." U.S. government efforts directed at increasing access to medicines may be promoted through foreign, health, education, and other policy areas. There are a number of U.S. government initiatives specifically designed to increase developing countries' access to medicines. For instance, the U.S. Department of State "primarily makes an effort to balance IP rights and access to medicines through public health initiatives it coordinates with other agencies or administers itself ... ." The United States has advocated for greater availability of certain generic drugs in certain areas of the world. One example of this is through PEPFAR, the U.S. President's Emergency Plan for AIDS Relief. This initiative "supports the increased availability of safe, effective, low-cost, and generic antiretroviral drugs (ARVs) in the developing world ... " To meet the need for such ARVs, the FDA introduced an expedited "tentative approval" process through which ARVs produced by any manufacturer, including generic manufacturers, internationally could be reviewed quickly for quality standards and approved for purchase under PEPFAR. Possible issues of interest for Congress include incorporating public health input into the U.S. trade policy advisory process, developing new U.S. trade policy guidance on public health, considering the implications of the U.S. strategy on IPRs and trade for U.S. access to medicines, and reviewing the range of options utilized for expanding global access to medicines. Some observers of the U.S. trade policy process assert that the protection of intellectual property has been given more emphasis than the protection of public health. Advocates of public health maintain that the United States has a legal and moral imperative to ensure that public health is safeguarded through trade policy. They point out that the United States is a signatory to the United Nation's International Covenant on Economic, Social and Cultural Rights. Among the human rights agreed upon in the covenant, Article 12.1 provides "the right of everyone to the enjoyment of the highest attainable standard of physical and mental health." Many human rights organizations view access to medicines as a critical component of the fundamental human right to health. Other observers of the U.S. trade policy process assert that protection of IPRs contributes to the protection of public health, and that U.S. trade policy is one of multiple policy arenas that support public health. Some proponents of greater public health representation in the U.S. trade policy process often direct their attention to the USTR Advisory Committee structure, the central mechanism through which the USTR consults with the private sector and civil society organizations regarding the U.S. trade policy agenda and negotiations. Critics argue that private sector interests are granted greater representation in the advisory system than public health or other civil society interests. They argue that this "privileged access to government policy makers" allows commercial interests to influence the formulation of U.S. trade negotiating positions, which in turn have affected the WTO's agenda. According to a recent Government Accountability Office (GAO) report, for the review period of the report (November 2006 through November 2007), there were 16 Industry Trade Advisory Committees (ITACs), two of which each had a single public health representative. These committees are the Intellectual Property Committee and the Chemicals, Pharmaceuticals, Health Science Products and Services Committee, which were composed of 20 and 33 members, respectively, during the review period. Defenders of the current advisory system argue that public health representation is included in the ITACs most relevant to public health. Furthermore, according to officials from the USTR, it was "not necessary to have two public health representatives on one committee representing the same view, and they said they did not find any other viable candidates with additional perspectives beyond the individuals selected." Some lawmakers have urged the USTR to reform the formal trade advisory committee system. Among the suggestions put forth are creating a new advisory committee that addresses public health issues, including issues pertaining to developing countries, or a committee focusing on trade and development. In the 111 th Congress, H.R. 2293 (Van Hollen) was introduced and referred to the House Ways and Means Committee on May 6, 2009, to ensure that public health views are represented and accommodated in developing U.S. trade policy. Specifically, the bill would require the creation of a Public Health Advisory Committee on Trade, whose membership would be restricted to individuals with expertise in various trade and public health issues, including issues in access to affordable pharmaceuticals. Membership would exclude individuals who represent commercial interests in health services or regulations. This committee would be located in the second tier of the Trade Advisory Committee System. In addition, the bill would require non-governmental public health officials to be appointed to the Advisory Committee for Trade Policy and Negotiations, a first-tier committee. In the 110 th Congress, Representative Van Hollen also introduced legislation to reform the trade advisory system ( H.R. 3204 ) that differed from H.R. 2293 in certain ways. Both pieces of legislation include provisions for creating a Public Health Advisory Committee on Trade. However, H.R. 3204 also would have required that each ITAC must have at least one representative of labor, consumer interest, and public health. This provision was not included in H.R. 2293 in the 111 th Congress. While many public health advocates applaud legislation to increase public health representation on advisory trade committees, some caution against creating a trade advisory committee that focuses solely on health issues as this may insulate trade policy discussions from public health concerns. For instance, critics express concern that the USTR may limit consultations with the proposed health committee to a narrow set of technical issues and not on the broader implications of trade policy for public health. Among industry advocates, some may be critical of legislation that would dilute industry representation on the ITACs. They may contend that the ITACs were created as a vehicle for the USTR to consult specifically with industry. Other channels for input on FTA negotiations include the "USTR's formal public hearings and the Federal Register comments." While the public health input through these alternate mechanisms may be higher, some question the relative weight of such input compared to that received through the ITACs. For some observers of the U.S. trade policy process, another area of concern is the USTR Special 301 report. USTR identification of countries also involves gathering information and analysis based on the USTR's annual trade barriers report, as well as consultations with a wide variety of sources, including government agencies, industry groups, other private sector representatives, congressional leaders, and foreign governments. Some observers express concern that U.S. industry interests, such as those of PhRMA, heavily influence USTR's country identifications and that there is limited input from public health advocates, generic drug manufacturers, and other groups. Although the Special 301 Report is regarded by some as an effective form of U.S. political pressure on trading partners, others express concern that disproportionate representation of industry interests may limit the legitimacy of the Special 301 trade policy tool. In 2002, Congress granted Trade Promotion Authority (TPA) to then President Bush. The TPA included a commitment to ensure that U.S international trade agreements respected public health. Should Congress decide to renew Trade Promotion Authority (TPA) for President Obama, Members may choose to consider what, if any, public health mandate should the TPA include. Another issue that Congress may choose to consider is the extent to which the May 10, 2007 bipartisan trade deal between then President Bush and congressional leaders will serve as a template for the IPR provisions in future FTAs. Some also question whether or not this FTA template will be used for all future FTAs, or if will it be used according to the income status of a country. For instance, the template's scale-down in patent requirements was incorporated into the recently negotiated FTAs with Peru, Panama, and Colombia, which are considered low-income countries. They were not incorporated into the FTA with South Korea, which is considered to be a middle-income country. Some also question whether or not the May 10, 2007 bipartisan trade deal's changes to FTA patent provisions will be applied to existing FTAs. Some stakeholders encourage Congress to revisit the IPR provisions in the May 10, 2007, bipartisan trade deal. Among those stakeholders, some innovator pharmaceutical industry representatives hope that the Administration will decided to reverse the previous scale-down in patent provisions. For instance, the National Association of Manufacturers (NAM) believes that the pharmaceutical industry was unfairly singled out in the trade deal. However, others express concern that revisiting the deal may lead to re-evaluation of previously resolved issues. Global health advocates and generic pharmaceutical companies likely would resist changes to the IPR portions and could encourage further weakening of patent provisions in an effort to increase access to medicines. The Trade Reform, Accountability, Development and Employment (TRADE) Act of 2009 ( H.R. 3012 , Michaud) and its companion bill ( S. 2021 , Brown), introduced in the 111 th Congress, would require a review of the economic, environmental, national security, health, safety, and other impacts of certain U.S. free trade agreements and renegotiation of those agreements based on the review. The bills also would require that the implementing bills of new trade agreements would not be expedited unless they met certain standards in fourteen different areas. With respect to IPR, under the bills, terms related to patents in the trade agreements could not limit the flexibilities and rights established in the WTO Doha Declaration on the TRIPS Agreement and Public Health, either overtly or in application. The United States-Peru FTA, which incorporates the provisions of the May 10, 2007, bipartisan trade deal, largely reflects the IPR and public health provisions called for in H.R. 3012 and S. 2021 . Given that the United States is a primary producer of patents, some argue that a strong international IPR regime is economically beneficial to the United States. However, some observers question whether continually seeking higher standards of IPR will always be in the U.S. interest. Situations may arise in which the United States may wish to issue compulsory licenses to address global health or security threats. For instance, when the anthrax scare occurred in 2001, the United States and Canada considered issuing compulsory licenses for Cipro, a drug produced by the German company Bayer, so that their populations could access the drug at affordable prices. Some viewed U.S. and Canadian action as hypocritical, considering that these two countries had pledged to "opt out" of using the TRIPS Agreement flexibilities and had pressured other countries to do the same. Some observers saw the incident as a cautionary example of how limiting flexibilities in patent regimes may be detrimental to U.S. interests. Another example is the H5N1 "avian influenza" crisis of 2005. The United States threatened to issue a compulsory license for the production of Tamiflu, the anti-viral drug produced by the Swiss company Roche. The United States was concerned that Roche lacked the production capacity to meet global demand for the medication. Roche ultimately agreed to ramp up production for Tamiflu by sub-licensing the patent to other manufacturers. Higher vaccine and drug prices associated with IPR protection and enforcement may reduce incentives for developing countries to share virus samples with the WHO in order to find cures for diseases. For instance, during the H5N1 "avian influenza" pandemic, Indonesia limited sharing H5N1 virus samples with WHO researchers. Indonesia expressed concerns that the vaccines would be patented and then offered for purchase at marked-up prices unaffordable for Indonesia and other developing countries. In March 2007, Indonesia began sharing virus samples again under the condition that an international agreement would be negotiated for more equitable, affordable sharing of vaccines. As China, India, and other industrializing countries continue to develop, a larger proportion of global patents may originate from these countries. Although the United States continued to rank as the leading source of applications under WIPO's Patent Cooperation Treaty (PCT) in 2009, U.S. patent filings fell by 11.4% from the previous year. In contrast, the growth rate in patent filings stood at 29.4% for China. These shifts in the concentration of patents and the pharmaceutical marketplace may have implications for the cost of medicines for the United States and other developed countries. Some public health advocates argue that the public should play a greater role in the provision of pharmaceutical solutions for diseases. Some suggest that U.S. strategies to address public health needs through trade policy should expand beyond patenting and compulsory licensing. The WHO Global Strategy on Public Health, Innovation and Intellectual Property calls for an exploration of a range of incentive mechanisms. In addition to patents, other methods of incentivizing the private sector to target R&D toward addressing public health needs of developing countries may include advance market commitments, patent pools, and innovation prizes. While such mechanisms may direct pharmaceutical R&D toward meeting the needs of developing countries, they may require governments to bear a greater share of the risks associated with R&D. | A patent, which is a form of intellectual property right (IPR), is a legal, exclusive right granted for the invention of a new product, process, organism, design, and plant. It allows the right holder to exclude others from making, using, or selling the protected invention for a period of 20 years. Patents constitute the most common method for governments to encourage research and development (R&D) in order to find pharmaceutical treatments and cures for diseases and other illnesses. IPR protection and enforcement have evolved from an area primarily of national concern to an area of international trade policy. The World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) established minimum standards for IPR protection and enforcement. The U.S. government considers the protection and enforcement of international IPR standards, including those for patents, to be an important goal of U.S. trade policy for economic, health and safety, and national security reasons. As such, the United States has pursued strong IPR regimes through multilateral, regional, and bilateral free trade agreement (FTA) negotiations and unilateral trade policy tools, namely the Special 301 process and the Generalized System of Preferences (GSP). IPR provisions in trade policies are among the range of social, economic, and political factors that may affect public health, including the ability of countries to deliver health services to their populations. Patents, through their possible impact on innovation and drug prices, may affect access to existing medicines and the development of new medicines. According to the World Health Organization (WHO), about one-third of the world's population, primarily those residing in poorer parts of Africa and Asia, lacks regular access to essential medicines. While the United States places priority on promoting a strong international IPR regime, some Members of Congress have expressed concern over how to balance the goals of providing long-term incentives for innovation through patents and addressing the short-term need to provide affordable access to medicines. This report focuses on the relationship between IPR provisions in international and U.S. trade policy and access to medicines. This issue represents one component of a broader debate about the relationship between trade policy and public health. Possible issues of interest for Congress include incorporating public health concerns into the U.S. trade policy advisory process, developing new U.S. trade policy guidance on public health, considering the implications of the U.S. strategy on IPRs and trade for U.S. access to medicines, and reviewing the range of options utilized for expanding global access to medicines. |
On March 12, 2008, the EPA Administrator signed revisions to the National Ambient Air Quality Standards (NAAQS) for ozone. The revisions appeared in the March 27, 2008 issue of the Federal Register . Because they have widespread implications for public health and for the pollution control measures that will be imposed on sectors of the economy, the revisions (released in proposed form in June 2007) have stirred congressional interest and led many Members of Congress and state and local officials to comment on the Administrator's proposal. The Clean Air and Nuclear Safety subcommittee of the Senate Environment and Public Works Committee held a hearing on the proposal July 11, 2007. The House Oversight and Government Reform Committee plans a hearing April 24, 2008. This report provides background on NAAQS, the process used to establish them, the pre-existing ozone standard, and EPA's revisions, as well as information regarding the revisions' potential effects. As defined in Section 109 of the Clean Air Act, NAAQS are standards that apply to ambient (outdoor) air. The act directs EPA to set both primary and secondary standards. Primary NAAQS are standards, "the attainment and maintenance of which in the judgment of the [EPA] Administrator ... are requisite to protect the public health," with "an adequate margin of safety." Secondary NAAQS are standards necessary to protect public welfare, a broad term that includes damage to crops, vegetation, property, building materials, etc. NAAQS are at the core of the Clean Air Act, even though they do not directly regulate emissions. In essence, they are standards that define what EPA considers to be clean air. Once a NAAQS has been set, the agency, using monitoring data and other information submitted by the states, identifies areas that exceed the standard and must, therefore, reduce pollutant concentrations to achieve it. After these "nonattainment" areas are identified, state and local governments have three years to produce State Implementation Plans which outline the measures they will implement to reduce the pollution levels and attain the standards. Depending on the severity of the pollution, ozone nonattainment areas have anywhere from 3 to 20 years to actually attain the standard. EPA also acts to control many of the NAAQS pollutants wherever they are emitted, through national standards for products that emit them (particularly mobile sources, such as automobiles) and emission standards for new stationary sources, such as power plants. Thus, establishment or revision of a NAAQS sets in motion a long and complicated implementation process that has far-reaching impacts for public health, for sources of pollution in numerous economic sectors, and for states and local governments. The pollutants to which NAAQS apply are generally referred to as "criteria" pollutants. The act defines them as pollutants that "endanger public health or welfare," and whose presence in ambient air "results from numerous or diverse mobile or stationary sources." Six pollutants are currently identified as criteria pollutants: ozone, particulates, carbon monoxide, sulfur dioxide, nitrogen oxides, and lead. The EPA Administrator can add to this list if he determines that additional pollutants meet the act's criteria, or delete them if he concludes that they no longer do so. The act requires the agency to review each NAAQS every five years. That schedule is rarely met, but it often triggers lawsuits that force the agency to undertake a review. In the case of ozone, the previous review of the NAAQS was completed in 1997. The American Lung Association filed suit over EPA's failure to complete a review in 2003, and a consent decree established the schedule EPA ultimately followed. Reviewing an existing NAAQS is a long process that is described elsewhere in more detail. To summarize briefly, EPA scientists review the scientific literature published since the last NAAQS revision, and summarize it in a report known as a Criteria Document. The review process for ozone identified 1,700 scientific studies on topics as wide-ranging as the physics and chemistry of ozone in the atmosphere; environmental concentrations, patterns, and exposure; dosimetry and animal-to-human extrapolation; toxicology; interactions with co-occurring pollutants; controlled human exposure studies; epidemiology; effects on vegetation and ecosystems; effects on UVB exposures and climate; and effects on man-made materials. A second document that EPA prepares, the Staff Paper, summarizes the information compiled in the Criteria Document and provides the Administrator with options regarding the indicators, averaging times, statistical form, and numerical level (concentration) of the NAAQS. To ensure that these reviews meet the highest scientific standards, the 1977 amendments to the Clean Air Act required the Administrator to appoint an independent Clean Air Scientific Advisory Committee (CASAC). CASAC has seven members, largely from academia and from private research institutions. In conducting NAAQS reviews, their expertise is supplemented by panels of the nation's leading experts on the health and environmental effects of the specific pollutants that are under review. These panels can be quite large. The ozone review panel, for example, had 23 members. CASAC and the public make suggestions regarding the membership of the panels on specific pollutants, with the final selections made by EPA. The panels review the agency's work during NAAQS-setting and NAAQS-revision, rather than conducting their own independent reviews. The ozone standard affects a larger percentage of the population than any of the other NAAQS. Nearly half the U.S. population currently lives in ozone nonattainment areas, 140 million people in all. Since the standard has been strengthened as a result of the current review, more areas will be affected, and those already considered nonattainment may have to impose more stringent emission controls. The pre-existing primary (health-based) standard, promulgated in 1997, was set at 0.08 parts per million (ppm), averaged over an 8-hour period. Allowing for rounding, EPA considered areas with readings as high as 0.084 ppm (84 parts per billion) to have attained the standard. The review just completed found evidence of health effects, including mortality, at levels of exposure below the 0.08 ppm standard. As a result, both EPA staff and the Clean Air Scientific Advisory Committee (CASAC) recommended strengthening the standard. According to CASAC, "There is no scientific justification for retaining the current [0.08 ppm] primary 8-hr NAAQS...." The panel unanimously recommended a range of 0.060 to 0.070 ppm for the primary 8-hour standard. EPA staff also recommended strengthening the standard, in wording not quite so direct. The staff stated, "The overall body of evidence on ozone health effects clearly calls into question the adequacy of the current standard." They recommended "considering a standard level within the range of somewhat below 0.080 parts per million (ppm) to 0.060 ppm." Based on these recommendations, and his own judgment regarding the strength of the science, the Administrator proposed to tighten the primary standard to a level within the range of 0.070-0.075 ppm in June 2007, and ultimately chose to finalize the standard at 0.075 ppm (75 parts per billion). The revision will add a large number of counties to those showing nonattainment. As shown in Figure 1 , using 2004-2006 data (the latest available), 85 counties had monitors showing violation of the 0.08 ppm primary standard. Figure 2 shows what happens when the standard is strengthened to 0.075 ppm, again using 2004-2006 data: under the new standard, 345 counties, more than four times as many, show violations. EPA notes that nonattainment designations will not actually be made until 2010 at the earliest, and will use data for the period 2006-2008. Given the trend toward cleaner air in recent years, and regulations on both mobile and stationary sources that will be taking effect in the next few years, the agency expects the number of counties exceeding the standard to be less than indicated by these projections. Nevertheless, because a strengthening of the standard will result in some (perhaps a substantial number of) additional areas being designated nonattainment, and will mean that current nonattainment areas may have to adopt additional pollution control measures in order to reach attainment, numerous industry groups are reported to have challenged the scientific conclusions in meetings with Administration officials. As part of its recent review, EPA also assessed the secondary (public welfare) NAAQS for ozone, which was identical to the previous 0.08 ppm primary standard. Ozone affects both tree growth and crop yields, and the damage from exposure is cumulative over the growing season. In order to provide protection against ozone's adverse impacts, EPA staff recommended a new seasonal (3-month) average for the secondary standard that would cumulate hourly ozone exposures for the daily 12-hour daylight window (termed a "W126 index"). The staff recommended a standard in a range of 7 - 21 parts per million-hours (ppm-hrs). CASAC's ozone panel agreed unanimously that the form of the secondary standard should be changed as the staff suggested, but it did not agree that the upper bound of the range should be as high as 21 ppm-hours. The Administrator's June 2007 proposal was in line with the staff recommendation, 7-21 ppm-hrs, but his final March 2008 choice was to duplicate the new primary standard. He set a secondary standard at 0.075 ppm averaged over 8 hours, rejecting the advice of both CASAC and his staff. The secondary standard carries no deadline for attainment and has never been the subject of penalties or sanctions for areas that failed to meet it (unless they also violated a primary standard). Nevertheless, there appears to have been substantial disagreement between EPA and the White House over the form in which this standard should be set. The preamble to the final regulation repeats the arguments for a new form of standard (the W126 index), concluding: The CASAC, based on its assessment of the same vegetation effects science, agreed with the Criteria Document and Staff Paper and unanimously concluded that protection of vegetation from the known or anticipated adverse effects of ambient O3 [ozone] "requires a secondary standard that is substantially different from the primary standard in averaging time, level, and form," i.e. not identical to the primary standard for O3 (Henderson, 2007). The preamble also cites comments the agency received from the National Park Service that "... the NPS supports both the conclusion that a seasonal, cumulative metric is needed to protect vegetation, and that the W126 is a more appropriate metric ...," and it adds "EPA agrees with these comments." Nevertheless, the agency appears to have lost this argument. The preamble states that: On March 11, 2008, the President "concluded that, consistent with Administration policy, added protection should be afforded to public welfare by strengthening the secondary ozone standard and setting it to be identical to the new primary standard, the approach adopted when ozone standards were last promulgated. This policy thus recognizes the Administrator's judgment that the secondary standard needs to be adjusted to provide increased protection to public welfare and avoids setting a standard lower or higher than is necessary." The statement that the policy "recognizes the Administrator's judgment" is not EPA's wording. It is a direct quotation from the White House Office of Management and Budget. Controlling ozone pollution is more complicated than controlling many other pollutants, because ozone is not emitted directly by pollution sources. Rather, it forms in the atmosphere when volatile organic compounds (VOCs) react with nitrogen oxides (NOx) in the presence of sunlight. The ozone concentration is as dependent on the temperature and amount of sunshine as it is on the presence of the precursor gases. Ozone is a summertime pollutant, in general. Other factors being equal, a cool, cloudy summer will produce fewer high ozone readings than a warm, sunny summer. There are also complicated reactions that affect ozone formation. In general, lower emissions lead to less ozone, particularly lower emissions of VOCs. But under some conditions, higher emissions of NOx lead to lower ozone readings. This makes modeling ozone air quality and predicting attainment more difficult and contentious than the modeling of other air pollutants. Most stationary and mobile sources are considered to be contributors to ozone pollution. Thus, there are literally hundreds of millions of sources of the pollutants of concern and control strategies require implementation of a wide array of measures. Among the sources of VOCs are motor vehicles (about 40% of total emissions), industrial processes, particularly the chemical and petroleum industries, and any use of paints, coatings, and solvents (about 40% for these sources combined). Service stations, pesticide application, dry cleaning, fuel combustion, and open burning are other significant sources of VOCs. Nitrogen oxides come overwhelmingly from motor vehicles and fuel combustion by electric utilities and other industrial sources. EPA is prohibited from taking cost into account in setting NAAQS, but to comply with an executive order, the agency generally produces a Regulatory Impact Analysis (RIA) analyzing in detail the costs and benefits of new or revised NAAQS standards. The agency released an RIA for the final standards on March 14; the major conclusions regarding benefits and costs were also included in text slides dated March 12 that were posted on the agency's website. The RIA shows a wide range of estimates for benefits, from a low of $2 billion annually to a high of $19 billion annually in 2020. Costs of implementing the standard were estimated to range from $7.6 billion to $8.8 billion annually, also in 2020. The benefit range is so wide that it is difficult to reach any general conclusions regarding whether projected benefits exceed costs or vice versa. The public health benefits of setting a more stringent ozone standard are the monetized value of such effects as fewer premature deaths, fewer hospital admissions, fewer emergency room visits, fewer asthma attacks, less time lost at work and school, and fewer restricted activity days. An EPA Fact Sheet that accompanied the standards states that the benefits of an 0.075 ppm primary standard might include the avoidance of 260 to 2,300 premature deaths annually in 2020. Other annual benefits in 2020 would include preventing the following: 380 cases of chronic bronchitis 890 nonfatal heart attacks 1,900 hospital and emergency room visits 1,000 cases of acute bronchitis 11,600 cases of upper and lower respiratory symptoms 6,100 cases of aggravated asthma 243,000 days when people miss work or school 750,000 days when people must restrict their activities. In the RIA, the agency notes that, "There are significant uncertainties in both cost and benefit estimates." Among the uncertainties are unquantified benefits (the effects of reduced ozone on forest health and agricultural productivity, for example) and unquantified disbenefits (reduced screening of UVB radiation and reduced nitrogen fertilization of forests and cropland). The benefits will also vary, depending on which of the precursor pollutants nonattainment areas choose to control. The RIA also states, "Of critical importance to understanding these estimates of future costs and benefits is that they [are] not intended to be forecasts of the actual costs and benefits of implementing revised standards." If past experience is any guide, this is likely to mean that costs will not be as great as they are projected to be. In the agency's words, "Technological advances over time will tend to increase the economic feasibility of reducing emissions, and will tend to reduce the costs of reducing emissions." Benefits, meanwhile, will remain difficult to quantify, in part because of the difficulty of quantifying and valuing lives lost prematurely due to exposure to pollution. The major issues raised by the new standards concern whether the Administrator has made appropriate choices, i.e., whether his choices for the primary and secondary standards are backed by the scientific studies. The Administrator's choice for the primary standard is weaker than any part of the range proposed by CASAC. The secondary standard does not follow the form that CASAC unanimously recommended. In explaining the Administrator's choice for the primary standard, the preamble stresses the uncertainty that the Administrator found at lower levels of ozone exposure: The Administrator noted that at exposure levels below 0.080 ppm there is only a very limited amount of evidence from clinical studies, indicating effects in some healthy individuals at levels as low as 0.060 ppm. The great majority of the evidence concerning effects below 0.080 ppm is from epidemiological studies. The epidemiological studies do not identify any bright-line threshold level for effects. At the same time, the epidemiological studies are not in and of themselves direct evidence of a causal link between exposure to O 3 and the occurrence of the effects. Thus, he concluded that within his proposed range of 0.070 to 0.075 ppm, the choice was essentially a policy judgment. Taking into account the uncertainties that remain in interpreting the evidence from available controlled human exposure and epidemiological studies at very low levels, the Administrator notes that the likelihood of obtaining benefits to public health with a standard set below 0.075 ppm O3 decreases, while the likelihood of requiring reductions in ambient concentrations that go beyond those that are needed to protect public health increases. The Administrator judges that the appropriate balance to be drawn, based on the entire body of evidence and information available in this review, is a standard set at 0.075. CASAC, in a letter to the Administrator dated October 24, 2006, appeared to disagree with this conclusion. The letter states: Furthermore, we have evidence from recently reported controlled clinical studies of healthy adult human volunteers exposed for 6.6 hours to 0.08, 0.06, or 0.04 ppm ozone, or to filtered air alone during moderate exercise (Adams, 2006). Statistically-significant decrements in lung function were observed at the 0.08 ppm exposure level. Importantly, adverse lung function effects were also observed in some individuals at 0.06 ppm (Adams, 2006). These results indicate that the current ozone standard of 0.08 ppm is not sufficiently health-protective with an adequate margin of safety. It should be noted these findings were observed in healthy volunteers; similar studies in sensitive groups such as asthmatics have yet to be conducted. However, people with asthma, and particularly children, have been found to be more sensitive and to experience larger decrements in lung function in response to ozone exposures than would healthy volunteers. In past years, the Administrator has generally chosen standards within CASAC's ranges, but not always—a recent example being the NAAQS for particulate matter promulgated in October 2006. That standard is currently being challenged in the D.C. Circuit Court of Appeals. It would not be surprising if the new ozone standard is also challenged. In setting the secondary standard, as described earlier, the Administrator's choice also disregarded the advice of CASAC, and apparently EPA's staff as well. The preamble contains EPA statements both opposing and supporting the final form of the standard, and it appears to indicate substantial involvement by the White House Office of Management and Budget in the final days before promulgation. Other issues will undoubtedly be raised as affected industries, state environmental agencies, public interest and environmental groups, and the Congress review what EPA has promulgated, including the potential impacts of the new standards on public health and on the economy. In looking at potential impacts, EPA projected air quality to the year 2020, incorporating the expected reductions in emissions from a slew of federal regulations, including the Clean Air Interstate Rule (CAIR), the Clean Air Visibility Rule, the Tier 2 auto and light truck emission standards, several rules affecting diesel engines, and some state and local measures. Even with these controls, the agency projected that 28 counties in 10 states (counties that include some of the nation's biggest cities) would violate the 0.075 standard in 2020. Furthermore, most nonattainment areas will not be given until 2020 to attain the standards: for most, the deadline will be 2013 or 2016 (based on the degree to which pollutant concentrations exceed the new standard). This suggests a mismatch between the full impact of federal regulations on specific categories of emission sources and the requirement that local areas demonstrate attainment. This mismatch could support a case for stronger federal controls on the sources of ozone precursors or a reexamination of the attainment deadlines. Another issue arises from a close inspection of EPA's maps: i.e., whether the current monitoring network is adequate to detect violations of a more stringent standard. Only 639 of the nation's 3,000 counties have ozone monitors in place. With 345 of them (54%) showing violations of the new standard, using current data, how confident is the agency that the 2,400 counties without monitors would all be in attainment? For the past three years, the President's budget has requested significant reductions in grants to states and local governments for air quality management, which includes funding for monitoring. Given these reductions, increasing the number of monitors would appear to be a task that the agency views as falling on state and local government resources. The current monitors are generally found in urban areas, because of the larger population potentially affected, and because most of the sources of ozone precursor emissions are located in such areas. But, as noted earlier, ozone is not emitted directly by polluters. It forms in the atmosphere downwind of emission sources. Thus, rural areas can have high ozone concentrations, unless they are located a substantial distance from any urban area. In addition to the potential health impacts of ozone in rural areas, the controversy over the setting of the secondary ozone NAAQS might suggest a need for additional monitoring in rural areas. | EPA Administrator Stephen Johnson signed final changes to the National Ambient Air Quality Standard (NAAQS) for ozone on March 12, 2008; the proposal appeared in the Federal Register on March 27. NAAQS are standards for outdoor (ambient) air that are intended to protect public health and welfare from harmful concentrations of pollution. By changing the standard, EPA has concluded that protecting public health and welfare requires lower concentrations of ozone pollution than it previously judged to be safe. This report discusses the standard-setting process, the specifics of the new standard, and issues raised by the Administrator's choice, and it describes the steps that will follow EPA's promulgation. The ozone standard affects a large percentage of the population: nearly half the U.S. population currently lives in ozone "nonattainment" areas (the term EPA uses for areas that violate the standard), 140 million people in all. As a result of the standard's strengthening, more areas will be affected, and those already considered nonattainment may have to impose more stringent emission controls. The revision lowers the primary (health-based) and secondary (welfare-based) standards from 0.08 parts per million (ppm) averaged over 8 hours to 0.075 ppm averaged over the same time. Using the most recent three years of monitoring data, 345 counties (54% of all counties with ozone monitors) would violate the new standards. Only 85 counties exceeded the pre-existing standards. Thus, the change in standards will have widespread impacts in areas across the country. (The 345 counties that would exceed the standard are shown in Figure 2 of this report.) The revision follows a multi-year review of the science regarding ozone's effects on public health and welfare. The new standards will set in motion a long and complicated implementation process that has far-reaching impacts for public health, for sources of pollution in numerous economic sectors, and for state and local governments. The first step, designation of nonattainment areas is expected to take place in 2010, with the areas so designated then having 3 to 20 years to reach attainment. The new standards raise a number of issues, including whether the choices for the primary and secondary standards are backed by the available science. Not only are the Administrator's choices weaker than those proposed by his scientific advisers, but the administrative record makes clear that, in part, they were dictated by the White House over the objections of EPA. Whether the standards should lead to stronger federal controls on the sources of pollution is another likely issue. Current federal standards for cars, trucks, power plants, and other pollution sources are not strong enough to bring all areas into attainment, thus requiring local pollution control measures in many cases. EPA, the states, and Congress may also wish to consider whether the current monitoring network is adequate to detect violations of a more stringent standard. Only 639 of the nation's 3,000 counties have ozone monitors in place. With half of those monitors showing violations of the new standards, questions arise as to air quality in unmonitored counties. |
At the Obama Administration's request, in December 2011 Congress enacted into law a new, joint State Department and Department of Defense (DOD) Global Security Contingency Fund (GSCF) to assist countries with urgent security and stabilization needs. The Administration proposed the GSCF with its FY2012 budget submission as a "pilot project" for State and the DOD to jointly fund and plan security-related assistance. Its stated purpose was to enable the United States to better "address rapidly changing, transnational, asymmetric threats, and emergent opportunities." "Pooled" DOD and State Department funds would be used to develop interagency responses to build the security capacity of foreign states, to prevent conflict, and to stabilize countries in conflict or emerging from conflict. Congress, demonstrating its interest in the experiment, provided GSCF authority as Section 1207 of the FY2012 National Defense Authorization Act ( P.L. 112-81 ) for four fiscal years rather than the three years requested. As enacted, Section 1207 also contains two transitional authorities for counterterrorism operations in Africa and one for Yemen, all expiring at the end of FY2012. Many see the GSCF as an innovative first step in addressing problems inherent in the current agency-based budgeting and program development systems. Although some view the GSCF primarily as a means to transfer funds from DOD to the State Department, with its relatively smaller budget, others look to it as a possible means to foster more timely, coherent, and effective U.S. government responses to emerging threats and opportunities and to provide an impetus for improving interagency coordination in security and stabilization missions. This report provides basic information on the GSCF legislation. It starts with a brief discussion of the conceptual origins of the legislation and then summarizes the legislation's provisions. It concludes with a short analysis of salient issues. Although the GSCF was proposed as a means to secure flexible funding for emerging needs, the GSCF concept has its origins in long-standing perceptions that multiple deficiencies in current national security structures and practices have undermined U.S. efforts abroad. A core problem is the U.S. government's current agency-centric national security system that inhibits rational budgeting and planning for national security efforts that require contributions from multiple agencies. Analysts have long proposed changes to address deficiencies along the following lines: Provide the State Department with a flexible funding account to respond to emerging needs and crises situations . For many years, the George W. Bush Administration repeatedly sought a State Department emergency response fund that would facilitate immediate responses to crises and emerging threats. Congress denied such requests several times, but in 2005 it authorized DOD to transfer up to $100 million of its own funds to the State Department for such purposes. (Section 1207 of the FY2006 NDAA, P.L. 109-163 , as amended.) This "Section 1207" authority expired at the end of FY2010. Congress established a U.S. Agency for International Development account, the Complex Crises Fund in FY2011 for similar purposes, with a $50 million appropriation in FY2011 and $40 million in FY2012, but has not made a similar account available to the State Department. Develop mechanisms to promote greater interagency cooperation in planning security and stabilization programs. Analysts point to many problems inherent in programming by individual agencies. Because agencies usually do not consult or coordinate with others when planning programs, there is unnecessary duplication and overlap. And because agencies conduct programs targeted at the issues that fall under their purview, there are often serious gaps. Of particular concern are the "governance gaps," i.e., the formulation of security assistance programs to train and equip military forces without components to improve the ability of government institutions to manage those forces. The goal of greater interagency cooperation is to develop coherent security and stabilization programs that address all elements of a problem. Clarif y and rationaliz e security roles and missions. The appropriate division of labor between the State Department and DOD, especially for security assistance, is a matter of debate. Since military assistance first became a significant component of U.S. foreign policy after World War II, oversight of those programs has always been vested in a civilian, usually the Secretary of State. In 1961, Congress made the Secretary of State responsible, by law, for "the continuous supervision and general direction" of that assistance. Beginning in the 1980s, however, Congress has called on DOD to contribute its manpower and funding to an increasingly broad range of national security efforts under new DOD authorities. After the terrorist attacks on the United States of September 11, 2001 (9/11), DOD requested and Congress approved multiple new DOD authorities. Some fill gaps when civilian funding and personnel are not available. Others, DOD argues, provide a means to address critical needs in an effort to protect U.S. troops and minimize U.S. military operations. The goal is to reach agreement on an appropriate model for post -9/11 civil-military activities and missions, either by strengthening the State Department's ability to lead, by creating a new system of shared responsibility, or by strengthening the State Department's lead while also encouraging greater sharing of responsibility in order to enhance collaboration among all agencies involved in security sector assistance. Creat e a "unified" budget system for national security missions along functional rather than agency lines . For over a decade, analysts have urged the U.S. government to consolidate budgets for national security activities. In particular, they have recommended that the White House present Congress annually with either a unified national security budget or a series of unified budgets for a specific multi-agency national security activity, such as counterterrorism or security assistance. The goal is to rationalize government-wide resource allocation and promote due consideration of the tradeoffs involved in allocating those resources. Unified budgets are also recommended as a means to provide greater transparency and accountability in U.S. government spending, and facilitate congressional oversight of national security programs. The Obama Administration presented the GSCF as a means to identify potential difficulties when combining State Department and DOD funds and to test the possibilities for combining agency expertise and efforts to conduct security activities. If successful, the GSCF is seen as a possible precedent for a broader interagency funding and efforts. Assistance may be provided under the three-year GSCF authority for three purposes, as detailed below. Assistance "may include the provision of equipment, supplies, and training." (GSCF funds are available to either the Secretary of State or the Secretary of Defense for such assistance.) The first two of these purposes—security and counterterrorism training, and coalition support—are nearly identical to those of the Global Train and Equip authority provided by Section 1206 of the FY2006 NDAA, P.L. 109-163 , as amended, with one exception. For Section 1206 programs, the Secretary of Defense is in the lead. Section 1207 (b)(1)(A) authorizes the use of the GSCF "to enhance the capabilities of military forces and other security forces responsible for conducting border and maritime security, internal security, and counterterrorism operations, as well as the government agencies responsible for such forces." Recipient countries would be designated by the Secretary of State with the concurrence, i.e., approval, of the Secretary of Defense. Programs to provide this support would be jointly formulated by the Secretary of State and the Secretary of Defense, and approved by the Secretary of State, with the concurrence of the Secretary of Defense before implementation. Section 1207 (b)(1)(B) permits GSCF assistance to national military forces and other specified security forces to enable them to "participate in or support military, stability, or peace support operations consistent with United States foreign policy and national security interests." Just as with security and counterterrorism training assistance, recipient countries would be designated by the Secretary of State with the concurrence of the Secretary of Defense. These programs are also jointly formulated by the Secretary of State and the Secretary of Defense, and approved by the Secretary of State, with the concurrence of the Secretary of Defense, before implementation. Section 1207(b)(2) authorizes using the GSCF to assist the justice sector (including law enforcement and prisons), and to conduct rule of law programs and stabilization efforts "where the Secretary of State, in consultation with the Secretary of Defense, determines that conflict or instability in a region challenges the existing capability of civilian providers to deliver such assistance." The Secretary of State also designates recipients of this type of assistance and implements activities with the concurrence of the Secretary of Defense. However, unlike the preceding types of assistance where the Secretaries of State and Defense would jointly formulate programs, the Secretary of State formulates these programs in consultation with the Secretary of Defense. State and DOD staff will determine an appropriate consultation mechanism. In addition to the GSCF authority requested by the Administration, Section 1207(n) of the original legislation established three new transitional authorities that would permit the Secretary of Defense, with the concurrence of the Secretary of State, to assist counterterrorism and peacekeeping efforts in Africa during FY2012. A similar provision was added to the FY2013 NDAA ( P.L. 112-239 ); subsequently, Section 1207(n) was deleted by the FY2014 NDAA. The FY2012 NDAA established a GSCF account "on the books of the Treasury of the United States." As amended by the FY2014 NDAA, there is no overall spending limitation. There is a limit of $200 million on transfers from DOD to the GSCF, but no limit is set on State Department funding. (However, the appropriations legislation sets a limit on State Department transfers; see below.) A proportional limitation provides that the DOD contribution for any activity shall be no more than 80% of the cost of that activity, and the State Department contribution shall be not less than 20%. Despite the State Department's request for a $50 million appropriation, the FY2012 appropriations act provided no new money for the fund, but permitted DOD and the State Department to transfer up to the $250 million from other accounts, with a limit of $200 from DOD and $50 million from State. Under the FY2012 NDAA, monies may be transferred from the GSCF to the "agency or account determined to be the most appropriate to facilitate" assistance. (No official was specified as responsible for the determination.) GSCF authority expires on September 30, 2015, but amounts appropriated or transferred before that date for programs already in progress would remain available until the programs are completed. Complementing the P.L. 112-74 appropriations act authority for DOD to transfer funds to the GSCF, the P.L. 112-81 authorizing legislation provided DOD with a new transfer authority of up to $200 million per fiscal year, permitting DOD to transfer funds from its defense-wide operation and maintenance account to the GSCF. The appropriations act required the Secretary of Defense to notify the congressional defense committees in writing 30 days before making the transfer, providing the source of the funds and a detailed justification, execution plan, and timeline for each proposed project. Just as with DOD, the P.L. 112-74 appropriations act provided no new monies for the State Department contribution to the fund. Instead, this act permits the State Department to transfer up to $50 million from funds appropriated in three accounts (i.e., International Narcotics Control and Law Enforcement [INCLE], Foreign Military Financing [FMF], and Pakistan Counterinsurgency Capability Fund [PCCF]) or any other transfer authority available to the Secretary of State. No funding was provided in FY2013. The "omnibus" Consolidated Appropriations Act, 2014 ( P.L. 113-76 ), Section 8003 of Division K (Department of State, Foreign Operations, and Related Programs Appropriations Act, 2014), permits the State Department to transfer up to $25 million to the GSCF from INCLE, FMF, and PKO. Section 8068 of Division C (Department of Defense Appropriations, 2014) of that act states that DOD may transfer up to $200 million to the GSCF from the Operations and Maintenance, Defense-Wide account. For FY2015, the Obama Administration does not request a GSCF appropriation under the State Department budget. Relevant DOD budget documents available as of this date seem to indicate there is no DOD FY2015 appropriation request. Congress provided GSCF authority notwithstanding any other provision of law, with two exceptions. These are the Foreign Assistance Act of 1961, as amended (FAA) (P.L. 85-195) Section 620A prohibition on assistance to governments supporting international terrorism and the FAA Section 620J prohibition on assistance to foreign security forces for which the Secretary of State has determined there is credible evidence of gross violations of human rights (the "Leahy Amendment." The legislation makes clear that the three-year GSCF authorization is not intended to replace other legislation. GSCF programs are required to include elements to promote the observance of and respect for human rights and fundamental freedoms, as well as respect for legitimate civilian authority. Reporting requirements are extensive and detailed. There are five separate reporting requirements, one in the appropriations legislation (a notification before funds are transferred) and four in the authorization legislation (one a notification before programs are initiated, one when guidance is issued, one when guidance and processes are fully operational, and one an annual report). Section 8003(d) of the FY2014 omnibus appropriations legislation ( P.L. 113-76 ) requires the State Department to notify the appropriations committees 15 days prior to making any transfers from the INCLE, FMF, and PKO accounts to the GSCF in accordance with regular notification procedures, including a detailed justification, implementation plan, and timeline for each proposed project, but is not subject to prior consultation with the appropriations committees. Section 8068 requires DOD to notify the congressional defense committees in writing 30 days prior to making transfers from the Operations and Maintenance, Defense-Wide account to the GSCF with the source of funds and a detailed justification, execution plan, and timeline for each proposed project. The FY2014 NDAA amended NDAA reporting requirements slightly. The authorizing legislation requires the secretaries of State and Defense to notify specified congressional committees at four points. Specified committees are the House and Senate Appropriations Committees and Armed Services Committees, the House Committee on Foreign Affairs, and the Senate Committee on Foreign Relations. The Secretary of State and the Secretary of Defense must notify the specified committees not less than 30 days before initiating an activity. No funds may be transferred into the fund until 15 days after Congress is notified. The notification regarding the initiation of program activities is to include a detailed justification for the program, its budget, execution, plan and timeline, a list of other security-related assistance or justice sector and stabilization assistance being provided to that country that is related to or supported by that activity, and any other appropriate information. The secretaries of State and Defense shall jointly submit a report to the specified committees no later than 15 days after the date on which guidance and processes for implementation of programs have been issued, and shall jointly submit additional reports not later than 15 days after future changes to guidance and processes. A related notification requirement mandates that the Secretary of State, with the concurrence of the Secretary of Defense shall jointly notify Congress 15 days after the date on which all necessary guidance has been issued and the processes for implementing programs "are established and fully operational." The secretaries of State and Defense must jointly submit an annual report on programs, activities, and funding no later than October 30 of each year. For programs to be conducted under FY2012 funding, the Secretary of State designated seven countries as recipients of GSCF assistance: Nigeria, Philippines, Bangladesh, and Libya, as well as three Central European countries, Hungary, Romania, and Slovakia. In August and September, 2012, the State Department and DOD submitted requests to the Appropriations Committees to transfer $44.8 million from designated funds to the GSCF. These funds were transferred before the end of FY2012, according to the State Department. As of the date of this report, detailed programs are still being developed. (See Table A-1 in the Appendix for summaries of the programs and funding transferred.) No further information on the progress of the FY2012 programs or on plans for potential FY2014 programs has been made available to CRS. For some policy makers and analysts, the GSCF proposal is a positive, long-awaited first step toward the development of integrated, interagency funding streams for agencies that carry out related programs. For others, the GSCF proposal and specific provisions of the bill raise a number of issues, some of which are summarized below. Congress has expressed concern over the slow pace of FY2012 program planning and implementation. In May 2012, the House Armed Services Committee HASC), in its report on the National Defense Authorization Act for FY2013 ( H.R. 4310 ), expressed concern with the direction and speed of the process of developing GSCF programs. Attributing the problem to cumbersome bureaucratic processes, HASC stated its expectation that the departments "begin exercising the authority in a timely manner." Also contributing to delays have been the small size of the GSCF three-member team, the problems of setting up a new interagency office, and the difficulties of aligning two sets of planning and implementation processes, requiring decisions down to the level of resolving definitional differences, as well as to the extensive intra-agency consultation and coordination required, according to observers. Some observers have wondered whether identifying feasible projects has contributed to the delay. While to some observers these problems raise serious doubts about the feasibility of establishing an agile interagency mechanism, others believe the potential utility of such a mechanism argues for continued efforts to overcome them. The GSCF puts the State Department, in the person of the Secretary of State, in the lead. Some who have viewed Congress's approval of many new DOD security assistance authorities since 9/11 as a gradual erosion of the traditional State Department lead on security assistance, may see the GSCF as a welcome reversal of that trend. Nevertheless, some may wonder about the extent to which the Secretary of State may actually exercise control if DOD provided most GSCF funding. This is especially true as the Secretary of Defense will be providing funds through an authority that permits the transfer of funds from one activity to another but stipulates that the funds may only be transferred to a higher priority activity. Activities that may be high priority for State are not necessarily high priority for DOD. Advocates of greater State Department control would prefer that Congress dispense with the GSCF "pooled" fund and appropriate substantially more security assistance and related DOD funding (particularly "Section 1206" building partnership capacity funding ), directly to the international affairs budget, just as FMF, INCLE, and PCCF are currently appropriated. Some fear that the decision to pool DOD and State Department funds rather than to appropriate funds directly to the State Department budget will perpetuate the State Department's lack of capacity to resource security assistance rather than resolve it. On the other hand, others are concerned that including all GSCF funding in the international affairs budget would leave GSCF activities vulnerable to possible cuts by Congress or the State Department itself in the case of overall State Department budget reductions. Others may be concerned that the State Department lacks the capacity to plan and direct an increased number of security assistance and related governance and rule of laws programs without increasing the size of its staff. Some also view the State Department as lacking the institutional interest and will necessary to plan and oversee a large security assistance portfolio. But others may point to the State Department's creation of new programs under the Security Assistance peacekeeping account (PKO) as evidence of State's interest in this program area. For DOD, the GSCF may be perceived as entailing disadvantages as well. While some perceive the GSCF's ability to tap DOD funds for State Department programs of mutual interest as beneficial, others see this effort as a problematic and unwarranted diversion of DOD funds, particularly in this constrained budget environment. In addition, some perceive possible future disadvantages. Some analysts believe that DOD at times needs to ensure the integrity of its own missions by the use of security and stabilization assistance. Because GSCF purposes overlap those of DOD's "Section 1206" train and equip authority, where the Secretary of Defense is in the lead, some analysts view a successful GSCF effort as someday leading to the elimination of Section 1206 and similar authorities. For some analysts, such a move could mean sacrificing some of the control and flexibility over programs provided through a DOD authority. The GSCF proposals also raise the continuing concern about DOD's role in training security forces with law enforcement functions. The GSCF legislation provides DOD with authority to train and otherwise assist a wider range of foreign security forces than previously permitted. Since FY2006, in conjunction with DOD requests for an expansion of Section 1206 authority, Congress has repeatedly rejected providing DOD with authority to train and assist police and other non-military forces, except for foreign maritime security forces. (Congress has, however, specifically provided DOD with authority to train police in Afghanistan and Iraq.) The GSCF provides authority for assistance to "security forces responsible for conducting border and maritime security, internal security, and counterterrorism operations, as well as the government agencies responsible for such forces," without any limitation on the agency that could provide such assistance. Opponents of this extension have argued that training security forces that perform law enforcement functions is a civilian, not a DOD, function because military skills and culture are distinct from those of civilian law enforcement. Proponents see sufficient overlap, particularly for security forces that operate in lawless border areas and those that exercise counterterrorism functions, to validate this expansion. Some, although, point out that such police activities conducted within the GSCF framework would probably be subject to greater State Department oversight than those conducted under a DOD authority. Some analysts express concern that the Administration has requested a new security assistance funding mechanism without first establishing a strategic framework that would set priorities and clarify department and agency roles in security assistance, improving the prospects for effective interagency collaboration. Early on, the Obama Administration undertook a review of security assistance to establish such a framework, but that effort has not concluded. Some now look to the GSCF process as the crucible for competing concepts and new arrangements. Given the Administration's characterization of the GSCF as an experiment intended to identify issues in interagency collaboration, the GSCF may indeed contribute to the goals of the review. Even though the GSCF has been authorized for four years, through FY2015, Congress may monitor its use closely and consider in-course changes. Congressional expressions of concern about the Administration's slow progress in implementing FY2012 programs point to cumbersome bureaucratic processes as a source of the problem. GSCF officers have attributed difficulties to the melding of State and DOD procedures and the extensive intra-agency coordination required in the State Department. Coordination problems may be exacerbated by reliance on transfers from multiple State Department accounts, rather than on appropriations, may be another source of the problem. If the Administration cannot plan and implement FY2014-funded programs more expeditiously than the FY2012 programs, Congress may wish to study, perhaps through a Government Accountability Office (GAO) or other program evaluation, whether and how planning and implementation impediments can be overcome. | The FY2012 National Defense Authorization Act (P.L. 112-81), Section 1207, created a new Global Security Contingency Fund (GSCF) as a four-year pilot project to be jointly administered and funded by the Department of Defense (DOD) and the State Department. The purpose of the fund is to carry out security and counterterrorism training, and rule of law programs. (There also are three one-year transitional authorities for assistance to Africa and Yemen.) The GSCF is placed under the State Department budget. Although decisions are to be jointly made by the Secretaries of State and Defense, the mandated mechanism puts the Secretary of State in the lead. The GSCF was conceived of as an important step in improving U.S. efforts to enable foreign military and security forces to better combat terrorism and other threats. It incorporates features of previous legislation and reflects recommendations to address multiple deficiencies in current national security structures and practices. Many have hope that it will provide a model for interagency cooperation on security assistance that will overcome the disadvantages of the current system of agency-centric budgets and efforts. Extended start-up difficulties, however, have led to questions about the mechanism's utility. To date, Congress has provided funds for the GSCF through transfers from other accounts, not from appropriations. While the Administration requested GSCF appropriations in FY2012, FY2013, and FY2014, Congress has appropriated no funding. In the FY2012 omnibus appropriations act (P.L. 112-74), Congress permitted DOD and the State Department to transfer up to the $250 million from specified accounts, with a limit of $200 million from DOD and $50 million from State. For FY2013, Congress made no provision for funding. In the FY2014 omnibus appropriations act (P.L. 113-76), Congress provided authority for DOD to transfer to the GSCF up to $200 million and for the State Department to transfer up to $25 million from specified accounts. For FY2015, the Obama Administration does not request a GSCF appropriation under the State Department budget. Relevant DOD FY2015 budget documents available as of this date seem to indicate there is no DOD FY2015 appropriations request. The Administration has taken steps to program FY2012 funds. In mid-2012, it notified Congress that it would initiate programs for Yemen and East Africa under the "transitional" (Section 1207(n), P.L. 112-81) authority with authorized funding up to $75 million each. These are being implemented. Later in the year, the Administration transferred $44.8 million to the GSCF for programs under the core GSCF legislation, which provided for country selection by the Administration in the course of the fiscal year. The Secretary of State designated seven countries as eligible for this assistance: Nigeria, the Philippines, Bangladesh, Libya, Hungary, Romania, and Slovakia. The Administration must notify congressional committees with detailed program plans before the programs can begin. The GSCF office has provided no further information to CRS as of this date. Issues include whether the State Department has the ability and capacity to lead GSCF activities; possible drawbacks for DOD; the desirability of providing DOD with authority to train non-military security forces, including law enforcement; and the potential effectiveness of GSCF programs in the absence of a strategy for security assistance. |
The goal of the patent system is to promote the production and dissemination oftechnological information. Some observers believe that absent a patent system, individuals and firmswould be less likely to engage in research and development. Without the availability of patentprotection, new inventions could be easily copied by "free riders" who incurred no cost to developand perfect the technology involved, and who would therefore be able to undersell the originalinventor. The resulting inability of inventors to capitalize on their inventions would lead to anenvironment where too few inventions are made. By providing individuals with exclusive rights intheir inventions for a limited time, the patent system allows inventors to realize the profits from theirinventions. (16) Other commentators believe that if the patent system were unavailable, individuals wouldmaintain their inventions as trade secrets so that competitors could not exploit them. Trade secretsdo not enrich the collective knowledge of society, however, nor do they discourage others fromengaging in duplicative research. The patent system avoids these inefficiencies by requiringinventors to consent to the disclosure of their inventions in issued patent instruments. (17) Additional explanations for the patent laws have been offered. The Patent Act may stimulatetechnological advancement by inducing individuals to "invent around" patented technology. Issuedpatent instruments may point the way for others to develop improvements, exploit new markets ordiscover new applications for the patented technology. (18) Moreover, the patent system may encourage patentees tocommercialize their proprietary technologies during the term of the patent. The protection providedby a patent's proprietary rights increases the likelihood a firm will continue to refine, produce andmarket the patented technology. (19) Finally, the patent law has been identified as a facilitator ofmarkets. Absent patent rights, an inventor may have scant tangible assets to sell or license, and evenless ability to police the conduct of a contracting party. By reducing a licensee's opportunisticpossibilities, the patent system lowers transaction costs and makes technology-based transactionsmore feasible. (20) The patent system has inspired numerous critics, however. Some detractors have assertedthat the patent system is unnecessary due to market forces that already suffice to create an optimallevel of invention. The desire to gain a lead time advantage over competitors, as well as therecognition that technologically backward firms lose out to their rivals, may well provide sufficientinducement to invent without the need for further incentives. (21) Others observe that theinventions that fueled many dynamic sectors of modern industry, such as biotechnologies andcomputer software, arose at a time when patent rights were unavailable or uncertain. (22) While these justifications and criticisms have varying degrees of intuitive appeal, none ofthem has been empirically validated. No authoritative study conclusively demonstrates that societyobtains more rapid technological development with patents than it would without them. As a result,the rationales for, and criticisms of, the patent system remain open to challenge. (23) As mandated by the Patent Act of 1952, (24) U.S. patent rights do not arise automatically. Inventors mustprepare and submit applications to the U.S. Patent and Trademark Office ("USPTO") if they wishto obtain patent protection. (25) USPTO officials, known as examiners, then assess whether theapplication merits the award of a patent. (26) The patent acquisition process is commonly known as"prosecution." (27) In deciding whether to approve a patent application, a USPTO examiner will considerwhether the submitted application fully discloses and distinctly claims the invention. (28) In addition, the applicationmust disclose the "best mode," or preferred way, that the applicant knows to practice theinvention. (29) Theexaminer will also determine whether the invention itself fulfills certain substantive standards setby the patent statute. To be patentable, an invention must be useful, novel and nonobvious. Therequirement of usefulness, or utility, is satisfied if the invention is operable and provides a tangiblebenefit. (30) To be judgednovel, the invention must not be fully anticipated by a prior patent, publication or other knowledgewithin the public domain. (31) A nonobvious invention must not have been readily within theordinary skills of a competent artisan at the time the invention was made. (32) If the USPTO allows the patent to issue, the patent proprietor obtains the right to excludeothers from making, using, selling, offering to sell or importing into the United States the patentedinvention. (33) The termof the patent is ordinarily set at twenty years from the date the patent application was filed. (34) Patent title thereforeprovides inventors with limited periods of exclusivity in which they may practice their inventions,or license others to do so. The grant of a patent permits the inventor to receive a return on theexpenditure of resources leading to the discovery, often by charging a higher price than wouldprevail in a competitive market. Patent rights are not self-enforcing. A patentee bears responsibility for monitoring itscompetitors to determine whether they are using the patented invention or not. Patent proprietorswho wish to compel others to observe their intellectual property rights must usually commencelitigation in the federal district courts. (35) The U.S. Court of Appeals for the Federal Circuit possessesexclusive national jurisdiction over all patent appeals from the district courts, (36) while the U.S. SupremeCourt possesses discretionary authority to review cases decided by the Federal Circuit. (37) Under the Patent Act of 1952, any individual who makes, uses, sells, offers to sell, or importsinto the United States a patented invention without the authorization of the patent owner facesliability for infringement. (38) Although the Patent Act authorizes a number of defenses to acharge of patent infringement -- such as that the patented invention does not meet the statutorystandards for patentability and was improvidently awarded a patent by the USPTO (39) -- the statute does notexpressly authorize a generally applicable experimental use privilege. The federal courts havenonetheless developed a "common law" experimental use privilege using their judicial powers. Judicial decisions from the nineteenth century established the scope of the experimental useprivilege. In the first of these opinions, the 1813 case of Whittemore v. Cutter , (40) Justice Joseph Storyexplained that "it could never have been the intention of the legislature to punish a man, whoconstructed such a machine merely for philosophical experiments, or for the purpose of ascertainingthe sufficiency of the machine to produce its described effects." (41) Later, in Sawin v.Guild , (42) Justice Storyexplained that an unauthorized manufacture of a patented invention was not an infringement unlessit constituted "making with an intent to use for profit, and not for the mere purpose of philosophicalexperiment, or to ascertain the verity and exactness of the specification." The 1861 decision in Peppenhausen v. Falke further explained: It has been held, and no doubt is now well settled, thatan experiment with a patented article for the sole purpose of gratifying a philosophical taste, orcuriosity, or for mere amusement, is not an infringement of the rights of the patentee. (43) This judicial conception of the experimental use privilege has been described as"crabbed," (44) "narrowlyconstrued" (45) and "rarelysustained." (46) Asexplained in numerous judicial opinions, the experimental use exception applies only to uses donefor amusement, to satisfy idle curiosity or for strictly philosophical inquiry. (47) Any use that iscommercial in nature is not subject to the doctrine. (48) The opinion of the Court of Claims in Pitcairn v. United States provides one example ofjudicial views concerning the experimental use privilege. (49) In that case, the U.S. government was accused of infringing 59patents relating to helicopters. The government contended that various aircraft used only forpurposes of testing and demonstration should be held not to infringe. The court disagreed,explaining: Defendant urges the court to exclude fromcompensation any aircraft used by the defendant for testing, evaluational, demonstrational orexperimental purposes. Use for such purposes is use by or for the Government and is compensable.Obviously every new helicopter must be tested for lifting ability, for the effect of vibration oninstalled equipment, flight speed and range, engine efficiency, and numerous other factors. Tests,demonstrations, and experiments of such nature are intended uses of the infringing aircraftmanufactured for the defendant and are in keeping with the legitimate business of the using agency.Experimental use is not a defense in the present litigation. (50) This language further suggests that if the use furthers the user's "legitimate business" objectives, evenin a tangential way, then it is not experimental. (51) A 2002 decision on the experimental use privilege, Madey v. Duke University , (52) reflects this narrow senseof the experimental use privilege. Here, Duke University recruited Dr. John M.J. Madey fromStanford University in order to serve as a research professor and director of a laser laboratory. Adispute ultimately led to Madey's resignation from Duke. After he left the university, Madey broughtsuit for infringement of two patents relating to the operation of specialized equipment used in theDuke laser laboratory. (53) Responding to Madey's charges of patent infringement, Duke sought to take advantage of theexperimental use privilege. Duke explained that it was a non-profit educational institution dedicatedto teaching, research and the advancement of knowledge. Duke further argued that it does notundertake research or development work principally for the purpose of obtaining patents or designingproducts for the marketplace. The district court agreed that the experimental use privilege appliedand ruled in favor of Duke. (54) On appeal, the Federal Circuit reversed the district court's experimental use determination. The Court of Appeals characterized the experimental use privilege as "very narrow and strictlylimited." (55) Inparticular, the Federal Circuit observed that the experimental use privilege "does not immunize anyconduct that is in keeping with the alleged infringer's legitimate business, regardless of commercialimplications." (56) Itfurther explained that: Major research universities, such as Duke, oftensanction and fund research projects with arguably no commercial application whatsoever. However,these projects unmistakably further the institution's legitimate business objectives, includingeducating and enlightening students and faculty participating in these projects. The projects alsoserve, for example, to increase the status of the institution and lure lucrative research grants, studentsand faculty. (57) As a result, the Federal Circuit held that the district court had resolved the case based upon aninappropriately expansive view of the experimental use privilege. It remanded the litigation backto the district court, with instructions to resolve the issue in light of the Federal Circuit'sdecision. (58) Many patent law experts agree that following the Madey v. Duke University case, colleges,universities and other academic institutions are unlikely to be able to rely upon the common lawexperimental use privilege as a defense to a charge of patent infringement. (59) Co-authors LawrenceSung, then a member of the University of Maryland Law School faculty, and attorney Claire M.Maisano explained that the "decision in Madey leaves grave doubt that the common law exemptionto patent infringement liability can act as a safe harbor for any academic research effort." (60) Commentator MichelleCai further opined that "practically any project conducted by a research university, even one withoutany commercial implications, would be in keeping with the university's legitimate business interestsand hence would not qualify for the experimental use defense." (61) Observers generally agree that Madey v. Duke University either retains, or perhaps restrictsto an even greater degree, the quite limited nature of the common law experimental use privilege asit might be applied outside of academic settings. (62) Attorneys Paul Devinksy and Mark G. Davis concluded that theopinion is consistent with previous judicial interpretations of the common law experimental useprivilege. As a result the privilege "lives on as a narrow defense to a claim of infringement." (63) Other observers wouldgo further. Ms. Cai states, for example, that the decision "has essentially destroyed any practicalmeaning to the experimental use defense." (64) Attorneys Cathryn Campbell and R.V. Lupo are in accord,stating that after Madey v. Duke University "the Experimental Use Exception would appear toprovide little, if any protection in today's world." (65) Although the experimental use privilege has been part of the patent law for many years, the Madey v. Duke University opinion has renewed dialogue over the propriety and scope of thisinfringement exemption. Proponents and detractors of a broad experimental use privilege, as wellas those who do not believe the doctrine is important as a practical matter, have expressed diverseopinions. This report summarizes these competing views. Some commentators believe that a broad experimental use privilege is inappropriate as amatter of technology policy. Under this view, a liberal experimental allowance would greatly easethe ability of competitors to "design around" the invention or develop competing technologies. Patent owners in turn would be less able to appropriate the returns of their investments in researchand development, this account continues, and would therefore be discouraged from making futureinvestments in research and development. (66) As attorney Jordan Karp concludes: "Rather than spurringincreased innovative activity, a broad experimental use exception would have just the oppositeeffect." (67) For some observers, a broad experimental use privilege is inappropriate even when researchtakes place within an academic research setting. This is because university research is often notisolated from the private sector, but instead may have significant commercial implications. (68) As stated by two seniorofficers of the USPTO, the Madey v. Duke University decision "recognized a basic economic truthunderlying research performed by large universities -- it is a business, and universities derivesubstantial commercial value from that research." (69) Indeed, some commentators believe that university research is increasingly likely to havecommercial implications. This shift is believed to be due in part to federal legislation commonlyknown as the Bayh-Dole Act. (70) The Bayh-Dole Act aims to encourage the commercialization ofbasic research by allowing universities and small businesses to procure patents on inventions thatresult from federally funded research. Since the passage of the Bayh-Dole Act, many researchuniversities have developed patent portfolios and garnered significant royalties from intellectualproperty licensing. (71) Because academic institutions are increasingly benefitted from the patent system, some observersreason, they should also be held accountable when they infringe the patents of others. (72) In contrast, others believe that the common law experimental use privilege is overly narrow. They assert that the current scope of this doctrine too greatly restricts the ability of innovators to"tinker" with the developments of others. (73) Under this view, research may be chilled if scientists cannotexperiment upon state-of-the-art technology free from charges of patent infringement. By limitingthe tools with which researchers can work, these commentators say, the patent system couldultimately depress, rather than promote innovation. (74) Other observers believe that limiting the experimental use privilege with respect touniversities and nonprofit institutes could impede academic research. Some university-basedscientists believe that, unlike some of their counterparts in the private sector, academic researchershave all but ignored the patent system. (75) In order to avoid patent infringement, universities may have todevote scarce resources to perform costly patent searches and engage in licensing negotiations withpatent holders. To a greater extent than profit-seeking firms, educational institutions may find thatthese obligations weigh heavily on their frequently tight budgets. (76) Several legal scholars have suggested that the holding of Madey v. Duke University raisesparticular concerns with regard to patented research tools. A "research tool" is an invention, suchas a particular cell line, reagent, or antibody, that is used exclusively or primarily for the purpose ofconducting scientific research. (77) Some observers believe that patents are too frequently grantedon research tools, particularly in biotechnology, and that such patents may impede futureadvancement. For example, two members of the University of Michigan Law School faculty,Michael A. Heller and Rebecca S. Eisenberg, have concluded that researchers might someday needto obtain numerous patent licenses in order to conduct basic research. (78) The costs andcomplications of engaging in numerous patent transactions may potentially create an"anti-commons": an environment where resources that could be committed towards further researchand development are inefficiently under-utilized. (79) Under this view, the narrowly cabined experimental useprivilege contemplated in Madey v. Duke University strengthens patents on research tools and mightmake research and development more difficult to accomplish. (80) Notably, other scholars contest these theories. For example, F. Scott Kieff, a member of thelaw faculty of Washington University in St. Louis, asserts that this scenario is incorrect as a matterof individual incentives. (81) Rational patent holders should always encourage others toresearch with their technologies, Kieff explains, so as to increase the number of applications for theirinventions and hence their own profits. Wesley M. Cohen, an academic at the Fuqua School ofBusiness at Duke University, has also conducted empirical research suggesting that although the"anti-commons" environment posited by Heller and Eisenberg may be theoretically possible, to dateit has not actually occurred. (82) Other commentators believe that "scientists recognize the benefits of sharing materials freelywhenever possible and have developed informal norms to achieve broad dissemination of researchtools." (83) For example,the National Institutes of Health ("NIH") has issued "Principles and Guidelines" in order to promotethe broad use of patented research tools in biotechnology. (84) In particular, the NIHencourages patent proprietors to license their proprietary research tools in such a way as to minimizerestrictions upon their use. Although the Principles and Guidelines formally apply only to recipientsof federal funding, the NIH has urged the entire biotechnology community to adopt similar policies"so that all biomedical research and development can be synergistic and accelerated." (85) Finally, a third set of commentators remain agnostic about the propriety of an experimentaluse privilege, but believe that this issue is not of great importance for practical reasons. Patentinfringement litigation is widely regarded as costly, time-consuming and complex. (86) There may be insufficienteconomic justification to commence litigation against individuals who are not making commerciallyimportant uses of patented inventions. As a result, patent infringement suits may only rarely bebrought against hobbyists, philosophers and noncommercial defendants, regardless of how narrowlyor broadly the experimental use privilege is defined. (87) It is also important to remember that the patent law may, in certain circumstances, provideresearchers with the ability to use products even though they have been patented by others. One ofthese principles is known as the "exhaustion" doctrine. Under this legal rule, once a patent ownerhas sold a patented product, he cannot control the use of that particular product. Any patent rightsin that specific physical item are said to have been "exhausted" by this initial sale. Sometimes theexhaustion principle is termed the "first sale" doctrine. (88) For example, suppose that a pharmaceutical firm wished to analyze a drug that had beenpatented by another. That firm might wish to confirm the drug's biological activity , identify newmedical indications, or compare its pharmacological profile to those of other compounds. If the firmis able simply to purchase the patented drug on the open market, then no issues of patentinfringement will ordinarily arise. Any patent on the drug is exhausted once the drug has been sold,allowing the purchasing firm to use the patented drug as it wishes. The scope of the experimentaluse privilege is irrelevant in this scenario. (89) On the other hand, suppose that a patented drug is not available for purchase within themarket. In order to experiment with that compound, a pharmaceutical firm must synthesize it withinits own laboratories. This step would be an act of patent infringement, however, because the rightto make a patented invention is exclusive to the patent owner. (90) In this case theexperimental use privilege would, at least theoretically, come into play as a possible defense topatent infringement. The existence, possible scope and importance of the common law experimental use privilegein patent law remains the subject of considerable debate. However, it should be noted that the PatentAct of 1952 includes a limited statutory experimental use privilege for patents on pharmaceuticals,medical devices, and certain other products regulated by the Food and Drug Administration (FDA). This provision, enacted as part of 1984 legislation known as the Hatch-Waxman Act, (91) applies to firms seekingto market generic equivalents of brand-name products. In addition, Congress has enacted otherintellectual property legislation that incorporates provisions shielding researchers from infringementliability. This report considers these topics in turn. The Hatch-Waxman Act for the first time introduced a statutory experimental use privilegeinto the patent laws. This privilege applies only to certain products -- notably specific kinds ofpharmaceuticals and medical devices -- that are regulated by the FDA. Firms must obtain FDAapproval in order to market these products. Ordinarily the FDA will approve only of those productsthat have been proven to be safe and effective through laboratory, animal and clinicalinvestigations. (92) Suchstudies can be costly and time-consuming. In some cases, the effort to obtain FDA marketingapproval requires many years to complete. (93) Many firms wish to sell drugs or medical devices that are "generic" -- that is to say,equivalent to a product that was first developed and sold under a brand name by a different company. Prior to Hatch-Waxman Act, generic firms faced two notable difficulties in getting their productsto market. First, generic firms ordinarily had to conduct the same sort of expensive and lengthyclinical investigations as their brand-name counterparts in order to obtain FDA marketing approval. This requirement existed even in circumstances where the generic drug was chemically identical toa brand-name drug of widely acknowledged safety and effectiveness. (94) Second, generic firms had to account for the patents owned by their brand-name competitors. As of the early 1980's, legal uncertainty existed as to whether a generic firm could conduct clinicaltrials at all if a brand-name firm held patents on the drug or medical device. As part of the FDAmarketing approval process, the generic firm would need to both make and use the patented drug ordevice -- activities that under the intellectual property laws are exclusive to the patentproprietor. (95) The resultwas that a generic firm could be sued for patent infringement and, at least until the relevant patentsexpired, enjoined from engaging in the activities it needed to perform in order to satisfy FDAmarketing approval requirements. Some generic drug and medical device firms sought to rely upon the common lawexperimental use privilege in this situation. Their position was that activities performed in order tofulfill FDA marketing approval standards were merely experimental in nature, and as a result shouldbe exempted from patent infringement. (96) Whether the courts would uphold this argument remained anopen legal question for many years. Eventually this issue came before the Federal Circuit, which in 1984 issued its decision in Roche Products, Inc. v. Bolar Pharmaceutical Co. (97) Here the Federal Circuit conclusively held that the common lawexperimental use privilege did not shield generic firms engaged in FDA marketing approvalactivities from charges of patent infringement. In this case, Roche Products, Inc. ("Roche") marketeda prescription sleeping pill under the trademark "Dalmane." Roche also was the proprietor of apatent claiming a chemical compound, flurazepam hcl, that was the active ingredient in Dalmane. Bolar Pharmaceutical Co. ("Bolar"), a manufacturer of generic drugs, grew interested in marketinga generic equivalent of Dalmane. Prior to the expiration of Roche's patent, Bolar obtained a supplyof flurazepam hcl from a foreign manufacturer. It began to form the flurazepam hcl into dosage formcapsules to obtain stability data, dissolution rates, bioequivalency studies and blood serum studiesnecessary to obtain marketing approval from the FDA. (98) The Federal Circuit concluded Bolar's activities infringed the Roche patents, and that theexperimental use defense did not apply. The Court of Appeals reasoned: Bolar's intended "experimental" use is solely forbusiness reasons and not for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry.Bolar's intended use of flurazepam hcl to derive FDA required test data is thus an infringement ofthe [Roche] patent. Bolar may intend to perform "experiments," but unlicensed experimentsconducted with a view to the adaptation of the patented invention to the experimentor's business isa violation of the rights of the patentee to exclude others from using his patented invention. It isobvious here that it is a misnomer to call the intended use de minimus. It is no trifle in its economiceffect on the parties even if the quantity used is small. It is not a dilettante affair such as Justice Storyenvisioned. We cannot construe the experimental use rule so broadly as to allow a violation of thepatent laws in the guise of "scientific inquiry," when that inquiry has definite, cognizable, and notinsubstantial commercial purposes. (99) Congress responded to Roche v. Bolar by enacting the statute commonly known as the Hatch-- Waxman Act. The statute introduced a number of changes to both the patent law and the food anddrug law. (100) Amongthem was an accelerated marketing approval process for generic products. (101) In addition, theHatch-Waxman Act created a statutory exemption from patent infringement for activities associatedwith regulatory marketing approval. As originally enacted and codified in 35 U.S.C. § 271(e)(1),the Hatch-Waxman Act exempted from patent infringement "uses reasonably related to thedevelopment and submission of information under a Federal law which regulates the manufacture,use, or sale of drugs." Through the Generic Animal Drug and Patent Term Restoration Act, whichbecame effective on November 16, 1988, Congress extended this provision to cover regulatedveterinary drugs and biological products as well. (102) A number of significant judicial opinions have interpreted the Hatch-Waxman Act'sexperimental use privilege. The U.S. Supreme Court opinion in Eli Lilly and Co. v. Medtronic clarified the sorts of products that are covered by this statute. (103) In that case, Eli Lilly,which owned a patent claiming a cardiac defibrillator, filed an infringement action against Medtronicfor its use of a similar device. Medtronic in turn pointed to 35 U.S.C. § 271(e)(1), arguing thatMedtronic's use of the defibrillator was reasonably related to obtaining data for FDA approval. EliLilly in turn argued that the wording of 35 U.S.C. § 271(e)(1) -- as it was at the time -- onlyexpressly referred to "drugs," not "medical devices." (104) The Supreme Court sided with Medtronic, concluding that all of the products eligible forpatent term extension under the Hatch-Waxman Act fall within the scope of the 35 U.S.C. §271(e)(1) experimental use privilege. Justice Scalia concluded that the statutory phrase "a Federallaw which regulates the manufacture, use, or sale of drugs" meant the entirety of the Food, Drug andCosmetic Act, which regulates drugs but also covers medical devices and other products. As a resultof the Eli Lilly and Co. v. Medtronic holding, 35 U.S.C. § 271(e)(1) extends to a range of subjectmatter, including pharmaceuticals, medical devices, food additives, color additives, and biologicalproducts. A generic firm may therefore use these products during the term of another's patentwithout fear of infringement liability, as long as the use is reasonably related to obtaining data forFDA approval. (105) Other noteworthy judicial opinions have considered the nature of the activities that areexempted by the Hatch-Waxman Act privilege. The leading decision in Intermedics, Inc. v.Ventritex, Inc. interpreted the statutory exemption generously. (106) According to the Intermedics decision, "[w]here it would have been reasonable, objectively, for an accused infringerto believe that there was a decent prospect that the use in question would contribute (relativelydirectly) to the generation of information that was likely to be relevant in the processes by which theFDA would decide to approve the product," (107) then the court should apply the 35 U.S.C. § 271(e)(1)infringement exemption. Following Intermedics , a number of other decisions have found that theaccused infringer's activities fall within the statutory experimental use exemption. (108) The Hatch-Waxman experimental use privilege is not without limit, however. A 2003Federal Circuit decision, Integra Lifesciences, I, Ltd. v. Merck , (109) held that the 35 U.S.C.§ 271(e)(1) experimental use exemption did not apply under the facts before the court. Here, Integrasued Merck for infringement of several patents relating to compounds thought to eliminate tumorgrowth and for treating a variety of other diseases. In turn, Merck asserted 35 U.S.C. § 271(e)(1) asa defense. The district court held that the Scripps-Merck activity did not fall under the 35 U.S.C. §271(e)(1) exemption. (110) The Federal Circuit affirmed the district court on appeal. The Federal Circuit observed thatMerck's experiments did not supply information for submission to the FDA. Rather, Merckconducted these experiments in order to determine which of several compounds was the best drugcandidate to subject to future testing. (111) The court then reasoned that such activities were notconducted "solely for purposes reasonably related to the development and submission of informationunder federal law," as the statutory exemption required. Rather, they were early-stage, exploratoryexperiments performed merely to identify promising pharmaceutical compounds. (112) The IntegraLifesciences decision makes clear that the 35 U.S.C. § 271(e)(1) exemption does not apply to allexploratory research, but is instead a "narrowly tailored" exemption intended to have a " de minimis impact on the patentee's right to exclude." (113) Although the Hatch-Waxman Act awards limited experimental use privileges with respectto patents on certain drugs, medical devices, and other products regulated by the FDA, the Patent Actof 1952 does not provide for a more broadly oriented experimental use privilege. However,Congress has enacted a number of specialized intellectual property statutes that expressly incorporatea more comprehensive experimental use doctrine. For example, the Plant Variety Protection Actallows the Department of Agriculture to issue plant variety certificates on sexually reproducibleplants. (114) Thesecertificates provide their owner with the exclusive right to "exclude others from selling the variety,or offering it for sale, or reproducing it, importing, or exporting it, or using it in producing (asdistinguished from developing) a hybrid or different variety therefrom." (115) The statute doesinclude a research exemption, however, stipulating that "[t]he use and reproduction of a protectedvariety for plant breeding or other bona fide research shall not constitute an infringement of theprotection provided under this chapter." (116) Another specialized intellectual property statute, the Semiconductor Chip Protection Act of1984, (117) allowsindividuals to claim exclusive rights in "mask works" -- circuitry designs used on a computer orother semiconductor chip. (118) It is an act of infringement either to reproduce these maskworks, or to sell or import a semiconductor chip embodying a protected mask work. (119) However, thislegislation expressly exempts those individuals who "reproduce the mask work solely for the purposeof teaching, analyzing, or evaluating the concepts or techniques embodied in the mask work or thecircuitry, logic flow, or organization of components used in the mask work." (120) A third example is provided by the Vessel Hull Design Protection Act. (121) This legislation, whichallows designers of an original boat hull to register their designs with the federal government,incorporates an experimental use privilege similar to that of the Semiconductor Chip Protection Act. Under the Vessel Hull Design Protection Act, individuals who make, use, sell or import the protecteddesign without the authorization of the registered design owner may be subject to infringementliability. (122) Yet thestatute expressly exempts from infringement those uses "solely for the purpose of teaching,analyzing, or evaluating the appearance, concepts, or techniques embodied in the design, or thefunction of the useful article embodying the design." (123) Should congressional interest continue in this area, a variety of options are available. If thecurrent scope of the common law experimental use privilege is deemed to be appropriate, then noaction need be taken. Alternatively, Congress could enact legislation confirming the narrowlycabined view of the experimental use privilege as set forth in Madey v. Duke University andpredecessor cases. If reform of the experimental use privilege is deemed prudent, however, another possibilityis the introduction of some additional form of the experimental use privilege into the Patent Act of1952. This infringement exemption could supplement or replace the narrow experimental useprivilege introduced by the Hatch-Waxman Act. One option is to incorporate a generally applicableprivilege of the sort contemplated by the proposed, but unenacted Patent Competitiveness andTechnological Innovation Act of 1990. H.R. 5598 was introduced before the 101st Congress onSeptember 12, 1990. Section 402 of that bill provided: It shall not be an act of infringement to make or use apatented invention solely for research or experimentation purposes unless the patented invention hasa primary purpose of research or experimentation. If the patented invention has a primary purposeof research or experimentation, it shall not be an act of infringement to manufacture or use suchinvention to study, evaluate, or characterize such invention or to create a product outside the scopeof the patent covering such invention. H.R. 5598 was reported by the House Judiciary Committee on October 26, 1990. Other intellectualproperty statutes, including the Plant Variety Protection Act, Semiconductor Chip Protection Act,and the Vessel Hull Design Protection Act, also provide examples of the manner in which agenerally applicable statutory experimental use privilege could be drafted. A more limited statutory experimental use privilege presents another law reform option. Such a privilege might be limited to patented inventions that arise in particular technological fields,in the fashion of the proposed, but unenacted Genomic Research and Diagnostic Accessibility Actof 2002. H.R. 3967 would have exempted from patent infringement the use of genetic sequenceinformation for purposes of research. In addition, this bill would have limited the remedies that theowner of a patent on genetic diagnostic testing could obtain during infringement litigation. Following its introduction in the 107th Congress on March 14, 2002, H.R. 3967 was referred to theSubcommittee on Courts, the Internet and Intellectual Property on May 6, 2002, but no further actionwas taken. Another possibility would be to limit the experimental use privilege to patented researchtools, in whatever technological field they might arise. Yet another option is to grant anexperimental use privilege in favor of universities or non-profit research institutions, but retain thecurrent law of experimental use with respect to for-profit enterprises. Consideration of any sort of statutory reform with respect to experimental use privilegeshould take into account the Agreement on Trade-Related Aspects of Intellectual PropertyRights. (124) TheUnited States is a signatory to the so-called "TRIPS Agreement," which is a component of theinternational agreements that form the World Trade Organization (WTO). The TRIPS Agreementin part requires its signatories to grant patent owners the right to exclude others from making, using,offering for sale, selling, or importing a patented invention. (125) Further, under Article27 of the TRIPS Agreement, such rights must be "enjoyable without discrimination as to the placeof invention, the field of technology and whether products are imported or locally produced." The TRIPS Agreement does allow member states to limit patent rights under certaincircumstances, however. As stated in Article 30 of the TRIPS Agreement: Members may provide limited exceptions to theexclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflictwith a normal exploitation of the patent and do not unreasonably prejudice the legitimate interestsof the patent owner, taking account of the legitimate interests of thirdparties. Article 30 presumably allows its signatories to provide for a generally applicable experimental useprivilege. Many WTO members, including Germany, (126) Japan (127) and the United Kingdom, (128) already incorporatesuch a privilege into their patent statutes. However, a more limited form of the experimental useprivilege may raise concerns under the non-discrimination provision of Article 27. To the extent thatthe experimental use privilege is available for some sorts of inventions and not others, it may conflictwith the Article 27 obligation not to discriminate as to the "field of technology" in which a patentableinvention arises. (129) Finally, the experimental use privilege need not be an all-or-nothing proposition. Anotheroption is to grant researchers the ability to experiment with the patented inventions of others --provided they compensate the patent holder at a specified royalty rate. This regime would effectivelyamount to a "compulsory license" available to researchers. (130) Janice Mueller, amember of the faculty of the University of Pittsburgh Law School, posits that this approach wouldensure "a royalty award of sufficient amount to maintain incentives for the development andpatenting of new research tools, yet [alleviate] the access restrictions and up-front costs currentlyassociated with acquisition and use of many proprietary research tools." (131) In weighing this approach to the experimental use issue, it is also important to note that theTRIPS Agreement places some restrictions upon the ability of WTO members to grant compulsorylicenses. Article 31, which is among the more detailed provisions in the TRIPS Agreement, in partrequires that each application for a compulsory license be considered on its individual merits; thatthe proposed user must have made efforts to obtain a license from the patent owner; and that thelegal validity of such a license be subject to review by the courts or other independent authority. (132) Deliberations over a"compulsory license" approach to the experimental use privilege may wish to account for theseobligations. Whether the patent law's experimental use privilege should be retained as a narrowlyconfined doctrine of limited availability, or expanded to encompass additional experimentalactivities, technologies, and researchers, continues to be the subject of active discussion in thescientific and legal communities. A limited experimental use privilege may best encouragetechnological advancement by rewarding successful researchers with patent rights that are not easilycircumvented. However, some commentators believe that the circumscribed nature of theexperimental use privilege may in fact restrict researcher access to state-of-the-art technologies andthus discourage further technological development. Although the courts have relied upon existinglaw in order to reach their decisions in particular cases, whether a narrow experimental use privilegemost appropriately serves the contemporary scientific research community remains open to policydebate. | Congress has identified research and development (R&D) as important contributors totechnological progress. The performance of R&D may have intellectual property ramifications,however. To the extent that researchers use patented inventions without authorization, they may faceinfringement liability. Although the courts recognize an exception to patent infringement known asthe "experimental use privilege," this judicially created doctrine has been described as very narrowand rarely applied. In particular, the experimental use privilege applies only to uses done foramusement, to satisfy idle curiosity or for strictly philosophical inquiry. This doctrine does notexcuse uses that are in keeping with the accused infringer's business objectives. In 2002, the U.S. Court of Appeals for the Federal Circuit applied these principles in the caseof Madey v. Duke University . The court held that the experimental use privilege does not apply toactivities that are "in keeping with the alleged infringer's legitimate business" -- even though thebusiness of the defendant, Duke University, was nonprofit research. This ruling has raised concernsamong some representatives of universities and research institutions, who fear that their basic R&Dactivities will subject them to patent infringement lawsuits. Competing views have arisen over the significance of the Madey v. Duke University case. Some commentators believe that a limited experimental use privilege may best encouragetechnological advancement by rewarding successful researchers with robust patent rights. Othersargue that the restricted nature of the experimental use privilege may in fact limit researcher accessto state-of-the-art technologies and thus discourage further technological development. Still othersassert that this issue is not of great practical importance, as few patent owners will likely file costlyand time-consuming lawsuits against researchers who are not making commercially important usesof patented inventions. The judicially created, "common law" experimental use privilege is complemented by alimited statutory experimental use privilege for patents on pharmaceuticals, medical devices, andcertain other products regulated by the Food and Drug Administration. This provision, enacted aspart of the 1984 Hatch-Waxman Act, applies to firms seeking to market generic equivalents ofbrand-name products. In addition, Congress has enacted other intellectual property legislation thatincorporates provisions shielding researchers from infringement liability. Should congressional interest continue in this area, a variety of options are available. If thecurrent scope of the common law experimental use privilege is deemed to be appropriate, then noaction need be taken. Alternatively, Congress could enact legislation confirming the limitedexperimental use privilege recognized in Madey v. Duke University and predecessor cases. Introduction of a broader form of the experimental use privilege into U.S. patent law is an additionalpossibility. The report will be updated if events warrant such action. |
On June 1, 2010, the U.S. Supreme Court decided unanimously in Samantar v. Yousef that the Foreign Sovereign Immunities Act (FSIA), which governs the immunity of foreign states in U.S. courts, does not apply in suits against foreign officials. Samanta r's particular facts involved the Alien Tort Statute (ATS) and the Torture Victims Protection Act (TVPA), but the ruling applies to all causes of action against foreign officials. The holding clarifies that no foreign government officials, neither present nor former, are entitled to invoke the FSIA as a defense, unless the foreign state is the real party in interest in the case. Whether the FSIA applies to a lawsuit naming a foreign official as defendant depends largely on whether the remedy is sought from the official personally or whether the foreign government will be responsible for paying damages or providing whatever other remedy a court may order in the event the plaintiff prevails, as would be the case if an official is sued in an official capacity. The decision rejected the interpretation of the majority of U.S. federal judicial circuits, in which foreign officials were regarded as covered by the FSIA for lawsuits based on official actions taken within the scope of their authority. The Court stressed that the inquiry does not end with the FSIA in such cases. The ruling leaves open the possibility that foreign officials have recourse to other sources of immunity or other defenses to jurisdiction or the merits of a lawsuit. Officials may assert immunity under the common law (unwritten law that has been developed by courts), for example, perhaps aided by State Department suggestions of immunity. This report provides an overview of the FSIA, followed by a consideration of the FSIA's possible application in the wake of the Supreme Court's ruling and the remaining options for foreign officials who seek immunity from lawsuits, as well as some of the questions that may emerge from each option. The report also addresses relevant legislation. Customary international law historically afforded sovereign states complete and absolute immunity from suit in the courts of other states. This principle was rooted in the perfect equality and absolute independence of sovereigns, as well as the need to maintain friendly relations. While each nation has full and absolute jurisdiction within its own territory, allowing it to exercise jurisdiction over all parties there, states ordinarily choose not do so with respect to other sovereign states due to considerations of comity. As Justice Marshall stated, Perfect equality and absolute independence of sovereigns, and ... common interest impelling them to mutual intercourse, and an interchange of good offices with each other, have given rise to a class of cases in which every sovereign is understood to waive the exercise of a part of that complete exclusive territorial jurisdiction, which has been stated to be the attribute of every nation. During the last century, however, absolute sovereign immunity gradually gave way to a more limited application after a number of states began engaging directly in commercial activities. To allow foreign states to maintain their immunity in the courts of other states for ordinary commercial transactions was said to give them an unfair advantage in competition with private commercial enterprises. It also arguably denied private parties in other nations normal recourse to courts to settle disputes. As a consequence, numerous states immediately before and after World War II adopted the "restrictive principle" of state immunity. This principle preserves sovereign immunity for most cases, but allows domestic courts to exercise jurisdiction over suits against foreign states for claims arising out of their commercial activities. When the United States adopted the restrictive principle of sovereign immunity by administrative action in 1952, the State Department began advising courts on a case-by-case basis whether a foreign sovereign should be entitled to immunity based upon the nature of the claim and foreign policy considerations. In 1978, Congress codified the restrictive principle in the FSIA, so that the decision no longer depended on a determination by the State Department. The FSIA states the general principle that a foreign state is immune from the jurisdiction of the courts of the United States, but sets forth several limited exceptions. The primary exceptions are 1. waiver ("the foreign state has waived its immunity either expressly or by implication"), 2. commercial activity ("the action is based upon a commercial activity carried on in the United States by the foreign state"), and 3. torts committed by a foreign official within the United States (the "suit is brought against a foreign State for personal injury or death, or damage to property occurring in the United States as a result of the tortious act of an official or employee of that State acting within the scope of his office or employment"). Following the enactment of the FSIA, the question emerged as to whether the FSIA immunizes foreign officials as well as foreign states from suit. The FSIA defines a "foreign state" to include "a political subdivision of a foreign state or an agency or instrumentality of a foreign state." It defines "agency or instrumentality of a foreign state" to mean any entity (1) which is a separate legal person, corporate or otherwise, and (2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof, and (3) which is neither a citizen of a State of the United States as defined in [28 U.S.C. Section 1332(c) and (e)] nor created under the laws of any third country. The absence of any reference to foreign officials in the definitions of "foreign state" or "agency or instrumentality" led to a split among the U.S. appellate circuit courts. The majority view interpreted "foreign state" to include an official as an "agency or instrumentality of a foreign state" when acting within his or her official capacity. This logic was based upon the idea that (1) the state cannot function but through individuals; (2) the suits in question were really actions against the foreign government itself; and (3) the FSIA codified the existing common law in place at the time of passage. The common law of foreign sovereign immunity, according to these courts, embraced immunity for foreign officials for their official acts, at least when the suit would have the effect of enforcing an action against the state itself. In Chuidian v. Philippine Nat'l Bank , the Ninth Circuit held that a suit against a bank and bank official, in which the official instructed the bank to dishonor a letter of credit issued to the plaintiff, could not proceed under the FSIA. The court held that the official qualified as an "agency or instrumentality" because a majority interest in the bank was owned by the Philippine government and the official was acting in his official capacity on behalf of the bank. This interpretation was applied in the human rights context in Belhas v. Ya'Alon , in which the D.C. Circuit held that the FSIA prohibited a suit against a former Israeli head of Army Intelligence for authorizing a military assault against Lebanon that resulted in civilian injuries and death. The court accepted an official statement from the government of Israel as proof establishing that the defendant had been acting in his official capacity, which, in the court's view, made him an "agency and instrumentality" of Israel within the meaning of the FSIA, even though he was no longer a government official. The court also held that the TVPA, which provided the cause of action for the case, did not serve as a statutory exception to the FSIA by implication, although it only applies to acts carried out under color of foreign law. The court further rejected the contention that any act in violation of international human rights law necessarily exceeds an official's authority and voids immunity, as there is no exception enumerated in the FSIA for violations of international human rights law. In In re Terrorist Attacks on September 11 , 2001 , the Second Circuit held that defendant Saudi princes could not be held liable for the consequences of providing material support to Al Qaeda through financial funding that allegedly enabled the 9/11 terrorist attacks because each prince, acting in his official capacity, qualified as an "agency or instrumentality" of the Saudi government. The court also ruled that the Saudi High Commission for Relief to Bosnia and Herzegovina, also accused of providing terrorist funding to Al Qaeda, was an "organ" of Saudi Arabia created for a national purpose and actively supervised by Saudi Arabia. Having determined that the FSIA governed immunity, the court turned to the exceptions to assess whether any would permit the suit to go forward, but found that none applied. The defendants' alleged provision of support to Muslim charities that promoted and underwrote terrorism did not constitute conduct in trade, traffic, or commerce to place it within the commercial activity exception. Moreover, the FSIA tort exception for death and personal injury did not apply to the matter, according to the court, because the terrorist act of providing material support to Al Qaeda occurred overseas, and it also sounded more in the FSIA's terrorism exception than the tort exception. Saudi Arabia did not fall within this terrorism exception because it had never been designated a state sponsor of terrorism. Finally, the Second Circuit held in Matar v. Dichter that while a foreign official acting in his official capacity is an agency or instrumentality of a foreign state, a former official is not necessarily covered as such by the FSIA. The defendant in Matar , a former director of Israel's General Security Service, was nevertheless entitled to immunity under the common law because, according to the court, the FSIA did not abrogate through silence the common law of sovereign immunity as it applied to former foreign officials. Accordingly, the court followed the recommendation of the State Department and declined jurisdiction to hear claims against the former official arising from civilian injuries and deaths sustained during the Israeli Defense Force's aerial bombing of a Gaza apartment complex undertaken in a successful "targeted killing" operation against a suspected terrorist leader. A minority of circuits, however, held that foreign officials did not enjoy immunity under the FSIA. The Seventh Circuit departed from the majority position in Enahoro v. Abubakar , holding that victims who alleged torture and killings by a military junta were permitted to sue its former general because the language of the FSIA does not explicitly include heads of state within its definition of "state" or in any of the exceptions to the FSIA. The court did not agree that the FSIA term "agency or instrumentality" was meant to encompass individual officials, highlighting the fact that the terms "separate legal person" and "organ" fit a natural person, such as a foreign official, quite awkwardly. After the Fourth Circuit joined the minority in Samantar v. Yousef , the Supreme Court agreed to hear the challenge. Somalis living in the United States who were members of the Isaaq clan, a group of well-educated and prosperous Somalis, alleged they had been subjected to systematic persecution during the 1980s by the military regime then governing Somalia. They sued Mohamed Ali Samantar, former defense minister and prime minister of Somalia in the 1980s, claiming (1) Samantar exercised command and control over members of the Somali military forces who tortured, killed, or arbitrarily detained them or members of their families; (2) Samantar knew or should have known of the abuses perpetrated by his subordinates; and (3) Samantar aided and abetted the commission of these abuses. The expatriates sought damages from Samantar pursuant to the TVPA. Samantar fled Somalia in 1991 after the regime collapsed and took up residence in Virginia. The United States has not recognized a government in Somalia since the fall of the military regime despite the existence of a transitional government. Samantar claimed immunity under the FSIA, arguing that the suit was based on actions he took in his official capacity and that a suit against him was the equivalent of a suit against Somalia. The district court agreed with Samantar, following the majority view that an official, even a former one, could assert immunity under the FSIA because he was acting in his official capacity on behalf of Somalia when he took the actions that were alleged to have caused the injuries. The court rejected the argument that Samantar had exceeded the scope of his authority because he allegedly violated international law. The Fourth Circuit reversed, following the minority view that individual officials do not fall within the immunity of the FSIA's "agency or instrumentality" language. Even if Samantar fell within the FSIA's "agency or instrumentality" language, according to the appellate court, the FSIA would only cover present officials due to the statute's present-tense language describing "agency or instrumentality." The case was returned to the district court to determine whether another sort of immunity might apply. Samantar appealed the Fourth Circuit's decision to the Supreme Court, arguing the FSIA should be read to provide him with immunity on the basis that (1) the examples outlined under the definitions of "foreign state" and "agency or instrumentality" are non-exhaustive and merely illustrative; (2) the FSIA should be construed to codify the common law of official immunity; and (3) interpreting the FSIA otherwise undermines the comity and reciprocity the FSIA was meant to engender. The Somali plaintiffs conversely argued that (1) the plain language of the statute clearly does not cover officials; (2) the FSIA and international law exclude former officials from immunity; (3) the TVPA amounts to an exception to immunity and the FSIA must be read in pari materia with it; (4) torture and extra-judicial killing are not within the lawful scope of an official's authority; and (5) foreign policy decisions are for the judgment of the political branches. The Supreme Court's unanimous decision in Samantar resolved the circuit split in favor of the minority position. In a detailed textual analysis largely tracking the government's brief , Justice Stevens found that while individual foreign officials could "literally" fit the definition of an "agency or instrumentality," the textual clues cut against such a broad construction. "Agency or instrumentality , " according to the Court, was defined by the FSIA to mean an entity, which ordinarily refers to "an organization, rather than an individual." Other parts of the "agency or instrumentality" definition , according to the Court, likewise d id not resolve themselves comfortably to the definition of a natural person, such as "separate legal person." The word "person" in that context , according to the Court, typically refers to the legal fiction that allows corporations to hold legal personality separate from shareholders. The Court likewise described the use of the term "organ" as "awkward" when used in connection with a natural person . From this textual analysis, the Court concluded that Congress simply did "not evidence the intent to include individual officials within the meaning of 'agency or instrumentality.'" While Samantar argued that the definition of "agency or instrumentality" was an illustrative list of the types of entities that could encompass a foreign state , the Supreme Court d eclined to stretch the definition to also cover individuals, remarking that a word can "be known by the company it keeps." The Court pointed to other provisions of the FSIA where it would have made sense for the statute to mention foreign officials or provide procedures more appropriate for suits against individuals, had Congress intended for such officials to be included . The Court also noted that the FSIA does expressly mention foreign officials in other contexts, showing Congress' s ability to address such an issue if it chooses to do so and making the omission of officials in the definition of "agency or instrumentality" all the more significant. As a result, the Court concluded that reading "foreign official" into the definition of "agency or instrumentality" would make the express mention of "foreign officials" superfluous in the provisions of the FSIA where Congress expressly employed the term. The Court also cited the history and purpose of the FSIA as evidence that Congress did not intend to encompass foreign officials within the definition of foreign state. The Court agreed with Samantar that the FSIA was meant to codify the restrictive theory of sovereign immunity along with the international and common law at the time of passage in 1978. The Court did not agree, however, that the FSIA must be interpreted as having also codified the common law as it applied to foreign officials. While agreeing that statutes are generally to be interpreted consistently with the common law, Justice Stevens explained that this canon of construction only applies when the statute clearly covers an entire field formerly governed by the common law. While the FSIA was clearly meant to replace the common law in relation to the immunity of foreign states, the Court found no indication it was intended to cover common law official immunity. The Court did not accept Samantar's interpretation that the common law of state immunity and official immunity were coextensive, finding the relationship between the two to be more complicated than that. The Court suggested instead that the common law is still in place to determine whether Samantar is entitled to immunity, but left the question to be determined on remand. It noted one caveat to immunity for foreign officials that does not apply to other forms of immunity: officials must not only have acted in an official capacity, but the suit must also have "the effect of exercising jurisdiction ... to enforce a rule of law against the state." The Court also adopted the position of the government highlighting the importance of the State Department's pre-FSIA role in recommending official immunity, noting that Congress gave no indication that it "saw as a problem, or wanted to eliminate" that role. Such cases, however, appear to be few in number and some of them involved suits where the foreign state itself did not qualify for immunity or court jurisdiction would not implicate enforcing law against the state. Justice Stevens also left open the possibility that Samantar may be entitled to head of state immunity under the common law. On remand to the district court, the matter of immunity was resolved in conformity with the statement of interest (SOI) filed by the State Department, which opposed immunity for Samantar on the basis of the potential impact the grant of immunity would have on the foreign relations interests of the United States. Samantar appealed again to the Fourth Circuit, arguing that the district court should have engaged in a searching review of the matter rather than summarily accepting the State Department's determination. In his view, the State Department's views should be given utmost deference only when it recommends immunity, but not when opposing it. The State Department took the position that its determination was absolutely binding on the court regardless of whether it opposed or supported immunity. The appellate court essentially followed the plaintiffs' interpretation, under which the State Department views were to be given deference regardless of the recommendation so long as the explanation was reasonable. The court reviewed the SOI, which explained that two factors drove the State Department's determination that Samantar should not enjoy immunity for his conduct. First, the State Department concluded that Samantar's claim for immunity was undermined by the fact that he is a former official of a state without a currently recognized government that could request immunity on his behalf or take a position as to whether his activities were conducted in an official capacity. Taking the view that the claim to sovereign immunity belongs to the sovereign rather than the official, the department saw no reason to recommend immunity. Second, the department viewed Samantar's status as a permanent legal resident of the United States as relevant to its immunity determination. According to the SOI, "U.S. residents like Samantar who enjoy the protections of U.S. law ordinarily should be subject to the jurisdiction of our courts, particularly when sued by U.S. residents or naturalized citizens such as two of the plaintiffs." The court first considered whether Samantar should be entitled to head-of-state immunity, which it noted could apply to high-level officials as well as the head of state. The court explained that head-of-state immunity is a status-based immunity that depends on the recognition of the executive branch, and accordingly, the State Department is entitled to absolute deference on matters of status-based immunities. Head-of-state immunity, however, does not survive the tenure of that status. Samantar was not entitled to immunity based on his former status, and under the State Department SOI, likely would not have been entitled to status-based immunity even during his tenure in office. The court next addressed conduct-based immunity which lower-level public officials as well as former high-level officials may be accorded for their official acts. The court explained that the State Department's views were to be taken into consideration for this type of immunity but did not bind its decision: Unlike head-of-state immunity and other status-based immunities, there is no equivalent constitutional basis suggesting that the views of the Executive Branch control questions of foreign official immunity. Such cases do not involve any act of recognition for which the Executive Branch is constitutionally empowered; rather, they simply involve matters about the scope of defendant's official duties. This is not to say, however, that the Executive Branch has no role to play in such suits. These immunity decisions turn upon principles of customary international law and foreign policy, areas in which the courts respect, but do not automatically follow, the views of the Executive Branch. The court then adopted a position not advanced by the State Department to hold that activities in violation of peremptory norms of international law (also known as jus cogens ) can never be conducted in an official capacity. Because the conduct at the heart of the lawsuit clearly violated peremptory norms of international law, Samantar was not entitled to conduct-based immunity. Samantar has submitted a new petition for certiorari to the Supreme Court to object to the Fourth Circuit's finding with respect to an exception to immunity for jus cogens violations, which the petitioner notes creates a circuit split. The Solicitor General filed an amicus brief urging the Court to grant the petition, vacate the decision, and remand the case to the lower court to consider immunity in light of recent events which may affect the State Department's determination. While the Solicitor General's brief agrees that there is no common law exception to immunity for officials accused of jus cogens violations, its main thrust is that the court should have treated the State Department's statement of interest as binding. Following the Supreme Court decision in Samantar , individual foreign officials have limited recourse to the FSIA to shield themselves from liability in U.S. courts. The Supreme Court downplayed concerns expressed by the appellate courts that reading the FSIA to exclude cases against foreign officials would permit plaintiffs to use artful pleading to select whether the FSIA or common law would govern their suits, depending on which would be most advantageous. The Court also emphasized that other means for obtaining immunity remain available for foreign officials. Foreign officials may have recourse to the common law of official immunity, especially with the support of the State Department. Moreover, the Court outlined three areas in which a suit against a foreign official may have to be dismissed regardless of the official's entitlement to immunity, specifically: 1. The absence of personal jurisdiction (which is automatic with respect to foreign states so long as an exception to the FSIA applies, but must be obtained through service of process against individuals, which effectively means the defendant must be found within the United States). 2. The need to join a foreign state as a necessary party pursuant to the Federal Rules of Civil Procedure (such as a case in which the foreign state itself, or an agency or instrumentality of a foreign state, is a required party because its interests are directly implicated by the subject matter of the case and its participation may be necessary to protect those interests, fully adjudicate a matter, or provide relief). 3. The need to consider the foreign state as the real party in interest (such as a suit brought against an individual in her official capacity, where damages or other relief are sought against the state entity). If a reviewing court determines that the foreign state is a required party to a lawsuit or is the real party in interest, the FSIA might require dismissal. The Supreme Court declined to view every lawsuit against a foreign official as necessarily the equivalent of a suit against the foreign state merely because it involves passing judgment on the conduct of a foreign official acting in its behalf. Justice Stevens explained that lawsuits naming foreign officials are covered by the FSIA only if they are "in all other respects other than name, to be treated as a suit against the entity. It is not a suit against the official personally, for the real party in interest is the entity." Samantar had advocated an interpretation of the FSIA that would cover officials for all actions taken in an official capacity, which would be determined based upon (1) a notification by the foreign state or (2) elements of conduct demonstrating its inherently sovereign nature. The Court rejected Samantar's analysis, however, finding that the relevant issue is whether the official is being sued in his or her official capacity, not whether the conduct at issue in the lawsuit was undertaken in an official capacity. The Court distinguished official capacity suits, which are in "all respects other than name to be treated as a suit against the [state] entity," from personal capacity suits, which look to impose individual liability upon a government officer for actions taken under color of law. Thus, if a lawsuit is filed against an official in his or her official capacity, the suit will be considered as one against the state itself, in which case the FSIA applies. If a suit is brought against an official in his or her personal capacity, the common law of foreign sovereign immunity applies, in which case the relevance of the official nature of the conduct may nevertheless be relevant to determining immunity. The Court gave little guidance regarding the application of common law immunity, leaving open the possibility that lower courts may analyze the issue based upon the traditional bases of an agency relationship. Immunity may turn on whether the state takes responsibility for the actions of its agent (the foreign official), just as it did in cases decided by interpreting the FSIA through the lens of the common law. On the other hand, state responsibility on the part of a government and individual responsibility on the part of the government official involved are not necessarily mutually exclusive. As the Samantar Court noted, official immunity and state immunity will not always be coextensive. There may be lawsuits in which the state is entitled to immunity over a matter, but a foreign official may still be held liable for an injury caused by actions undertaken without or in excess of authority, meaning no immunity is available unless the official is entitled to status-based immunity (such as diplomatic or head-of-state immunity). There may also be cases in which the state is not entitled to immunity because an exception to the FSIA applies, but individual officials are nevertheless entitled to immunity or cannot be held personally liable for the conduct at issue. To the extent the FSIA codifies common law foreign sovereign immunity, as in the case of lawsuits based on commercial activity under the restrictive theory, the recognition of a separate theory of immunity for foreign officials may not yield results significantly different from those cases in which courts applied the FSIA directly. The same common law considerations some courts previously applied to determine whether a foreign official is an "agency or instrumentality" under the FSIA would likely lead to similar results where the common law is applied directly. However, where Congress enacts exceptions to the FSIA that depart from the common law, outcomes may vary from cases decided under the pre-Samantar approach. For example, the FSIA terrorism exception permits suits for damages against foreign states "for personal injury or death that was caused by an act of torture, extrajudicial killing, aircraft sabotage, hostage taking, or the provision of material support or resources … for such an act," but only if the state is designated by the State Department as a state sponsor of terrorism. Under the common law, immunity determinations for foreign officials have never depended on their state's designation as a sponsor of terrorism. Immunity determinations under the common law, however, will likely be informed by "principles articulated by the Executive Branch." Future cases involving foreign official defendants may largely depend upon the State Department and the practices it develops for assessing foreign official immunity. Executive branch intervention in lawsuits against officials of U.S. allies may mitigate some of the concerns expressed by amici curiae that permitting civil suits against foreign officials will result in a flood of unfounded and politically motivated lawsuits against officials of certain states, permitting plaintiffs to effectively circumvent the sovereign immunity of those states. On the other hand, State Department involvement in terrorism cases against foreign officials in the past has generated friction with Congress. While the Supreme Court's decision in Samantar will likely have little effect on status-based immunities based on custom or treaty, it may have complicated the immunity analysis courts must conduct in cases where the defendant is an individual rather than an entity and is not entitled to head-of-state or diplomatic immunity. Now that the courts can rely on the FSIA only in a limited manner to determine whether to exercise jurisdiction over such lawsuits, greater emphasis is required on the common law, an increased reliance on immunity determinations from the State Department may develop, or Congress could step in to create a statutory framework. It has been suggested that FSIA case law will remain relevant to common law assessments, but that common law immunity may result in broader rather than restricted opportunities for foreign officials to enjoy the benefits of immunity in U.S. courts. Common law immunity for officials has taken on two basic forms: (1) absolute immunity based upon status, as for heads of state, diplomats, and foreign ministers, and (2) function-based immunity for the acts of foreign officials done in their official capacities. In cases of status-based immunity, the State Department's suggestions of immunity will likely remain controlling, even where jus cogens violations are alleged to have occurred. While the State Department has argued that its views should control also in cases involving functional immunity, the only appellate court to have addressed the issue so far has rejected that view in favor of according the State Department views considerable weight that nevertheless does not amount to absolute deference. Function-based (or conduct-based) immunity is the type of immunity called into question by Samantar . Some take the position that the common law gives officials the same immunity that foreign governments themselves have, but only for official acts within the scope of the individual's duties. Under this view, the analysis would turn on an assessment of the nature of conduct, much as it did when the FSIA was thought to be controlling. It seems clear that "official capacity" has been a common theme in assessments under both the common law and the FSIA. However, while the common law focused on purpose and function of the activities in question, FSIA analysis focused more on the nature of the specific conduct. Others believe that officials are entitled to immunity only if a lawsuit against the individual would impose an obligation on the foreign government. While Justice Stevens wrote for the Samantar Court, "[w]e do not doubt that in some circumstances the immunity of the foreign state extends to an individual for acts taken in his official capacity," the decision does little to clarify which circumstances will bring about that result. Those who argue for immunity with respect to virtually all authorized official conduct cite to judicial precedent from the early 1700s through the end of the 19 th century. Of particular import is the case of Underhill v. Hernandez , which states "because the acts of the official representatives of the state are those of the state itself, when exercised within the scope of their delegated powers, courts and publicists have recognized the immunity of public agents from suits brought in foreign tribunals for acts done within their own states in the exercise of the sovereignty thereof." The majority of courts have treated this principle as dispositive for determinations of immunity. The analysis, according to experts, is the same whether the source of common law official immunity is international law or federal common law, because international law is generally in alignment with the position of U.S. law in this area. Under this view, the scope of immunity is not affected by the status of the defendant as a current or former official, because so long as the act was an official one, the lawsuit effectively calls into question the conduct of the state. Some view this to be a principle of customary international law as indicated by practice of foreign courts, and predict that it will influence the development of federal common law as well as State Department recommendations. Those who argue that official immunity turns on whether the lawsuit actually imposes an obligation on the foreign government disagree that federal common law provides any such clear-cut test. They identify a number of early cases where the Department of State or courts have denied that a determination of individual official immunity was to be based solely on the nature of the official's actions. Proponents of this position do not interpret international case law as demonstrating that foreign officials are always entitled to immunity for their official acts. They note that many of the cases cited to advance that theory involve foreign statutes that define the term "state" very broadly. Some foreign laws expressly define "state" to encompass individuals, and some also cover lawsuits based upon specialized circumstances, such as a request for damages from foreign state assets. Under their view, comity and convenience also play a role. Immunity may be withdrawn at the will of the sovereign and is not always governed by any generally accepted common law. The Samantar Court seems to have agreed with the government that immunity at common law is informed by "principles articulated by the Executive Branch" and must be assessed as with deference to the executive branch in foreign relations matters. The Court did not say, however, that State Department recommendations were binding on the courts. Part of the impetus behind enactment of the FSIA was a desire to lessen the role of the State Department in court cases involving foreign sovereigns. The State Department's susceptibility to diplomatic and political pressures to recommend immunity in a given action resulted in inconsistent treatment of foreign sovereigns, and the practice was becoming burdensome on the State Department. The State Department supported the FSIA and did not object to losing its role in assessing sovereign immunity claims against foreign states, including their agencies and instrumentalities. However, the State Department did not entirely retreat from making recommendations, and it continued to claim a role in determining immunity for foreign officials. The role at the time entailed recommendations to the Department of Justice as to whether to grant official immunity in a court proceeding. This recommendation, while not dispositive, was often treated with deference by the Department of Justice and the courts. In recent cases, the State Department has taken the position that its recommendations of immunity are controlling. The Justice Department and the State Department suggested in Samantar that the State Department should continue its role in recommending immunity for foreign officials in light of the threat of reciprocal international legal action and the sensitive diplomatic as well as foreign policy judgments that go into immunity determinations. It remains to be seen whether this role will be similar in scope to the State Department's role before the enactment of the FSIA with respect to foreign officials. In the few prior cases in which the State Department made recommendations to the courts, deference was most often extended in the context of diplomatic or head of state immunity (status based immunities, rather than conduct based immunities). The modern emergence of human rights lawsuits may present legal and political issues unlike cases in which the State Department involved itself prior to passage of the FSIA. In any event, the pre-FSIA framework did not constitute absolute deference to the executive; there were notable instances where the courts did not defer to the executive. Some argue that the greater the dependence on and deference to the State Department, in any case in which the defendant is a foreign official, the greater the likelihood courts will grind to a halt as they await an immunity determination from the executive branch. Another concern is that reliance on the State Department for suggestions of immunity will in practice result in inconsistent outcomes, as was sometimes the case with respect to lawsuits against foreign states prior to the FSIA. Moreover, some predict that an increased role for the State Department will result in its constant buffeting by competing demands from foreign governments whose officials are sued and from human rights advocates seeking accountability for human rights abusers on behalf of victims. Increased lobbying could also be expected from others with interests in such lawsuits, including commercial and banking interests who have a stake or perceive their assets to be at risk. Finally, one former U.S. official argues that "the administration must also consider the reciprocal impact on current and former U.S. officials, if it opens the door to lawsuits against foreign officials in the United States." This reciprocal impact may be of particular concern to the Department of Defense due to the controversial counterterrorism operations it engages in around the world. Congress could regularize determinations of foreign officials' immunity by amending the FSIA to account for them or by enacting a wholly new statute to govern immunity for foreign officials. The FSIA could be amended by altering the definition of "agency or instrumentality" to clearly cover an individual official. The definition of "state" could also be broadened explicitly to cover all foreign officials, or perhaps foreign officials in certain instances, as other legislatures around the world have done. Congress could also look at amending statutes that provide specific causes of action, such as the TVPA, expressly to address immunity. The TVPA, enacted in 1991, is the primary means for victims of human rights abuses to seek remedy in U.S. courts, but some have expressed concern that it will become a dead letter if defendants are entitled to assert common law immunity in addition to other forms of immunity. Another area in which sovereign immunity of individual officials has been prevalent is in lawsuits related to state-sponsored terrorist acts. Congress enacted an exception to the FSIA that specifically covers officials as well as states in order to abrogate their immunity and create a cause of action in terrorism cases. No legislation has yet been introduced in response to the Samantar decision; however, legislation to amend the FSIA has been introduced that would revoke immunity for foreign officials from lawsuits under the Anti-Terrorism Act. S. 1535 and H.R. 3143 , both captioned the Justice Against Sponsors of Terrorism Act, also aim to reduce some of the burdens faced by victims of state-sponsored terrorism in the United States in bringing lawsuits against foreign governments or foreign officials. The bills are nearly identical to S. 1894 from the 112 th Congress, which was ordered to be reported favorably out of the Senate Judiciary Committee in September 2012. The bills would amend the non-commercial tort exception to the Foreign Sovereign Immunities Act (FSIA) in 28 U.S.C. Section 1605(a)(5) expressly to include "any statutory or common law tort claim arising out of an act of extrajudicial killing, aircraft sabotage, hostage taking, terrorism, or the provision of material support or resources for such an act.... " This provision appears to be a reaction to a decision by the U.S. Court of Appeals for the Second Circuit in In re Terrorist Attacks of September 11, 2011 , in which the court held that the tort exception to the FSIA does not cover terrorist attacks in the United States unless it was conducted by a state designated as a sponsor of terrorism under the appropriate laws. Although another panel of the Second Circuit effectively overruled that aspect of the decision, it is possible that other circuit courts could reach the same conclusion. The bills would not alter the tort exception's requirement that the tort be committed within the United States, but would clarify that it is the place where the injury occurs that matters, regardless of where the underlying tortious act or omission was committed. The bills would also permit contribution and indemnity actions against foreign states, so that private defendants (such as a bank or charity accused of financing a terrorist act) could bring foreign governments into a lawsuit in order to spread the liability. The bills are meant to clarify that foreign governments who commit or sponsor acts of terrorism in the United States are subject to liability under the tort exception to the FSIA the same as they would be for other tortious conduct by their officials or employees, regardless of whether the State Department has designated them as state sponsors of terrorism. The revised tort exception would be more limited than the terrorism exception (28 U.S.C. §1605A) in one respect. The bill would change "personal injury" to "physical injury" and clarify that claims for emotional distress or other claims derived from injuries to another person that occur outside the United States are not part of the exception. (It seems that the amended phrase "physical injury" would also exclude claims derived from injuries suffered by others within the United States.) While a substantial number of claimants involved in lawsuits against Iran and other designated countries involve indirect claims, for example, for solatium or emotional distress, S. 1535 would apparently limit claims to victims who are present during a terrorist attack and who suffer a direct injury, the estates of those killed, and owners of property damaged by the attack. Another section of the bills would eliminate the Anti-Terrorism Act (ATA) provision exempting foreign officials and governments from the ATA's civil remedy provision, while keeping the exemption intact for U.S. officials, agencies, or employees acting in an official capacity. The elimination of this exemption could effectively extend the terrorism exception to the FSIA beyond the four currently designated terrorism-sponsoring countries by providing a new cause of action independent from the one found in 22 U.S.C. Section 1605A(c), even for attacks that occur overseas. In addition, the bill's amendment to the ATA cause of action appears intended to permit the refiling of ATA claims that were previously dismissed for failure to satisfy the requirement for an exception under the FSIA, disallowing a defense based on the law of preclusion. A provision to permit the filing of cases where the dispute has already been litigated, however, could run afoul of the Supreme Court decision in Plaut v. Sprendthrift Farms , in which the Court held that Congress had violated separation of powers principles by requiring courts to reopen settled cases. On the other hand, previous terrorism cases against foreign states have been revived on Congress's enactment of new laws. The Senate Judiciary Committee, Subcommittee on Crimes and Drugs of the 111 th Congress, held hearings on a similar measure, S. 2930 (also titled the Justice Against Sponsors of Terrorism Act). The proposed amendments to the FSIA in that bill received mixed reaction from witnesses at the hearings. Of particular concern was whether 1. such a provision could undermine the FSIA's codification of important long-standing principles of international law that protect foreign governments and the United States from lawsuits in each other's courts based on government activities; 2. such a provision could expose U.S. allies such as Israel to lawsuits in U.S. courts; 3. foreign governments could respond in kind and remove immunity provisions that currently protect U.S. officials from lawsuits abroad; 4. courts could find themselves entangled in the assessment of foreign sovereign immunity, and with it foreign policy matters, which are viewed as best left to the State Department. Others, however, supported the bill as a means to 1. provide appropriate redress for victims of terrorism, 2. limit the role of the State Department in immunity determinations so that it would not be subject to excessive political pressures, and 3. clarify an error in prior interpretation of the FSIA tort exception that excludes terrorist acts that occur within the United States from its purview. The Samantar decision clarified that the FSIA does not govern lawsuits against foreign officials, current or former. However, the Supreme Court emphasized the narrowness of its ruling, noting that it did not decide that foreign officials are not entitled to immunity at all. Rather, specific cases involving foreign officials as defendants will continue to follow ordinary rules governing civil procedure and jurisdiction in courts to determine whether a particular suit can go forward. If a court determines that a particular suit, although it names a specific official as the adversarial party, is really a lawsuit against a foreign state, then the FSIA will govern the suit. Lawsuits against individual officials may not be viewed as worthwhile considering that a judgment against an official need not be paid from the coffers of the state. Other remedial forms of relief may be unavailable or ineffective if exercised only against specific officials. In cases that do proceed against foreign officials, the defendants may be entitled to immunity under the common law or may be able to assert other defenses to jurisdiction or liability that would not be available to a defendant state. For these reasons, the Samantar Court appeared to be relatively unconcerned with the predictions by some lower courts and amicus curiae that reading the FSIA to cover foreign states—but not officials of foreign states—would lead to the effective gutting of the FSIA. To the extent that the common law framework of foreign sovereign immunity envisions an increased role for the State Department, possible harmful effects on U.S. foreign policy may be mitigated. On the other hand, Congress and the executive branch have not always seen eye-to-eye regarding lawsuits against foreign states or their officials. The Samantar decision does not seem to question Congress's authority to enact a new statutory framework to govern official immunity in the event that any of the negative predictions, or perhaps unpredictable outcomes, come to pass. | On June 1, 2010, the U.S. Supreme Court decided unanimously in Samantar v. Yousef that the Foreign Sovereign Immunities Act (FSIA), which governs the immunity of foreign states in U.S. courts, does not apply in suits against foreign officials. The ruling clarifies that officials of foreign governments, whether present or former, are not entitled to invoke the FSIA as a shield, unless the foreign state is the real party in interest in the case. Samantar's particular facts involve the Alien Tort Statute (ATS) and the Torture Victims Protection Act (TVPA), but the ruling applies to all causes of action against foreign officials. The ruling leaves open the possibility that foreign officials have recourse to other sources of immunity or other defenses to jurisdiction or the merits of a lawsuit. Officials may assert immunity under the common law, for example, perhaps aided by State Department suggestions of immunity. The Court also left open the possibility that Congress could enact new provisions to address the immunity of foreign officials. Prior to the Samantar decision, most federal judicial circuits interpreted the FSIA to cover foreign officials as "agencies or instrumentalities" of the foreign state based on their interpretation that Congress had intended to fully codify the common law of foreign sovereign immunity. To the extent the FSIA exceptions codify sovereign immunity of states under the common law, as in the case of lawsuits based on commercial activity under the restrictive theory, the recognition of a separate theory of immunity for foreign officials may not yield results significantly different from those cases in which courts applied the FSIA. The same common law considerations some courts previously applied to determine whether a foreign official is an "agency or instrumentality" under the FSIA would likely lead to similar results where the common law is applied directly. However, where Congress enacts exceptions to the FSIA that depart from the common law, outcomes may vary from cases decided under the pre-Samantar approach. This report provides an overview of the FSIA, followed by a consideration of the remaining options for foreign officials who seek immunity from lawsuits, as well as some of the questions that may emerge from each option. The report also discusses legislation addressing the immunity of foreign officials (the Justice Against Sponsors of Terrorism Act, H.R. 3143 and S. 1535). |
In September 2007, Congress reauthorized the Prescription Drug User Fee Act (PDUFA). This was the third five-year extension of the original 1992 law. Since 1993, the program has enabled the Food and Drug Administration (FDA) to collect and use fees from pharmaceutical manufacturers to review marketing applications concerning prescription drug and biological products. The law intends those fees to supplement direct appropriations not replace them. This most recent version of the user fee program, often referred to as PDUFA IV, retains the basic structure and elements of the original PDUFA. Like PDUFA II and PDUFA III, PDUFA IV addresses issues that had been either unnecessary or unrecognized in earlier versions of the law. The current authority expires October 1, 2012. This report reviews the history the four PDUFA authorizations as well as the issues concerning them. It first describes the situation that led to the introduction of prescription drug user fees. It then describes the initial PDUFA law and the incremental changes made in each of its reauthorizations. The report closes with a discussion of the intended and unintended effects of the prescription drug user fee program on FDA both within the human drug program and agency-wide. This report presumes some knowledge of the approval process for drugs and biologics. Readers unfamiliar with those activities might benefit by first reading CRS Report RL32797, Drug Safety and Effectiveness: Issues and Action Options After FDA Approval , by [author name scrubbed]. The 1992 passage of PDUFA had its origin in the dissatisfaction from industry, consumers, and FDA itself. All three felt it took far too long from the moment a manufacturer submitted a drug or biologics marketing application to the time FDA's reached its decision. In the late 1980s, that process took a median time of 29 months. Patients had to wait for access to the products. For some patients, a drug in review—and therefore not available for sale—could be the difference between life and death. Manufacturers, in turn, had to wait to begin to recoup the costs of research and development. At that time, FDA estimated that each one-month delay in a review's completion cost a manufacturer $10 million. FDA argued that it needed more scientists to review the drug applications that were coming in and the ones already backlogged in its files. It had not received sufficient appropriations to hire them. For decades FDA had asked Congress for permission to implement user fees; the pharmaceutical industry generally opposed them, believing the funds might go into the Treasury to reduce federal debt rather than help fund drug review. The 1992 law became possible when FDA and industry agreed on two steps: performance goals, setting target completion times for various review processes; and the promise that these fees would supplement—rather than replace—funding that Congress appropriated to FDA. Those steps helped persuade industry groups the fees would reduce review times—and gave FDA the revenue source it had sought for over 20 years. Congress first authorized FDA to collect fees from pharmaceutical companies in 1992 with the Prescription Drug User Fee Act (PDUFA, P.L. 102-571 ), which amended the Federal Food, Drug, and Cosmetic Act (FFDCA). Its goals were to speed up FDA's review of new drug applications for approval and to diminish its backlog of applications. PDUFA specified the activities on which FDA could spend the fees; most of the collections were to be used to hire additional reviewers. To keep funding predictable and stable, Congress required three kinds of prescription drug user fees, and specified that they each make up one-third of the total fees collected: application review fees: a drug's sponsor (usually the manufacturer) would pay a fee for the review of each new or supplemental drug-approval or biologic-license application it submitted; establishment fees: a manufacturer would pay an annual fee for each of its manufacturing establishments; and product fees: a manufacturer would pay an annual fee for each of its products that fit within PDUFA's definition. For FY1993, the standard application fee was approximately $100,000. The law provided exceptions—either exemptions or waivers—for applications from small businesses, or for drugs developed for unmet public health needs or orphan diseases. PDUFA I authorized fee revenue limits for each of FY1993 through FY1997, allowing also for adjustments based on inflation. The fees collected in each fiscal year were to be in an amount equal to the amount specified in appropriations acts for such fiscal year. In accordance with the agreement that brought about its passage, PDUFA I explicitly stated that the funds were to supplement, not supplant, congressional appropriations. The law included complex formulas, known as "triggers," to enforce that goal. FDA may collect and use fees only if the direct appropriations for the activities involved in the review of human drug applications and for FDA activities overall remain funded at a level at least equal to the pre-PDUFA budget, adjusted for inflation as specified in the statute. PDUFA's basic goal was, each year, to reduce the time from the sponsor's submission of an application to FDA's decision regarding approval. Rather than listing specific performance goals in statutory language, Congress stated in the bill's "Findings" (Section 101) that: (3) the fees authorized by this title will be dedicated toward expediting the review of human drug applications as set forth in the goals identified in the letters of September 14, 1992, and September 21, 1992, from the Commissioner of Food and Drugs to the Chairman of the Energy and Commerce Committee of the House of Representatives and the Chairman of the Labor and Human Resources Committee of the Senate, as set forth at 138 Cong. Rec. H9099-H9100 (daily ed. September 22, 1992). This direction was not codified in the FFDCA; instead, Congress, with that "finding," incorporated the performance goals listed in FDA Commissioner David Kessler's September 1992 letters to the committee chairs. The predominant goal was that, by 1997, FDA would review 90% of standard applications within 12 months and 90% of priority applications within six months of application submission. PDUFA restricted FDA's use of collected fees to activities related to the "process for the review of human drug applications." In its FY2004 report to Congress, FDA listed such activities. They include investigational new drug (IND), new drug application (NDA), biologics license application (BLA), product license application (PLA), and establishment license application (ELA) reviews; regulation and policy development activities related to the review of human drug applications; development of product standards; meetings between FDA and application sponsor; pre-approval review of labeling and pre-launch review of advertising; review-related facility inspections; assay development and validation; and monitoring review-related research. Congress reauthorized PDUFA in 1997 as Title I of the Food and Drug Administration Modernization Act (FDAMA, P.L. 105-115 ). The reauthorization, referred to as PDUFA II: stated that the fees were to be used to expedite the drug development and application review process as laid out in performance goals identified in letters sent by the Secretary of the Department of Health and Human Services (HHS) to the two authorizing committees; mandated tighter performance goals, more transparency in the drug review process, and better communication with drug makers and patient advocacy groups; and allowed FDA to use PDUFA revenue to consult with manufacturers before they submitted an application. Previously FDA could use the fees only to review a manufacturer's application. Now FDA could meet with a manufacturer from the moment it began testing a new drug in humans. (See Figure 3 .) Congress passed its second five-year reauthorization as Title V of the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 ( P.L. 107-188 ). PDUFA III: allowed FDA to adjust annual revenue targets based on changes in workload; required the agency to meet with interested public and private stakeholders when considering the reauthorization of this program before its expiration; allowed the collection, development, and review of postmarket safety information for up to three years on drugs approved after October 1, 2002, which allowed the agency to double the number of staff monitoring side effects of drugs already on the market; allowed biotechnology companies to request that FDA select an independent consultant (for which the manufacturer would pay) to participate in FDA's review of research activities; authorized two pilot programs for the continuous ("rolling") review of new drug applications for products designated for the fast track program because they would address serious or life-threatening conditions for which other treatments were not available; encouraged companies to include risk management plans in their pre-NDA/BLA meetings; allowed the use of fees to develop databases documenting drugs' use; allowed the use of fees for risk management oversight in the "peri-approval" period (i.e., two to three years post-approval); provided for "first cycle," preliminary reviews; required the HHS Secretary to note on FDA's website if a sponsor did not meet an agreed-upon deadline to complete a postmarket study, and to note if the Secretary considers the reasons given for study incompleteness to be unsatisfactory; required any sponsor who failed to complete timely studies to notify health practitioners both of this failure and of unanswered questions related to the clinical benefit and safety of the product; and added specificity to the availability and crediting of fees provision, stating that fees authorized be collected and available for obligation only to the extent and in the amount provided in advance in appropriations Acts; and that such fees are authorized to remain available until expended. PDUFA allowed FDA to use fee revenue for activities that were part of the "process for the review of human drug applications." Both PDUFA II and PDUFA III expanded the scope of that definition beyond the review of a submitted NDA/BLA to include both earlier phases (preclinical development, clinical development) and later phases (post-approval safety surveillance and risk management). The Prescription Drug User Fee Amendments of 2007 (PDUFA IV) formed Title I of the FDA Amendments Act of 2007 ( P.L. 110-85 ). This September 2007 reauthorization of PDUFA kept the basic approach to prescription drug user fees that Congress first enacted in 1992. The PDUFA provisions in FDAAA made some technical changes to the law's earlier versions and introduced some new elements. For example, PDUFA IV: added a "reverse trigger" to the law, turning around the concept of "triggers" that the earlier PDUFA laws included to safeguard the pre-PDUFA level of appropriations. If appropriations for both FDA as a whole and for the agency's review of human drug applications exceed the amounts appropriated for those activities for FY2008, then authorized user fee revenue will be decreased by an amount up to $65 million of the increase in appropriations; added fee revenues for drug safety totaling $225 million over the five-year reauthorization; removed the calendar and time limitations on postapproval activities. FDA may, therefore, use PDUFA funding for authorized activities throughout the life of a product, rather than the three-year postapproval period that PDUFA III had allowed; expanded the list of postmarket safety activities for which the fees could be used to include developing and using adverse-event data-collection systems, including information technology systems; developing and using improved analytical tools to assess potential safety problems, including access to external data bases; implementing and enforcing new FFDCA requirements relating to postapproval studies, clinical trials, labeling changes, and risk evaluation and mitigation strategies; and managing adverse event reports; authorized the assessment and collection of fees relating to advisory review of prescription-drug television advertising. Manufacturer requests for pre-dissemination review of advertisements would be voluntary, and FDA responses would be advisory. Only manufacturers that request such reviews would be assessed the new fees, which would include an advisory review fee and an operating reserve fee; codified in the FFDCA certain core elements, such as annual reporting requirements, of the prescription drug user fee program that, although included in PDUFA I, II, and III, were never placed into the FFDCA; and set forth new requirements intended to increase the Secretary's communication to the public regarding, for example, negotiations between the agency and industry. The PDUFA IV amendments took effect on October 1, 2007. Authority to assess, collect, and use drug fees will cease to be effective October 1, 2012. The reporting requirements will cease to be effective January 31, 2013. PDUFA has attracted both criticism and praise from industry, FDA staff, consumers, and Members of Congress. The issues they raised played out in the legislative debate leading up to PDUFA IV, as they had at each earlier reauthorization. Although specific to PDUFA, these issues persist because they reflect broader questions about budget choices under limited resources, the identification and amelioration of conflicts of interest, and the tension between making new drugs available to the public and ensuring that those drugs be safe and effective. The next section of this report uses data covering the period leading up to PDUFA IV to illustrate those key issues likely to resurface, particularly as Congress plans for PDUFA V, scheduled for 2012. Based on its stated goals, PDUFA has been generally viewed as a success. FDA has added review staff and now completes it reviews of NDA/BLA applications more quickly and runs less of a backlog. Median time from an NDA or BLA submission to FDA's approval decision was 29 months in 1987; for the first two years of PDUFA I, it fell to 17 months. In later years, FDA presented separate calculations for standard applications and priority applications. Table 1 shows median approval times for 1993 through 2006. In calendar year 2006, the median review times were 13.0 months for standard applications and 6.0 months for priority applications. FDA attributes shorter approval times to PDUFA-funded staff increases. PDUFA also funds FDA activities with sponsors before their official NDA or BLA submissions, resulting in increasingly more complete applications that require fewer extensive resubmissions. As a result of PDUFA, industry faces shorter and more predictable review times. It has treated the per-application fee—about $100,000 FY1993 and over $1 million FY2008 —as an acceptable cost relative to the estimated $10 million monthly cost of delay in the years immediately before PDUFA was enacted. Meanwhile, PDUFA has enabled consumers to have quicker access to new drugs. Such quicker access, however, has raised concerns. First, critics ask whether PDUFA's emphasis on speed results in inadequate review. Second, they ask whether the increase in industry funding might lead to undue industry influence. They are concerned that PDUFA, in the name of speed, might lead FDA to sacrifice safety and effectiveness. Many overlapping factors influence drug safety, most unrelated to the source of funding. Some safety problems cannot be identified before public marketing. In its consideration of PDUFA and in other plans for FDA, the Congress has discussed whether FDA has the authority and resources to identify and then act on problems during both the premarket and postmarket periods. It addressed these issues in FDAAA, both in the PDUFA title and a broader drug safety title. The key to the shortening of review times is the influx of funds that PDUFA allows. This section first describes the extent of the collected fees and then discusses that revenue in the context of the budget for both the human drug program and FDA overall. What began as a program to fund new drug review has budget, management, and policy implications beyond that. Figure 1 and Figure 2 illustrate the resource (funding and personnel) history of the FDA Human Drugs program from FY1989 through FY2007. ( Table A-1 and Table A-2 in the Appendix provide detailed actual and inflation-adjusted budget figures, along with full-time equivalent positions, by funding source for selected fiscal years.) Beginning in FY1994, user fees have made up an increasing proportion of FDA's budget for human drug activities. While total funding has increased over the period, this has been entirely due to the increase in user fees. Congressional appropriations have remained essentially flat in real (i.e., inflation-adjusted) terms. Indicating full-time equivalent (FTE) positions by funding source shows that the overall increase in personnel comes solely from the user fees first collected in FY1993 and that the overall increase in FTEs obscures a 19% decrease in FTEs funded by congressional appropriations from FY1992 to FY2007. The PDUFA triggers (described above), in particular, and the relative contributions of appropriations and user fees to FDA's budget for human drugs have implications for budget planning both within the human drugs activity area and in agency-level decisions across all activities. Balance between pre- and postapproval activities. Because PDUFA initially allowed FDA to use the fees on only pre-approval activities (the review of manufacturer applications to market drugs and biologics) and still directs a majority of fees to those tasks, it is widely asserted that PDUFA is responsible for what some observers view as an inappropriate budget imbalance between FDA's premarket drug review and its postmarket safety activities. They point out how PDUFA requirements—the trigger requirements that congressional appropriations for FDA's review activities be maintained at least at 1992 levels—and congressional budget trends—increasing FDA responsibilities at relatively flat funding levels—result in a squeezing out of non-PDUFA related programs. Faced with losing fee revenue if PDUFA-authorized activities decrease, FDA must prioritize its use of appropriated dollars to those activities. Critics say that non-PDUFA activities, such as the review of generic drug applications, therefore suffer. In part to address this concern, the Congress has, with each PDUFA reauthorization extended the scope of covered activities. The top and middle sections of Figure 3 illustrate the five stages of drug development, beginning with basic research and continuing through preclinical development (which could be research in the laboratory or with animals), clinical research (the Phase 1, Phase 2, and Phase 3 trials that involve people), and FDA review; and the related industry-FDA interactions. The bottom third displays the span of industry R&D activities over which the laws allowed PDUFA fees to cover FDA activities. The law authorized FDA to use PDUFA I fees to fund only those activities from NDA submission through the review decision; PDUFA II allowed FDA to use the funds for meetings with manufacturers during the clinical development stages, going, therefore, from the investigational new drug (IND) submission through review; and PDUFA III extended the time range at both ends, to include the pre-clinical development period and up to three years after marketing begins. PDUFA IV removes the three-year limit on postapproval activities. FDA may, therefore, use PDUFA funding for authorized activities throughout the life of a product. Industry influence. Some critics think that, through its provision of fees, the industry has too much influence over FDA actions. They believe that, by structuring industry participation into the setting of performance goals, the law creates conflicts of interest. This is compounded because, they say, the process of setting performance goals is not transparent. Until an amendment in PDUFA IV that requires consumer participation as well, the law directed FDA and manufacturers to meet, in preparation for each PDUFA reauthorization, to discuss workload and revenue needed. FDA then submitted a letter to the authorizing committees that presents performance goals for the following five years. The performance goals regarding review activities were structured to include a length of time (in months) and the percent of applications that would be completed in that time. The industry participation in goal negotiation and the focus on review time created what some see as actual or the appearance of industry influence on the management of FDA resources. At the least, those speculations could threaten confidence in FDA reviews. At the worst are the concerns of some that the fee system contributes to quick and suboptimal reviews. FDA staff reports of pressure to meet performance goal deadlines suggest to some that safety and effectiveness data are being inadequately evaluated. Interaction with congressional appropriations decisions. As previously noted, user fees are an increasing part of FDA's budget. In FY2008, user fees contribute 24.2% of FDA budget. Looking only at the agency's Human Drug Program (basically that is the Center for Drug Evaluation and Research and related activities of the Office of Regulatory Affairs), as in Figure 1 (and Tables A 1 and A- 2 in the Appendix ) for FY2008, user fees contribute 48.4% of the drug program's budget. Not shown on the figure: the FY2008 enacted budget for the human drug program shows user fees contributing 58% of the pre-market activities total and 25.3% of the postmarket activities total. FDA relies on fee revenue for maintaining its expert science base via staff retention. Critics say that FDA is becoming too dependent on industry fees to carry out its normal review activities. A related concern is that the large percentage of FDA's budget being covered by user fees may undercut congressional support for increases in direct appropriations to the agency. Leaving aside some critics' distrust of the pharmaceutical industry's motives, other political and health analysts believe that drug application review is a regulatory responsibility that the federal government should shoulder completely. They believe that rather than rely on user fees, Congress should appropriate the full amount necessary to support FDA in its mission to protect the public's health. | This report, last updated in June 2008, provides a history of the Prescription Drug User Fee Act through its third reauthorization—as PDUFA IV—in September 2007. As the 112th Congress turns to the law's next reauthorization—PDUFA V, CRS has prepared another report that describes current law and the PDUFA V proposal (legislative language and the performance goals Agreement between FDA and industry representatives). It also explores the impact of PDUFA on FDA application review time and the agency's Human Drugs Program budget, and issues that Congress is likely to discuss as it prepares for anticipated PDUFA V reauthorization. For activity in the 112th Congress, please see CRS Report R42366, Prescription Drug User Fee Act (PDUFA): Issues for Reauthorization (PDUFA V) in 2012, by [author name scrubbed]. In 1992, Congress passed the Prescription Drug User Fee Act (PDUFA I) to give the Food and Drug Administration (FDA) a revenue source—fees paid by the pharmaceutical manufacturers—to supplement, not replace, direct appropriations. The impetus behind the 1992 law stemmed from the length of time between a manufacturer's submission of an FDA New Drug Application (NDA) or Biologics License Application (BLA) and the agency's decision on approval or licensure. FDA had attributed the delay, which affected patients and manufacturers, to constraints on its ability to hire and support review staff. Congress reauthorized the user fee program in 1997 (PDUFA II), in 2002 (PDUFA III), and, most recently, in 2007 (PDUFA IV), as Title I of the Food and Drug Administration Amendments Act of 2007 (FDAAA, P.L. 110-85). Congress intended PDUFA to diminish the backlog of applications at FDA and increasingly shorten the time from submission to decision. PDUFA II expanded the program's scope to include activities related to the investigational phases of a new drug's development, and to increase FDA communications with industry and consumer groups. PDUFA III again expanded the scope of authorized activities to include both preclinical development and a three-year postapproval period. In keeping with the law, FDA has worked with the drug manufacturers to set PDUFA performance goals, which the Secretary of Health and Human Services (HHS) has submitted in letters to the chairs of the relevant congressional authorizing committees. The Secretary also submits annual performance and financial reports. In crafting PDUFA IV, the most recent reauthorization, the 110th Congress addressed workload and compensation adjustments; expanded the authorized range of safety activities to include development of data collection systems and analytic tools, and enforcement of postapproval study, labeling, and risk evaluation and mitigation strategy requirements; increased public communication requirements; and authorized a user fee for the advisory review of prescription drug television ads. The general view is that PDUFA has succeeded. FDA has added review staff and reduced its review times. At each reauthorization, however, discussion returns to certain issues in the context of PDUFA that also reflect broader FDA concerns. These include budget choices under limited resources, including the relationship between direct appropriations and user fees; the identification and amelioration of conflicts of interest when the regulated industry is a major source of industry funding; and the tension between making new drugs available to the public and ensuring that those drugs be safe and effective. |
The United States has sought to develop and deploy ballistic missile defenses for more than 50 years. Since President Reagan's Strategic Defense Initiative (SDI) in FY1985, Congress has provided about $110 billion for ballistic missile defense programs and studies. National missile defense (NMD) has proven to be challenging and deployment of an effective NMD system remains uncertain. Until recent years, NMD was a divisive political and national security issue. Debate has focused on the nature and immediacy of foreign missile threats to the United States and its interests, the pace and adequacy of technological development, the foreign affairs and budgetary costs of pursuing missile defenses, and implications for deterrence and global stability. In the mid-1980s and into the early 1990s, Congress reacted to these concerns and questions by reducing requested missile defense budgets and providing legislative language to guide the development of missile defense programs and policy. During this time, many in Congress appeared more concerned than the Defense Department and the military about near-term threats to forward-deployed U.S. military forces posed by shorter range ballistic missiles. Congress demonstrated those concerns by supporting the development and deployment of theater missile defenses (TMD), oftentimes over the objections of the Defense Department. Since the end of the 1991 Persian Gulf War, and especially over the past several years, Congress generally has supported larger missile defense budgets. For FY2007, Congress appropriated $9.3 billion for missile defense programs, making it the largest Defense Department acquisition program. The primary technological concept for missile defense since the early 1980s has been 'hit-to-kill' interceptor missiles. The utility of hit-to-kill as a ballistic missile defense (BMD) concept over the past 25 years remains mixed. Alternatives to the hit-to-kill concept have also been pursued. One is the development of laser technology and the platforms on which lasers might be based. For most missile defense advocates the Airborne Laser (ABL) program represents the most promising near-term effort. Although the Air Force contends that the ABL is mature technology, some observers have questioned whether this technical assessment is accurate, pointing out that the various ABL components have yet to be fully integrated and tested. Considerable debate also continues over whether the ABL will be capable of dealing with likely future ballistic missile threats. The effort that led to the ABL dates to the early 1970s when the Air Force began development of an Airborne Laser Laboratory (ALL)—a modified KC-135A aircraft—to demonstrate that a high-powered laser mounted on an aircraft platform could destroy an attacking missile. After 10 years of research, development, and field testing (culminating in 1983) the ALL program announced that lasers had managed to "destroy or defeat" five Sidewinder air-to-air missiles and a simulated cruise missile at short range. The ALL aircraft was retired in 1984 because its research purpose was considered no longer necessary. Although the ALL test targets were not ballistic missiles, the Air Force and the Defense Department became increasingly interested in the possibility of using high-powered lasers aboard aircraft to destroy enemy ballistic missiles during their boost phase. Through the 1980s and mid-1990s, further research on various ground laser concepts and designs and tracking and beam compensation tests convinced Pentagon officials to proceed with the conditional development of the ABL in June 1998 (although low-level funding for the program began as early as FY1994). Currently, the ABL program is the primary focus of the Missile Defense Agency's (MDA) Boost Defense program. The ABL's lethality test demonstration, which is designed to test the various subsystems and target and destroy a ballistic missile, has been delayed many times. According to the Missile Defense Agency, that lethality test, which was initially scheduled for late FY2003, is now planned for August 2009. Congress has provided strong funding support ballistic missile defenses in the face of growing concerns about the proliferation of missiles around the world. Of all the current efforts, most missile defense advocates believe the ABL shows the best near-term promise for destroying enemy ballistic missiles during their boost-phase. While the missile is still in the earth's atmosphere, the airborne laser would seek to rupture or damage the target's booster skin to cause the missile to lose thrust or flight control and fall short of the intended target before decoys, warheads, or submunitions are deployed. The expectation is that this would occur near or even over the enemy's own territory. Second, although the United States has primarily pursued kinetic energy kill mechanisms for missile defense some 25 years, many defense analysts believe that if the United States chooses to pursue increasingly effective missile defenses for the longer term future, then alternative concepts such as high-powered lasers may be the answer. This report tracks the current program and budget status of the Airborne Laser program. In addition, this report examines several related issues that have been of interest to Congress. It will be updated occasionally as necessary. This report does not provide a technical overview or detailed assessment of the ABL or Air-Based Boost Program. It is envisioned that the ABL would use a high-power chemical laser mounted in the aft section of a modified Boeing 747 aircraft to destroy or disable all classes of ballistic missiles during the initial portion or first several minutes of their flight trajectory (from shortly after launch and before they leave the earth's atmosphere). Analysts indicate that during this period (up to several minutes) the missile is at its most vulnerable stage—it is slower relative to the rest of its flight, it is easier to track because the missile is burning its fuel and thus has a very strong thermal signature, and it is a much larger target because any warhead has not yet separated from the missile itself. Analysts also point out the advantages of destroying the missile before any warhead, decoys, or submunitions are deployed, and potentially over the enemy's own territory. The ABL program will integrate a weapons-class chemical laser aboard a modified Boeing 747-400 series freighter aircraft (747-400F). The chemical laser has been assembled in the System Integration Laboratory (SIL), a 747-200 fuselage, and tested. The Air Force acquired the 747-400F in January 2000 directly from the Boeing Commercial Aircraft assembly line and flew it to Wichita, Kansas, where Boeing workers made extensive modifications to the aircraft. Among other things, they grafted huge sheets of titanium to the plane's underbelly for protection against the heat of the laser exhaust system, and added a 12,000-pound bulbous turret on the plane's front to house the 1.5 meter telescope through which the laser beams would be fired. This plane made its maiden flight in July 2002; it logged 13 more flights in 2002 before relocating to Edwards Air Force Base in California. Since 2002, the focus of the ABL program has been on system integration, an effort that is considered challenging. Officials have reported completing ground integration and testing of the Beam Control Fire Control (BCFC) segment and most of that segment's integration into the ABL aircraft. Additionally, six laser modules in the SIL have been integrated and tested. Further integration and testing of the BCFC, laser modules in the SIL, and communications links took place in 2005. However, the primary goal to have achieved a lethality test by 2005 was not met. That test has now been moved further to August 2009. Program officials said the delay was due largely to program restructuring and budget changes. Others suggested that technical and integration problems continue to prove more challenging than anticipated. In 2006, Boeing announced successful surrogate low-power laser testing from the ABL aircraft. In October 2006, Boeing rolled out the ABL aircraft in Wichita, Kansas, announcing successful completion of major system integration milestones in preparation for some flight testing that will lead to the lethality test in August 2009. As of January 2007, ABL had completed over 50 flight tests. In March 2007, the ABL successfully completed the first in a series of in-flight tracking laser firings at an airborne target. Officials argue this is an important step toward demonstrating the aircraft's ability to engage an airborne target. Major ABL subsystems include the lethal laser, a tracking system, and an adaptive optics system. The kill mechanism or lethal laser system (as distinct from the other on-board acquisition and tracking lasers) is known as COIL (Chemical Oxygen Iodine Laser). COIL generates its energy through an onboard chemical reaction of oxygen and iodine molecules. Because this laser energy propagates in the infrared spectrum, its wavelength travels relatively easily through the atmosphere. The acquisition, tracking, and pointing system (also composed of lasers) helps the laser focus on the target with sufficient energy to destroy the missile. As the laser travels to its target, it encounters atmospheric effects that distort the beam and cause it to lose its focus. The adaptive optics system compensates for this distortion so that the lethal laser can hit and destroy its target with a focused energy beam. The current ABL program began in November 1996 when the Air Force awarded a $1.1 billion PDRR contract (Program Definition Risk Reduction phase) to several aerospace companies. The contractor team consists of Boeing, Lockheed Martin, and Northrop Grumman (formerly TRW). Boeing Integrated Defense Systems (Seattle, WA) has overall responsibility for program management and systems integration, development of the ABL battle management system, modification of the 747 aircraft, and the design and development of ground-support subsystems. Lockheed Martin Space Systems (Sunnyvale, CA) is responsible for the design, development, and production of ABL target acquisition, and beam control and fire control systems. Northrop Grumman Space Technology (Redondo Beach, CA) is responsible for the design, development, and production of the ABL high-energy laser. A number of subcontractors are also involved. It is envisioned that a fleet of some number of ABL aircraft would be positioned safely in theater then flown closer to enemy airspace as local air superiority is attained. Although the Defense Department once indicated that a fleet of five aircraft might support two 24-hour combat air patrols in a theater for some unspecified period of time in a crisis, there has been no public discussion in recent years as to how many aircraft might eventually be procured or deployed as part of a future BMD system. It is likely, however, that current plans are to acquire seven production aircraft. The current ABL development and acquisition strategy is described in terms of several 'blocks' or two-year periods of research, development, testing and evaluation activities. The program goals for ABL Block 2006 (2006-2007) are to continue integration and ground and flight test activities for the first ABL aircraft or weapon system test bed. Program officials further plan to improve domestic production capabilities for advanced optics and sensors for high-energy lasers. The program expects to study and establish baseline capabilities for a more advanced second ABL weapon system after a successful lethal demonstration. In March 2007 Boeing announced that it had successfully fired the ABL's tracking laser in-flight at an airborne target for the first time. A company representative stated that "The Airborne Laser team has successfully transitioned to the next major test phase, completing the first in a series of in-flight laser firings at an airborne target." The goals for ABL Block 2008 (2008-2009) are for further ground and flight testing of the first ABL weapon system and studies defining the second ABL weapon system. Additionally, integration of the ABL into the wider ballistic missile defense system is expected and the initiation of ground support activities for the ABL. The lethality test of the ABL is anticipated during this period. In Block 2010, programs officials plan to evaluate a broader spectrum of ballistic missile threats as part of the overall ballistic missile defense system in place at that time. During this period, the primary focus will be on the second ABL aircraft. More specifically, this includes completion of design activities and initial fabrication of weapon components. The total ABL program cost cannot be given or estimated because of the acquisition strategy adopted by MDA for missile defense. Nor has the final system architecture been identified, meaning that the total number of ABL aircraft to be procured has not been determined. Prior to adopting this new evolutionary acquisition or "spiral development" strategy, however, there were a couple points of reference as to what the Pentagon envisioned. In its FY1997 Annual Report to Congress, DOD's Office of Test and Evaluation envisioned seven ABL aircraft for a total program cost of $6.12 billion (then year dollars). The objective to acquire seven production aircraft likely remains. The most recent cost estimate, from the Clinton Administration, was $10.7 billion (life-cycle costs) for the same number of aircraft. No other system cost data are available. In March 2007, MDA Director Lt. Gen. Trey Obering testified that it is too early to tell how much the ABL will cost to operate because program managers do not know what technical achievements will be made in the coming years. Until recently, Congress has largely supported the ABL program by appropriating the Defense Department's requests, which have totaled about $4.3 billion. See table below, which shows the President's Budget (PB) request and the amount Congress appropriated. For FY2007, the Bush Administration requested about $632 million for the ABL program, which Congress approved. For FY2008, the Bush Administration requested $548.8 billion for the ABL program. In the House version of the defense authorization bill ( H.R. 1585 ) the request was decreased to $298 billion. The Senate decreased the ABL request by $200 million in its version of the defense authorization bill ( S. 1547 ). Several factors combine to affect the near future of the ABL program. First, the ABL continues to face technical challenges. Second, in January 2002, the MDA dropped the traditional requirements-setting process in favor of a "capabilities-based" approach, intended to more quickly field a system capable of responding to some, if not all of the current ballistic missile threat. Third, on June 13, 2002, the United States withdrew from the Anti Ballistic Missile (ABM) Treaty, thus removing numerous barriers to potential anti-missile platforms. Fourth, the MDA is exploring alternatives to the ABL for the Boost Phase Intercept (BPI) mission. Finally, recent changes in funding profiles for both the ABL and for the MDA's new kinetic kill vehicle reinforce the uncertainty related to the ABL program. Specific issues that may confront Congress include the severity and implications of the ABL programmatic and technological challenges, how the ABL might be employed if and when it is fielded, the potential for industrial base problems, the scheduled lethality test, and consideration of boost-phase alternatives to the ABL. As a new type of weapon system, the ABL has faced technological challenges throughout its history. The GAO has pointed out the challenges of developing and fielding a new type of weapon system, when it noted that "only one of the ABL's five critical subsystems, the aircraft itself, represents mature technology." In October 1997 the GAO issued a report (GAO/NSIAD-98-37) highlighting the program's technical challenges and calling them "significant." In 2001, DOD's Director of Operational Test and Evaluation called the ABL a "high technical risk" program and outlined a number of technical challenges to be overcome. There is some consensus on the ABL's current technical challenges. In congressional testimony, the GAO pointed out that the ABL program office agreed with its assessment of the technological maturity and technical challenges in most instances, only disagreeing about the adaptive optics' maturity and challenges. However, consensus appears to break down when evaluating how these challenges might affect budget and schedule. The GAO asserts that "problems with maturing technology have consistently been a source of cost and schedule growth throughout the life of the program." But the ABL program's new requirements setting process, and its focus on developing a less sophisticated system based on currently available technology, may result in less risk of cost and schedule growth in the future. The Missile Defense Agency asserts that program adjustments made in February 2004 have put the program on budget and schedule. GAO subsequently found that changes in the ABL program would result in a knowledge-based approach that was likely to result in a more cost-effective program. Two technical issues have long challenged the ABL program: beam control and adaptive optics and system integration. The essentials of these two challenges have not changed that much in recent years. The ABL system's weight has been another concern. The ABL was designed to carry 14 laser modules that were planned to weigh a total of 175,000 lbs. The six laser modules produced thus far already exceed this weight budget by at least 5,000 lbs. ABL proponents admit that the laser modules are currently heavier than anticipated. Nonetheless, they argue that they are within the requirement for the whole weapon system to fit within the 747's maximum takeoff weight—800,000 lbs. with the six laser modules on the aircraft. ABL critics remain skeptical that with fewer modules the same level of lethality can be achieved, thus raising questions as to whether the ABL will be required to fly closer toward its targets in hostile air space and whether weight trade-offs will result in reduced fuel capacity and increased need for aerial refueling to perform its mission. Recent military operations in Afghanistan and Iraq suggest that DOD's aerial refueling fleet is already overburdened. Another group of ABL questions that may confront Congress pertains to the aircraft's concept of operations, or CONOPs. As the program nears procurement and potential fielding, questions remain about the number of aircraft to be procured, where the aircraft might be deployed, and how they would be used. A number of questions are likely to be asked regarding this size of the ABL inventory. The ABL will be a highly visible asset. It is very large, and will be escorted by fighter aircraft. Its high altitude will also help to distinguish it from other wide-body aircraft. Long in-theater on-station time for the ABL is premised on forward basing. These forward bases would likely not have chemical replenishment capabilities, which would necessitate return flights to the United States if the laser is used. It appears plausible that an enemy could wait until an orbiting ABL is being refueled, or is absent before initiating a missile attack. Thus, a force of seven aircraft might only be expected to provide 24-hour theater ballistic missile (TBM) BPI coverage of one theater. DOD's decision in the Spring of 2006 to postpone the purchase of five ABL aircraft brings the issue of exactly what a small number of ABL aircraft—in this case two—could achieve operationally. Past doctrine and current real-world events suggest that U.S. interests could be threatened simultaneously in more than one theater and by more than one country with TBMs. Would seven aircraft be sufficient to adequately address potential threats? To address growing deployment requirements and to improve personnel retention, the Air Force has organized itself into 10 Air Expeditionary Forces (AEFs) that rotate on predictable schedules. How would a force of seven ABLs support the 10 AEFs? The Air Force, and other Services, frequently complain about the onerous and disproportionate O&S (Operations and Support) costs of "high demand, low density" (HD/LD) assets such as JSTARS and U2s. Would procurement of only seven aircraft create another HD/LD problem for the Air Force? On the other hand, buying more aircraft would require more people to fly and maintain them. It is currently unclear what impact the ABL might have on the Air Force's already strained aerial refueling fleet. While based at some yet-to-be determined U.S. base, ABLs will likely deploy to forward operating locations such as Guam, Diego Garcia, RAF Fairford England, and Elmendorf AFB Alaska during crises. Although these bases are likely closer to tomorrow's hot spots than the continental United States, they are still hours of flying time away from the Persian Gulf, the Korean Peninsula, and Central Asia. ABLs will require refueling to get to the crisis theater, refueling to maintain combat air patrols in-theater, and refueling to return to base. What effect will the ABL's current weight gain have on its fuel load? Might increased payload mean less fuel and therefore an even greater aerial refueling requirement? Some observers have questioned how the ABL would be employed to counter intercontinental ballistic missiles (ICBMs). The consensus is that Russia and China currently field ICBMs that could plausibly threaten the United States; there is no such consensus on the future ability of North Korea or other so-called "rogue states" to field such missiles. (Some believe that such capabilities will emerge in the distant future, if ever. Others see the proliferation of such missiles as inevitable, and that it could occur sooner rather than later.) Current estimates suggest that the ABL's 400 km range (about 250 miles) is too short to stand outside Russian or Chinese airspace and still engage those countries' ICBMs in boost phase. Would the ABL fly into these countries' airspace during crisis to address potential ICBM launches in boost phase? Or would the ABL's laser need to be more powerful? Or will some alternative be deployed to supplement or replace the ABL for these scenarios? Another set of questions pertains to using the ABL in or near commercial airspace. How will the aircraft be operated, and what rules will be established to eliminate or reduce the potential of accidently hitting a commercial aircraft? The ABL should fly above the altitude of most commercial aircraft, which should help mitigate this potential problem. However, the ABL's laser is designed to shoot over long distances, and the target ABL is attempting to engage may be within the same altitude as most commercial aircraft. It appears that ABL CONOPS questions are also affected by MDA's decision to abandon the traditional requirements process. MDA has adopted a "flexible" requirements process that is driven as much by technological maturity as it is by operator needs. Thus, it is difficult to assess how the ABL might be employed because it is not currently clear what the ABL's capabilities will be, once fielded. A final set of issues revolves around the ABL industrial base. Missile defense officials have cautioned that the ABL is pursuing very specialized technologies that are not routinely pursued in civilian or even defense industries. Turbulence in ABL funding or schedule, they maintain, jeopardizes the ABL industrial base because these specialized vendors will seek other business if ABL business appears threatened. The industrial base supporting advanced optical components of the ABL is most frequently cited as "fragile." The criticality of these vendors to the health and progress of the ABL program has not been clearly established. DOD may, or may not, for example, find expertise in the optical telecommunications industry that would be applicable to ABL needs. Once the health of the ABL-specific contractor and subcontractor base has been established Congress may be asked to help preserve some of the "critical path technologies" that enable the ABL. If this take place, a key calculation to make may be the break point at which keeping a number of specialized companies in business outweighs the potential value of fielding the ABL. It is also argued that cancelling the ABL could harm the laser industry writ large , rather than just those sub-industries associated with the ABL. This is because, ABL supporters assert, the ABL program is far and away the largest of its kind, and a "pathfinder" for other laser programs. Cancelling the ABL could slow down the entire U.S. laser development industry, they say. Others may disagree with this argument and argue that ABL survival or cancellation should be based on its own merits. The dearth of laser programs outside of the ABL, they could argue, indicates that the ABL's cancellation would have little affect on other programs, because there aren't many to affect. The lethality test now scheduled for August 2009 (some six years later than original plans) is seen as a critical next step in the ABL program's development. The objectives of this test include: to demonstrate an actual shoot-down of a missile over the Pacific Ocean, possibly a Scud missile; to test the IRST (the Infrared Search & Track System), to see if the ABL can find, hold and track the intended target; and to demonstrate that the adaptive optics systems is able to compensate for atmospheric distortion. The lethality test is considered important for a number of reasons, many of which have to do with the long advocated potential for this ABL test aircraft to provide a limited capability for emergency or contingency missions immediately after the lethality test. First, the test will demonstrate whether or how well the various ABL subsystems and component parts are working together. The fact that this test has been delayed several times and for several years now, suggests to some that continued systems integration problems are forcing this delay. Depending on the test results, additional system integration tests may be required. If significant technical problems arise or additional technical challenges are identified, the availability of this ABL platform for near-term emergency missions would likely be questioned. Second, depending on the nature and outcome of the lethality test itself, use of this ABL test aircraft may not be appropriate in an emergency or contingency mission. For instance, if the lethality test fails to hit or destroy a Scud or other ballistic missile, military planners may not want to rely on a test aircraft deployed during a crisis. Additionally, if the lethal test is not considered significant (for example, the test is conducted against a very short range missile at very close range), military planners similarly may not have confidence in actually using the ABL test platform during a crisis. Some in the ABL program have suggested that the platform could be made available only as a airborne sensor and for battle management purposes. Others have questioned whether meaningful testing protocols can be developed if the ABL system is not yet integrated. A third question pertains to how effective and extensive this flight test will be. Prior to the most recent test program restructuring, some 35-50 other missions were planned to validate design and other changes; additional air refueling missions were also considered. During the flight tests, ABL test aircraft were to operate with a relative large contingent of personnel, including 2 aircrew and up to 16 others. Test missions were expected to last 4-8 hours. A May 2004 GAO report (GAO-04-643R) notes that the lethality test contract has been restructured three times and that costs have tripled. Will MDA be able to execute a highly robust and investigative test considering these increased costs? Press accounts suggest that the latest lethality test contract contains flaws that may inhibit the test. These programmatic and technological challenges lead to another family of questions regarding the ABL's current and potential standing in missile defense vis-a-vis other missions and platforms. Might other platforms offer promise in the theater Boost Phase Intercept mission area? A Kinetic Energy Interceptor (KEI), unmanned aerial vehicles (UAVs), and ship-based, or space-based interceptors are potential options. ABL officials believe the program's technical challenges are being overcome. MDA is simultaneously pursuing, however, a Kinetic Energy Interceptor (KEI) that has come to be viewed as a potential alternative. This program was established in 2003, and early statements by MDA focused on the interceptor's commonality rather than its possible use as an ABL alternative. For instance, former MDA Director Air Force Lt. Gen. Kadish told reporters that the agency finds kinetic interceptor attractive because "given that we no longer have the constraints of the [1972 Anti-ballistic Missile] treaty and the way the services have put together operational requirements documents...I think it is now possible to think and actively pursue commonality that makes sense and a common interceptor with a common type of kill vehicle." Changes to budget and schedule, however, have brought the ABL and KEI into much more obvious competition. MDA's FY2004 R&D request for KEI (then called common boost- and mid-course interceptor) represented a six-fold increase in funding for this technology and was perhaps the first sign that MDA had some doubts about ABL's ultimate feasibility. Slippages to both programs' schedules have increased the apparent competition between ABL and KEI. MDA director Lt.Gen. Trey Obering has described these potential weapon systems as being in a "flyoff." The FY2007 budget request for KEI was $386 million. Future budgets for KEI climb so about $852 million (FY2009) to $1.65 billion (FY2011). At issue is whether the KEI represents a prudent hedge against potential slippages the ABL schedule, or a drain on funds and other resources that could be devoted to the ABL, or other MDA programs. This question was probed at length in a March 15, 2005 House Armed Services, Strategic Forces Subcommittee Hearing. Subcommittee members expressed concern about the appropriate balance between the two programs. During this hearing, MDA Director Lt.Gen. Trey Obering explained the decision to cut $800 million from the KEI's FY2006 budget request: "...to meet our top-line budget reductions, I decided to accept more risk in this area and restructure the kinetic energy intercept effort..." In their report H.R. 1815 (109-89), House Authorizors expressed their concern about pursuing both programs (p.232). Authorizors required MDA (Sec. 231) to provide a comparison of the two programs, including capabilities and costs. Other potential alternatives for the BPI mission might be explored. With their long endurance and increasing payloads, Unmanned Aerial Vehicles (UAVs) may one day offer alternatives to the ABL. UAVs have been studied as BPI platforms since the mid-1990s. At the time, a UAV-based Boost Phase Intercept approach was viewed as a back-up to ABL in case that program encountered difficulties. Congress provided $15 million in FY1996 for a joint U.S./Israeli advanced concept technology demonstration (ACTD) program to study the feasibility of using up to 20 UAVs with three to six lightweight missiles each to conduct BPI in an Iraq-like scenario. The Army Space and Strategic Defense Command estimated that the 20-UAV architecture could cost $1.5 billion over a 10-year life span, compared to a then-estimated $6 billion 10-year life cycle cost for the ABL and a $17 to $23 billion 10-year life cycle cost for a space-based laser. In addition to potentially lower cost, possible UAV advantages include the ability to operate closer to TBM launch points than the ABL, and the ability to conduct the BPI mission without endangering the lives of aircrews. Perceived UAV deficiencies include a lack of adequate payload carrying capability. Considering the rapid recent advances in UAVs and their operational success, however, some analysts believe it may be time to revisit the UAV-based approach and weigh its efficacy relative to the ABL program. In the mid 1990s, the Air Force also studied outfitting F-15s with special air-to-air missiles to destroy TBMs in boost phase. Some in Congress have expressed their preference for UAVs over manned aircraft in this role. In its report ( S.Rept. 104-112 / S. 1026 ), the Senate Armed Services Committee wrote that "to the extent that kinetic-energy BPI systems hold promise for TMD applications, the committee believes that reliance should be placed on unmanned aerial vehicles (UAVs)." Some constraints on ship-based missile defenses have been eliminated by the Bush Administration's decision to withdraw from the 1972 ABM treaty. Ship-based systems are attractive to missile defense planners because ships often can be maneuvered close to hostile areas. A number of BPI experiments are planned for FY2004 combining modified Standard anti-aircraft missiles with the Kinetic Kill Vehicle (KKV). In July 2004 the Congressional Budget Office published a report in which five BPI options were explored. Two of these five options were space-based. While space-based options had some advantages over terrestrial options, such as greater global coverage, they also were much more expensive; perhaps prohibitively. Although platforms other than the ABL might conduct TMD BPI, it is also possible that the ABL might be capable of performing additional or alternative missions. When in charge of the program, the Air Force studied alternative roles for the ABL including cruise missile defense, destroying or disabling enemy satellites, or intercepting high altitude surface-to-air missiles. In November 2002, the Air Force Scientific Advisory Board recommended that the Air Force also consider using the ABL to attack time critical targets on the ground. In May 2005, the Commander of the U.S. Strategic Command reportedly advocated that alternative uses for the ABL be studied. Potential alternate missions that have been discussed in 2006 include shooting down manned aircraft, cruise missiles, air-to-air missiles, and surface-to-air missiles. In addition to destroying these alternate threats, the ABL, some argue, could also contribute to a variety of command and control missions, such as airborne command and control, combat identification (CID), electronic support measures, and bomb damage assessment. Today, the only alternative—albeit similar—role that MDA is considering for the ABL is BPI of intercontinental ballistic missiles (as opposed to theater-range ballistic missiles). MDA officials state that they need to concentrate on developing the ABL's technology to conduct its primary mission of theater ballistic missile defense before ancillary roles can be considered. Others may question whether abandoning the assessment of alternative uses for the ABL is prudent. Congress has appropriated about $4.3 billion for the ABL thus far. Some are likely to maintain that more should be done to investigate potential returns on this investment. The ABL is DOD's most mature high power chemical laser program. If MDA determines that UAVs or ship-based KKVs offer more potential in TMD BPI, studying alternative uses for the ABL might be a way to exploit the advances made by the program. | The United States has pursued a variety of ballistic missile defense concepts and programs over the past fifty years. Since the 1970s, some attention has focused on directed energy weapons, such as high-powered lasers for missile defense. Today, the Airborne Laser (ABL) program is the furthest advanced of these directed energy weapons in relative terms and remains the subject of some technical and program debate. The Department of Defense (DOD) has remained a strong advocate for the ABL and its predecessor programs. The Defense Department and most missile defense advocates argue that the ABL, which is designed to shoot down attacking ballistic missiles within the first few minutes of their launch, is a necessary component of any broader U.S. ballistic missile defense system. Until recently, Congress has largely supported the Administration's ABL program. Funding for the ABL began in FY1994, but the technologies supporting the ABL effort has evolved over 25 years of research and development concerning laser power concepts, pointing and tracking, and adaptive optics. Delayed now for many years, the ABL program plans to conduct a lethality test now scheduled for August 2009. Assuming a successful test, the Defense Department has said that this test platform could then be made available on an emergency basis for a future crisis. To date, about $4.3 billion has been spent on the ABL program, including $632 million for FY2007. For FY2008, the Administration requested $548.8 billion, which was cut substantially in the House and Senate defense authorization bills. Total ABL program costs are not available because the system architecture has not been defined. Program skeptics continue to raise several issues. Their questions include the maturity of the technologies in use in the ABL program and whether current technical and integration challenges can be surmounted. If the ABL is proven successful, there have been questions about the number of platforms the United States should acquire. Seven aircraft have been mentioned previously, and apparently this number remains the program's objective, but is this number appropriate? What stresses might continued ABL program slippage or delays place on the supporting industrial base? How does the ABL compare to alternative concepts? To what degree should the United States invest in alternative missile defense technologies in the event that the ABL program may not prove successful? This report examines the ABL program and budget status. It also examines some of the issues raised above. This report does not provide a detailed technical assessment of the ABL program (see CRS Report RL30185, The Airborne Laser Anti-Missile Program, by [author name scrubbed] and [author name scrubbed] (pdf)). This report is updated periodically as necessary. |
Citizens United, a nonprofit Internal Revenue Code Section 501(c)(4) tax-exempt corporation, produced a 90-minute documentary regarding a presidential candidate, then-Senator Hillary Clinton. The group released the film in theaters and on DVD, and planned to make it available through video-on-demand. In addition, Citizens United planned to fund three broadcast and cable television advertisements to promote the movie. Concerned that both the film and its ads would be prohibited under the Federal Election Campaign Act (FECA), which imposes civil and criminal penalties, Citizens United filed suit in U.S. district court. Specifically, the group sought a preliminary injunction to enjoin the Federal Election Commission (FEC) from enforcing Sections 203, 201, and 311 of the Bipartisan Campaign Reform Act of 2002 (BCRA). These provisions of law amended the Federal Election Campaign Act (FECA) in order to regulate "electioneering communications." BCRA defines "electioneering communication" as any broadcast, cable, or satellite transmission made within 30 days of a primary or 60 days of a general election (sometimes referred to as the "blackout periods") that refers to a candidate for federal office and is targeted to the relevant electorate. Section 311 of BCRA, known as the disclaimer provision, codified at 2 U.S.C. § 441d, requires electioneering communications to include a statement identifying the funding source of the communication. Section 201, codified at 2 U.S.C. § 434, requires any person who spends more than $10,000 on electioneering communications in a year to file disclosure statements with the FEC. Section 203, codified at 2 U.S.C. § 441b, prohibits corporate and labor union treasury funds from being spent for electioneering communications. The group argued that Section 203 of BCRA violated the First Amendment on its face and as applied to its movie and advertisements. In addition, Citizens United maintained that Sections 201 and 311, requiring disclosure and identification of funding sources, were unconstitutional as applied to the television ads. In a 2003 decision, McConnell v. FEC, the Supreme Court upheld the constitutionality of Sections 203, 201, and 311 in a facial challenge. In a 2007 decision, FEC v. Wisconsin Right to Life, Inc. (WRTL II), the Supreme Court limited the applicability of Section 203 by ruling that the prohibition could not constitutionally apply to advertisements that may reasonably be interpreted as something other than an appeal to vote for or against a specific candidate, and that such ads are not the functional equivalent of express advocacy. The U.S. District Court for the District of Columbia denied the request by Citizens United for a preliminary injunction, finding that the BCRA provisions in question had previously been upheld by the Supreme Court as regulation that does not unconstitutionally burden First Amendment free speech rights. Likewise, the court found that the group's as-applied claim would also fail on the merits because the movie did not focus on legislative issues, but instead took a position on the candidate's character, qualifications, and fitness for office, thereby falling within the FEC's regulatory definition of an electioneering communication. The court concluded that Supreme Court precedent upholding Section 203 applied to Citizens United to the extent that it prohibited the group from funding electioneering communications that constituted the functional equivalent of express advocacy. The court also found that BCRA's disclosure requirements were constitutional. Citizens United appealed. BCRA provides that if an action is brought to challenge the constitutionality of any of its provisions, a final decision from the district court shall be reviewable only by direct appeal to the U.S. Supreme Court. The U.S. Supreme Court heard oral argument in Citizens United v. FEC on March 24, 2009, and re-argument on September 9. For the re-argument, the Court ordered the parties to file supplemental briefs addressing whether the Court should overrule its earlier holdings in Austin v. Michigan Chamber of Commerce, upholding the constitutionality of a state statute prohibiting corporate campaign expenditures, and the portion of its decision in McConnell v. FEC upholding the facial validity of Section 203 of BCRA. In a 5-to-4 ruling, the Supreme Court in Citizens United v. FEC invalidated two provisions of the Federal Election Campaign Act (FECA), codified at 2 U.S.C. § 441b. It struck down the long-standing prohibition on corporations using their general treasury funds to make independent expenditures, and Section 203 of the Bipartisan Campaign Reform Act of 2002 (BCRA), which amended FECA, prohibiting corporations from using their general treasury funds for "electioneering communications." The Court determined that these prohibitions constitute a "ban on speech" in violation of the First Amendment. In so doing, the Court overruled its earlier holding in Austin v. Michigan Chamber of Commerce, finding that it provided no basis for allowing the government to limit corporate independent expenditures; and the portion of its decision in McConnell v. FEC upholding the facial validity of Section 203 of BCRA, finding that the McConnell Court relied on Austin. The Court, however, upheld the disclaimer and disclosure requirements in Sections 201 and 311 of BCRA as applied to the movie that Citizens United produced and the broadcast advertisements it planned to run promoting the movie. According to the Court, while they may burden the ability to speak, disclaimer and disclosure requirements "impose no ceiling on campaign-related activities." It does not appear that the Court's ruling in Citizens United affects the validity of Title I of BCRA, which generally bans the raising of soft, unregulated money by national parties and federal candidates or officials, and restricts soft money spending by state parties for "federal election activities." Writing for the Court, Justice Kennedy began consideration of the case by examining whether Citizens United's claim, that the corporate expenditure prohibition was unconstitutional as applied to its film, could be resolved on other, narrower grounds. Disputing Citizens United's contention that the prohibition, codified at 2 U.S.C. § 441b, does not apply because its film does not qualify as an "electioneering communication," the Court found that the message of the film was the functional equivalent of express advocacy. As explained by the Court in FEC v. Wisconsin Right to Life (WRTL II) , a communication is the functional equivalent of express advocacy "only if [it] is susceptible of no reasonable interpretation other than as an appeal to vote for or against a specific candidate." Applying that standard, the Supreme Court determined that there is no reasonable interpretation of the film other than an appeal to vote against then-Senator Clinton for President. The movie is a "feature-length negative advertisement that urges viewers to vote against Senator Clinton for President," and therefore, the Court concluded, triggers the applicability of § 441b. Rejecting Citizens United's argument that video-on-demand has a lower risk of distorting the political process than television ads, the Court cautioned that the judiciary must decline to make determinations as to which modes of communication are preferred for particular types of messages and speakers. Such determinations, the Court cautioned, would require protracted litigation and risk chilling protected speech. In response to Citizens United's request for the Court to carve out an exception to § 441b's expenditure prohibition for nonprofit corporate political speech funded primarily by individuals, the Court determined that such a holding would result in courts making "intricate case-by-case determinations," an interpretation it also declined to adopt. Accordingly, the Court concluded that it could not resolve the case on a narrower ground without chilling political speech that is "central to the meaning and purpose of the First Amendment." The First Amendment to the U.S. Constitution provides that "Congress shall make no law ... abridging the freedom of speech." Citing several of its precedents that have invalidated restrictions on First Amendment free speech—such as laws requiring permits and impounding royalties—the Court contrasted those restrictions with the "outright ban" on speech imposed by § 441b, which also imposes criminal penalties. Furthermore, the Court determined that even though FECA permits a corporation to establish a political action committee (PAC) in order to make expenditures, § 441b nonetheless constitutes a complete ban on the speech of a corporation . "A PAC is a separate association from the corporation," the Court observed, and allowing a PAC to speak does not "somehow" translate into allowing a corporation to speak. Enumerating the "onerous" and "expensive" reporting requirements associated with PAC administration, the Court announced that even if a PAC could permit a corporation to speak, "the option to form a PAC does not alleviate the First Amendment problems associated with § 441b." In addition, in view of the fact that a PAC must comply with such burdensome restrictions "just to speak," the Court found that a corporation may not have sufficient time to establish a PAC in order to communicate its views in a given campaign. As a law that bans free speech, the Court explained that it is subject to a "strict scrutiny" analysis, requiring the government to demonstrate that the restriction "furthers a compelling interest and is narrowly tailored to achieve that interest." Employing that analytical framework, the Court first observed that in its jurisprudence, it has previously determined "that First Amendment protection extends to corporations." Furthermore, the Court noted, this protection has been extended in its holdings to political speech. Quoting from its 1978 decision in First National Bank of Boston v. Bellotti, the Court announced, "[u]nder the rationale of these precedents, political speech does not lose First Amendment protection 'simply because its source is a corporation.'" "The Court has thus rejected the argument that political speech of corporations or other associations should be treated differently under the First Amendment simply because such associations are not 'natural persons.'" Examining whether the prohibition furthers a compelling governmental interest, the Court noted that in its landmark 1976 decision, Buckley v. Valeo , it found that while large campaign contributions create a risk of quid pro quo candidate corruption, large independent expenditures do not. In Buckley, the Court noted, it "emphasized that 'the independent expenditure ceiling ... fails to serve any substantial governmental interest in stemming the reality or appearance of corruption in the electoral process.'" Indeed, the Court remarked, if the ban on corporate and labor union independent expenditures had been challenged in the wake of Buckley, "it could not have been squared with the reasoning and analysis of that precedent." Less than two years after its decision in Buckley , the Court decided a case that "reaffirmed the First Amendment principle that the Government cannot restrict political speech based on the speaker's corporate identity." In Bellotti, the Court struck down as unconstitutional a state law prohibiting corporate independent expenditures related to referenda. It is important to note that Bellotti did not consider the constitutionality of a ban on corporate independent expenditures to support candidates , but if it had, the Court announced, such a restriction would have also been unconstitutional in order to be consistent with the main tenet of the Bellotti decision, "that the First Amendment does not allow political speech restrictions based on a speaker's corporate identity." According to the Court, it was not until its 1990 decision, Austin v. Michigan Chamber of Commerce , that it squarely evaluated the constitutionality of a direct restriction on independent expenditures for political speech in a candidate election. In Austin , the Court upheld a Michigan state law prohibiting and imposing criminal penalties on corporate independent expenditures that supported or opposed any candidate for state office. "To bypass Buckley and Bellotti , the Austin Court identified a new governmental interest in limiting political speech: an antidistortion interest." In Austin, the Court identified a compelling governmental interest in preventing "the corrosive and distorting effects of immense aggregations of wealth ... accumulated with the help of the corporate form," with "little or no correlation to the public's support for the corporation's political ideas." As a result, the Court in Citizens United faced "conflicting lines of precedent." One did not allow for restrictions on political speech that were based on the corporate identity of the speaker, while the other did. Rejecting the antidistortion rationale that it had relied upon in Austin, the Court announced that it could not support the ban on corporate independent expenditures. According to the Court, the antidistortion rationale would have the "dangerous" and "unacceptable" result of permitting Congress to ban the political speech of media corporations. Although media corporations are currently exempt from the federal ban on corporate expenditures, the Court announced that upholding the antidistortion rationale would allow their speech to be restricted, which First Amendment precedent does not support. In addition, the Court determined that the Austin precedent "interferes with the 'open marketplace' of ideas protected by the First Amendment," permitting the speech of millions of associations of citizens—many of them small corporations without large aggregations of wealth—to be banned. Accordingly, the Supreme Court overruled its holding in Austin v. Michigan Chamber of Commerce and the portion of its decision in McConnell v. FEC upholding the facial validity of Section 203 of BCRA, finding that the McConnell Court relied on Austin . In so doing, the Court invalidated not only Section 203 of BCRA, but also § 441b's prohibition on the use of corporate treasury funds for communications expressly advocating election or defeat of a federal candidate. The Court upheld the disclaimer and disclosure requirements in Sections 201 and 311 of BCRA as applied to the movie that Citizens United produced and the broadcast advertisements it planned to run promoting the movie. According to the Court, while they may burden the ability to speak, disclaimer and disclosure requirements "impose no ceiling on campaign-related activities," and "do not prevent anyone from speaking." Citizens United argued that the disclosure requirements could deter donations to the organization because donors may fear retaliation. In response, the Court, relying on its holding in McConnell v. FEC , reiterated that such requirements would be unconstitutional as applied to an organization if there were a reasonable probability that its donors would be subject to threats, harassment or reprisals. In this case, however, the Court found that Citizens United offered no evidence of such threats. In a strongly worded dissent, Justice Stevens criticized the Court's opinion, arguing that its decision to overrule Austin v. Michigan Chamber of Commerce and to find Section 203 of BCRA facially unconstitutional was made "only after mischaracterizing both the reach and rationale of those authorities, and after bypassing or ignoring the rules of judicial restraint." The dissent disagreed with the Court's conclusion that the avoidance of corruption and its appearance does not justify the regulation of corporate expenditures in candidate elections. Rather, the dissenting justices would have upheld the regulation because "the longstanding consensus on the need to limit corporate campaign spending should outweigh the wooden application of judge-made rules." In brief, before the Court's ruling, corporations and labor unions were prohibited from using their general treasury funds to make expenditures for communications expressly advocating election or defeat of a clearly identified federal candidate. In addition, 30 days before a primary and 60 days before a general election, corporations and unions were prohibited from using general treasury funds to finance electioneering communications. However, corporations and labor unions were permitted to use political action committees (PACs), financed with regulated contributions from employees or members, to make independent expenditures for express advocacy communications and to fund electioneering communications within the restricted time periods. As a result of the Court's ruling, it appears that federal campaign finance law does not restrict corporate and, most likely, labor union use of their general treasury funds to make independent expenditures for any communication expressly advocating election or defeat of a candidate, including broadcast and cablecast communications made immediately prior to an election. Corporations and unions may still establish PACs, but are only required to use PAC funds in order to make contributions to candidates, parties, and other political committees. | In a 5-to-4 ruling, the Supreme Court in Citizens United v. FEC invalidated two provisions of the Federal Election Campaign Act (FECA), codified at 2 U.S.C. § 441b. It struck down the long-standing prohibition on corporations using their general treasury funds to make independent expenditures, and Section 203 of the Bipartisan Campaign Reform Act of 2002 (BCRA), which amended FECA, prohibiting corporations and labor unions from using general treasury funds for "electioneering communications." The Court determined that these restrictions constitute a "ban on speech" in violation of the First Amendment. In so doing, the Court overruled its earlier holdings in Austin v. Michigan Chamber of Commerce, finding that it provided no basis for allowing the government to limit corporate independent expenditures. The Court also overruled the portion of its decision in McConnell v. FEC upholding the facial validity of Section 203, finding that the McConnell Court relied on Austin. The Court, however, upheld the disclaimer and disclosure requirements in Sections 201 and 311 of BCRA as applied to the movie that Citizens United produced and the advertisements it planned to run promoting the movie. According to the Court, while they may burden the ability to speak, disclaimer and disclosure requirements "impose no ceiling on campaign-related activities." As a result of the Court's ruling, it appears that federal campaign finance law does not limit corporate and, most likely, labor union use of their general treasury funds to make independent expenditures for any communication expressly advocating election or defeat of a candidate, including broadcast and cablecast communications made immediately prior to an election. Corporations and unions may still establish PACs, but are only required to use PAC funds in order to make contributions to candidates, parties, and other political committees. |
On July 16, 2015, the Office of Surface Mining Reclamation and Enforcement (OSM) of the Department of the Interior proposed a Stream Protection Rule. It would revise regulations that implement Title V of the Surface Mining Control and Reclamation Act (SMCRA), the law that governs the permitting of coal mining operations. Portions of the existing rules were promulgated more than 30 years ago. OSM asserts that updated rules, which have been under development for more than five years, are needed to reflect current science, technology, and modern mining practices. The proposed revisions were based on several needs for federal regulatory action identified by OSM. A need for regulatory changes to improve implementation of SMCRA provisions related to stream protection. A need for adequate data to evaluate the impacts of coal mining operations and ensure implementation of SMCRA's requirements. A need for adequate objective standards to effectively evaluate compliance and limit or prevent adverse impacts, as appropriate. A need to apply current information, technology, and methods to incorporate advances in scientific knowledge that have occurred since the SMCRA regulations were adopted. To stakeholders, the proposed rule raised a number of issues, including whether new federal rules are needed and, in particular, whether OSM's proposed approach will improve and strengthen implementation of the law. The rule has been controversial since OSM began developing it in 2009. Critics in the coal mining industry and some Members of Congress have argued that revisions of existing rules are not needed and will impose costs that will greatly affect the viability of the coal mining industry in the United States. The new rules are part of a "war on coal" by the Obama Administration, some say. At the same time, some environmental advocacy groups that have generally supported OSM's efforts to strengthen regulation of coal mining operations now contended that the proposed rule was not strong enough. Thus, a related issue is whether an alternative regulatory approach with greater benefits but also increased costs would better achieve SMCRA's purposes. This report is intended to assist consideration of issues raised by the Stream Protection Rule. The report briefly describes SMCRA and the context for the 2015 proposed rule. It discusses major elements of the 2015 proposal and OSM's estimates of its impacts (costs and benefits). The report describes reactions to the proposed rule by stakeholders and legislation and oversight in Congress. Finally, it highlights key elements of the final rule, which was released by OSM on December 19, 2016. Congress enacted SMCRA in 1977 ( P.L. 95-87 ). The statute established OSM within the Department of the Interior and charged the Secretary of the Interior with the responsibility to carry out the requirements in the act both directly and by promulgating regulations. Section 102 of the statute specifies a number of purposes, beginning with to "establish a nationwide program to protect society and the environment from the adverse effects of surface coal mining operations." Another stated purpose acknowledges that the statute reflects a need to "strike a balance between protection of the environment and agricultural productivity and the Nation's need for coal as an essential source of energy." Regarding the statute as a whole, it has been observed that "[e]xcept for the laws governing the handling and disposal of hazardous waste, the complexity of the SMCRA program is unsurpassed in environmental law." Congress identified stream protection as a fundamental purpose of SMCRA, as reflected in one of the congressional findings in the statute. [M]any surface mining operations result in disturbances of surface areas that burden and adversely affect commerce and the public welfare by destroying or diminishing the utility of land for commercial, industrial, residential, recreational, agricultural, and forestry purposes, by causing erosion and landslides, by contributing to floods, by polluting the water, by destroying fish and wildlife habitats, by impairing natural beauty, by damaging the property of citizens, by creating hazards dangerous to life and property, by degrading the quality of life in local communities, and by counteracting governmental programs and efforts to conserve soil, water, and other natural resources; Section 515 of the act details minimum performance standards for environmental protection and public health and safety, which apply to surface coal mining and reclamation operations, surface effects of underground coal mining operations, and surface coal mining in special areas or in special circumstances (such as mountaintop removal mining and steep slope mining). It generally requires that land be restored after mining to its approximate original contour (AOC), that it be revegetated, that acid mine drainage be prevented, that subsided lands be restored, that erosion be controlled, and that certain other measures be taken to reclaim affected lands and waters. Section 506 of SMCRA requires a mining operator to obtain a permit from the regulatory authority prior to the commencement of mining operations. The scope of the permit encompasses the life-cycle of the mining operations from the siting of the mining area through the extraction of coal and related activities, the management and disposal of mining wastes, and the reclamation of affected lands and waters once extraction is complete. Commencing mining operations without an approved permit issued by the regulatory authority is unlawful under SMCRA, and is subject to enforcement actions. In applying for a permit, the applicant must submit its proposal for mining operations to the regulatory authority and specify the measures that would be taken to ensure compliance with the requirements and criteria of SMCRA and the implementing regulations. Prior to the issuance of the permit by the regulatory authority, Section 509 of SMCRA also requires the applicant to obtain a performance bond to demonstrate its financial capability to fulfill permit obligations through reclamation after mining ceases. Section 503 of SMCRA provides that any state may obtain primary jurisdiction over regulating surface coal mining and reclamation operations on non-federal and non-Indian lands through submission of a program for approval by OSM. Once a state's program is approved, the state has the primary responsibility for achieving the purposes of the act. A primacy state is the sole issuer of permits, and OSM maintains a limited role in a state with an approved program. It evaluates each state's performance in carrying out its approved program, and it provides backup enforcement against violating operators in the event of default by the state. States are required to submit amendments to their programs (e.g., changes to state statutes or regulations) to OSM for determining consistency with the federal program. According to OSM, coal mining is currently occurring in 26 states. To date, all but two of those states (Tennessee and Washington) have achieved program primacy; OSM directly regulates surface coal mining and reclamation activities in those two states. At present, no Tribes have primacy. The permit is the heart of the SMCRA program, enabling regulatory authorities to determine whether mining may occur and to establish the terms for mining. The permit requirement is designed to protect the public health, safety, and the environment by conditioning permit issuance on the applicant's demonstration that mining and reclamation can be successfully accomplished. The permit requires the mine operator to plan the operation in detail to identify and avoid adverse environmental impacts and to facilitate site reclamation after mining is complete. Some have noted that it also gives the regulatory authority significant enforcement powers over the mining operation, including a basis for evaluating the feasibility of reclamation and risk, if any, to water supplies, land surfaces, public facilities, and other resources. Permits generally are issued for five-year terms. A valid permit carries the right of successive renewal, unless the regulatory authority finds that present mining and reclamation operations are not in compliance with SMCRA and its regulations, or for other reasons, such as the operator has not provided adequate performance bonding. The goal of the Clean Water Act (CWA) is to "restore and maintain the chemical, physical, and biological integrity of the Nation's waters." To do so, Section 301 prohibits the discharge of pollutants from point sources into waters of the United States unless consistent with the requirements of the act. The CWA authorizes the discharge of pollutants under two different permit programs, both of which are likely to apply to coal mining activities. Section 404 authorizes discharges of dredged or fill materials into waters of the United States, while Section 402 governs discharges of pollutants other than dredged or fill material. Permits issued under Section 402, known as NPDES permits, restrict the amount of specified pollutants that may be discharged. Section 404 permits are issued by the U.S. Army Corps of Engineers (except in New Jersey and Michigan, which are not coal mining states), while Section 402 permits are generally issued by states, including all current coal mining states. The Environmental Protection Agency (EPA) has developed technology-based wastewater effluent limitations for surface coal mining and reclamation operations, which are codified in 40 C.F.R. Part 434. These technology-based effluent limits and any more stringent water quality-based limits necessary to meet applicable state water quality requirements must be incorporated in NPDES permits. In addition, Section 401 of the CWA requires that each applicant for a federal license or permit submit a certification from the state in which the discharge originates that the discharge will comply with federal and state water quality requirements. Although both SMCRA and the CWA are concerned with environmental impacts of regulated activities, they provide for separate regulatory programs with different purposes and permitting requirements and procedures. The CWA focuses primarily on regulating discharges of pollutants into waters of the United States from coal mining and a wide range of other sources, whereas SMCRA regulates environmental and other impacts of surface coal mining and reclamation operations. The requirements of the CWA have independent force and effect, regardless of the terms of the SMCRA permit, as is recognized in Section 702(a) of SMCRA, which provides that "Nothing in this Act shall be construed as superseding, amending, modifying, or repealing the [Clean Water Act], the State laws enacted pursuant thereto, or other Federal laws relating to the preservation of water quality." Further, Section 508 of SMCRA requires that each permit application include "the steps taken to comply with applicable air and water quality laws and regulations and any applicable health and safety standards." OSM points out that SMCRA, unlike the CWA, provides for the regulation of the environmental impacts, including the hydrologic impacts, of all phases of mining operations—design, operation, and reclamation. Concerning coal mining, the CWA's regulatory scope is more limited than SMCRA's. The legislative history of SMCRA notes the limitations of the CWA concerning environmental impacts of coal mining activities. The [CWA] does not contain the statutory authority for the establishment of standards and regulations requiring comprehensive preplanning and designing for appropriate mine operating and reclamation procedures to ensure protection of public health and safety and to prevent the variety of other damages to the land, the soil, the wildlife, and the aesthetic and recreational values that can result from coal mining. In 1979 OSM promulgated permanent program performance standards to implement SMCRA, including the stream buffer zone rule, for surface and underground mining operations. The stream buffer zone rule provided that no surface area within 100 feet of a perennial stream (a stream having flowing water year-round during a typical year) or a non-perennial stream with a biological community may be disturbed by surface operations or facilities unless the regulatory authority finds that the original stream channel would be restored and that, during and after mining, the activities would not adversely affect the quantity and quality of the stream segment within 100 feet of those activities. Stream-channel diversions done to mine coal beneath a streambed were excluded from these rules. In 1983, OSM revised the stream buffer zone and related rules to protect perennial streams and intermittent streams (streams that have flowing water during certain times of the year, when groundwater provides stream flow) from disturbance by coal mining activities. In order to protect streams from sedimentation and channel disturbance, the 1983 buffer zone rules provided that no land within 100 feet of a perennial or intermittent stream shall be disturbed by surface mining activities, including the dumping of mining waste, unless the regulatory authority grants a variance that specifically authorizes surface mining activities closer to or through such a stream. To grant such a variance, the regulatory authority must find that the proposed mining activity will not cause or contribute to a violation of applicable water quality standards and will not adversely affect water quantity and quality or other environmental resources of the stream. The 1983 rules deleted the requirements in the 1979 rules that the original stream channel be restored and replaced the biological community criterion for determining which non-perennial streams must be protected with a requirement for protecting all intermittent streams. In partial settlement of litigation over coal mining practices in West Virginia, OSM, the Army Corps of Engineers, and EPA developed a draft Programmatic Environmental Impact Statement (PEIS) on the effects of mountaintop removal mining in 2003. The settlement called for OSM to make changes to its stream buffer zone rule to improve consistency with the Clean Water Act. OSM proposed changes to the rules in 2004, but it subsequently decided to prepare a new PEIS and to draft revised rules and did not finalize the 2004 proposal. Both the PEIS and draft rules were released in 2007. OSM issued final revised buffer zone rules in December 2008. As described by OSM, the final rules required that surface coal mining operations be designed to minimize the amount of spoil placed outside the mined-out area, thus minimizing the amount of land disturbed. The rules also required that, to the extent possible, surface coal mining and reclamation operations be designed to avoid disturbance of perennial or intermittent streams and the surface of lands within 100 feet of those streams. If avoidance is not reasonably possible, the rules required that the permit applicant develop and analyze a range of reasonably possible alternatives; the regulatory authority would select the one that would have the least overall adverse impact on fish, wildlife, and related environmental values. According to OSM, the final rules did not mandate avoiding placement of coal mine waste in or within 100 feet of perennial or intermittent streams in all cases, because "there is sometimes no viable alternative to the construction of coal mine waste disposal facilities in perennial or intermittent streams and their buffer zones, in which case avoidance is not reasonably possible." Restoration of stream ecological functions would not be required. The 2008 revised rules eliminated the provision in the 1983 stream buffer zone rule that had required a finding that the proposed activity would not cause or contribute to a violation of water quality standards. In doing so, OSM said that the previous language more closely resembled the Clean Water Act than the underlying provisions of SMCRA. The 2008 rules replaced the finding requirements in the 1983 rules with requirements for a finding that avoiding disturbance of the stream is not reasonably possible and a finding that avoiding disturbance of land within 100 feet of the stream either is not reasonably possible or is not necessary to meet the fish and wildlife and hydrologic balance protection requirements of the SMCRA regulatory program. Because the SMCRA rules would not substitute for or supersede the Clean Water Act, mine operators still would have to comply with the requirements of that law, OSM said. Both industry and environmental groups said that the final rules did little to change the existing practice of disposing excess spoil into valleys and streams. In fact, OSM stated that a key purpose of the 2008 rules was to reduce confusion about the 1983 rule and to conform the regulations to historic practice of federal and state authorities. Environmental groups said that the final rules would actually reduce environmental protection for streams by making it easier for coal mine operators to obtain exemptions from the stream buffer zone requirement, thus increasing destructive mining activities in and around streams. Environmental groups challenged the 2008 rules in federal court. The Obama Administration has broadly focused attention on the environmental impacts of coal mining operations through a number of regulatory and administrative initiatives. In 2009, the Administration requested that the federal court hearing environmentalists' challenge to the 2008 stream buffer zone rules vacate the rules and remand to OSM. The Administration was seeking to return immediately to the more stringent 1983 rule until replacement rules could be adopted. The Administration argued that the 2008 rules do not adequately protect water quality and stream habitat. The court rejected the Administration's request, leaving the 2008 rules in place. However, litigation over the rules continued. In February 2014, the same federal court ruled that the 2008 rules had been issued without necessary consultation with federal wildlife agencies (under the Endangered Species Act). The court vacated the 2008 rules and reinstated the rules that had been in effect previously (the 1983 stream buffer zone rule). In December 2014, OSM formally withdrew the 2008 rules. Withdrawal of the rules was expected to have little impact, because most states had not implemented them due to the litigation. Further, as discussed next, in the interim, OSM had begun efforts to develop new rules. In June 2009, officials of EPA, the Army Corps of Engineers, and the Department of the Interior signed a Memorandum of Understanding (MOU) implementing an interagency plan intended to reduce the harmful environmental impacts of surface coal mining in Appalachian states. The plan included a series of near-term and longer-term administrative actions. One of the actions addressed in the MOU was revision of the 2008 stream buffer zone rule. In November 2009, OSM identified a broad set of regulatory options that it was considering for revisions to the 2008 rules, ranging from formally reinstating the 1983 rule with small conforming changes, to requiring stricter buffer zone requirements for mountaintop removal mining operations on steep slopes. OSM officials subsequently began working on a new rule and an accompanying draft Environmental Impact Statement (EIS), which would apply nationwide, not just in Appalachia. OSM's efforts to revise the rule were criticized, based on concerns about potential economic impacts of the rule and the quality of work on its EIS. However, OSM officials and environmental advocacy groups contended that a new rule was needed to protect waterways from surface mining operations. OSM missed several self-imposed dates for releasing draft revised rules and an EIS, but eventually announced both on July 16, 2015. As indicated since 2009, the proposal—now called the Stream Protection Rule—would apply to coal mining activities nationwide, not just Appalachia. It is broader in scope than the existing stream buffer zone rule, because it deals with the whole mine permit area and outside the permit area, not just the stream buffer zone. A Notice of the Draft EIS was published in the Federal Register on July 17, 2015. The proposed rule was published in the Federal Register on July 27, 2015, as was a Notice of Availability of a draft Regulatory Impact Analysis (RIA) for the proposed rule. In response to requests for more time to review and comment on the documents, on September 10, 2015, OSM extended the original 60-day comment period until October 26, 2015, allowing more than 100 days in total for comments. The 2015 proposed rule was long—262 pages in the Federal Register , consisting of 150 pages of explanatory Preamble and 112 pages of regulatory text—and complex. This section of this report describes major features of the proposal, compared with existing regulations in 30 C.F.R. Chapter VII, drawing in part from descriptions in the Draft EIS. In addition to proposing new stream protection regulatory requirements, the rule would revise and reorganize much of the existing SMCRA implementing rules in the Code of Federal Regulations for clarity purposes, such as making "plain English" revisions to the text. In the Draft EIS, OSM described its position on the need for regulatory improvements: "Despite the enactment of SMCRA and the promulgation of federal regulations implementing the statute, surface coal mining operations continued to have negative effects on streams, fish, and wildlife." Documented problems cited in literature surveys and studies, as well as direct observations of impacts of coal mining operations, prompted OSM to consider a different approach to implementing the provisions of the statute. OSM concluded that evidence indicated that existing regulations were inadequate to meet SMCRA's mandate to "establish a nationwide program to protect society and the environment from the adverse effects of surface coal mining operations." To develop the proposed rule, OSM considered nine regulatory alternatives, including retaining existing rules intact (the No Action Alternative), reinstating the now-vacated 2008 rules, and seven other options with various combinations of regulatory changes intended to be more environmentally protective than existing rules. The preferred alternative (i.e., the proposed rule) retained the basic elements of the 1983 stream buffer zone rule and many other portions of the existing rules. The preferred alternative was not the most environmentally stringent of all of the options evaluated by OSM. However, it included elements from several of the other alternatives considered by OSM that would be more stringent than existing rules, such as new requirements for baseline data collection to determine the impacts of proposed mining operations, more specificity on reclamation plans, and more specificity on measures to protect fish and wildlife from adverse impacts of mining. Under existing rules, the applicant for a SMCRA permit is required to submit certain baseline information: data for existing wells, springs, and other groundwater resources within or adjacent to the proposed permit area; information on surface water quality and quantity sufficient to demonstrate seasonal variation and water usage; and a description of the geology of the proposed permit area and the adjacent area. The proposed rule would have established minimum sample collection intervals and expanded the suite of parameters for which permittees must analyze all water samples. Baseline data would be required on all intermittent and perennial streams and a representative number of ephemeral streams (an ephemeral stream typically has flowing water only during and for a short time after precipitations events). Twelve evenly spaced samples would be required from a consecutive 12-month period. The proposal also would have added a requirement to document the biological condition of perennial and intermittent streams and the sediment load of the watershed, as well as precipitation. Existing rules in effect since 1983 require limited monitoring of the quantity and quality of surface water and groundwater. At a minimum, certain parameters (e.g., pH, total dissolved solids) must be monitored every three months after reclamation is complete until final bond release. The regulatory authority may modify or waive the monitoring requirements at any time if the permittee makes certain demonstrations, including that the operation has minimized disturbance to the hydrologic balance within the permit area and prevented material damage to the hydrologic balance outside the permit area. Under the proposed rule, monitoring of surface water and groundwater during mining and reclamation would have to occur at least quarterly. The permittee would be required to analyze each sample for the same parameters measured during baseline sampling. Monitoring sites are to be designated in the permit. The permittee would have to monitor the biological condition of streams annually until the data demonstrate full restoration of the pre-mining biological condition of the stream. The permittee would be required to review all monitoring data annually to identify adverse trends and collect on-site precipitation measurements using self-recording rain gages. The plan for designing and monitoring surface water runoff control structures would require an inspection following each storm event with a two-year or greater recurrence-interval. Section 510(b)(3) of SMCRA provides that the regulatory authority may not approve a permit for surface coal mining operations unless it first finds that the proposed operation has been designed to prevent material damage to the hydrologic balance outside the permit area. However, neither SMCRA nor existing rules define "material damage to the hydrologic balance outside the permit area." OSM's position, reflected in the existing rules, has been that it would be difficult to establish fixed criteria, because the means for measuring material damage may vary from area to area and from operation to operation. The proposed rule altered the agency's views on defining the term. The proposal defined "material damage to the hydrologic balance outside the permit area" as any adverse impact from surface or underground mining operations on the quantity or quality of surface water or groundwater, or on the biological condition of a perennial or intermittent stream, that would preclude attainment or continuance of any designated surface water use under the Clean Water Act, or any existing or reasonably foreseeable use of surface water or groundwater outside the permit area. The proposed definition was not limited to impacts from surface mining activities or impacts of activities conducted on the surface of the land, but also applied to underground coal mines, such as adverse impacts from subsidence resulting from underground coal mining operations or release of toxic mine discharge to nearby surface waters. Mining in or near streams refers to activities such as construction of sedimentation ponds or coal mine waste disposal facilities that take place within a stream or buffer zone. The activities may sometimes cover the stream. SMCRA rules have long provided that mining activities may not disturb land within 100 feet of a perennial or an intermittent stream unless the regulatory authority specifically authorizes activities closer to, or through, such a stream. The regulatory authority may authorize such activities only after finding that doing so would not cause or contribute to a violation of applicable water quality standards under the Clean Water Act and would not adversely affect the water quantity and quality or other environmental resources of the stream. Although not specifically mentioned in the rules, construction of excess spoil fills, refuse piles, slurry impoundments, and sedimentation ponds in all types of streams and their buffer zones has been allowed by OSM and most state regulatory authorities. Excess spoil minimization is not expressly required by rule, but in practice, most states have adopted policies intended to minimize the generation of excess spoil, as well as Clean Water Act policies to reduce both the number of excess spoil fills and the length of streams covered by those fills. The 1983 SMCRA rules contained no specific protections for ephemeral streams. The preamble to the 1983 rules stated that "[i]t is impossible to conduct surface mining without disturbing a number of minor natural streams, including some which contain biota" and that "the primary objective of the rule is to provide protection for the hydrological balance and related values of perennial and intermittent streams," as they are "streams with more significant environmental-resource value." However, in the preamble to the 2015 proposed rule, OSM described scientific studies completed since the enactment of SMCRA and adoption of existing rules that have documented the importance of headwater streams, including ephemeral streams, in maintaining the ecological health and function of streams located downstream from headwaters and says that OSM no long concurs with the previous characterization of the significance of ephemeral streams. Thus, the proposed rule included some protections for ephemeral streams. The proposed rule would have prohibited mining activities in or through perennial and intermittent streams or on the surface of land within 100 feet of those streams unless the applicant makes certain demonstrations and the regulatory authority makes specified findings. The regulatory authority must find that the proposed activities would not: (1) prevent attainment or maintenance of applicable Clean Water Act designated uses or water quality standards; (2) result in conversion of the stream segment from intermittent to ephemeral, from perennial to intermittent, or from perennial to ephemeral; or (3) cause material damage to the hydrologic balance outside the permit area. These requirements would apply to all mining activities, including excess spoil fills and coal mine waste disposal facilities that extend into the buffer zone, except the construction of excess spoil fills and coal mine waste disposal facilities that cover perennial or intermittent streams. The permittee must establish a 100-foot-wide or wider riparian corridor on each side of every perennial, intermittent, and ephemeral stream following the completion of mining activities. The corridor must be comprised of native trees and shrubs, including species with riparian characteristics. The proposed rule required the applicant to make certain demonstrations to the regulatory authority to construct excess spoil fills and coal mine waste disposal facilities that would encroach upon any part of perennial or intermittent streams. The applicant must demonstrate that there is no practicable alternative that would avoid placement of excess spoil or coal mine waste in the stream; that the location will have the least adverse impact on fish, wildlife, and related environmental values; and that the fish and wildlife enhancement plan would fully and permanently offset any long-term adverse impacts on fish, wildlife, and related environmental values within the footprint of the fill, refuse pile, or impoundments. The existing 1983 rules are intended to ensure that excess spoil fills are stable and safe, while the proposed rule would add requirements to promote environmental protection, including minimizing the adverse effects of fill construction in perennial and intermittent streams. The applicant also is required demonstrate that the excess spoil or coal mine waste disposal facility has been designed so as to not cause or contribute to violating water quality standards or result in formation of toxic mine drainage and that the revegetation plan allows for reforestation of the completed excess spoil fill. The permittee must first obtain all necessary Clean Water Act authorizations and permits before conducting any activity requiring such authorization, and the SMCRA regulatory authority must take enforcement action if the permittee does not get all permits before beginning work. The proposed rule would have prohibited construction of durable rock fills, which has been allowed under existing rules. Durable rock fills use end-dumping as a means of spoil placement. With end-dumping, operators push or dump rock overburden over the side of the mountain into the valley below, with larger rocks rolling to the bottom of the valley, which can create structural instability of the fill and impair good drainage. While end-dumping or other techniques that are not conducive to compaction would be prohibited, other types of fills such as valley fills, head-of-hollow fills, or sidehill fills would be allowed. Mining through streams refers to activities that take place when, because coal is located beneath a streambed, operators divert the stream channel during mining and remove the streambed to extract the coal. The original stream location may or may not be reconstructed after mining. Under the rules in effect since 1983, the regulatory authority could approve diversion of perennial or intermittent streams within the permit area to allow mining through only after making a finding that the diversion would not adversely affect the water quantity and quality and related environmental resources of the stream. The design for restored stream channels for perennial and intermittent streams (or permanent diversion channels for those streams) must restore or approximate the pre-mining characteristics of the original stream channel, including the natural riparian vegetation. The proposed rule would have allowed mining through any type of stream (perennial, intermittent, or ephemeral), provided that the applicant demonstrates to the regulatory authority that there is no reasonable alternative that would avoid mining through or diverting the stream; the operational design would minimize the extent of stream mined through or diverted; and the hydrological form of perennial, intermittent, and ephemeral streams and the ecological function of perennial and intermittent streams could and would be restored using techniques in the proposed reclamation plan. Designs for permanent stream-channel diversions, temporary diversions that would remain in use for two or more years, and stream channels to be restored after completion of mining must adhere to design techniques that would restore or approximate the pre-mining characteristics of the original stream channel. Permittees would not be required to reestablish the pre-mining biological condition of a stream, but it must be adequate to support pre-mining designated uses. The permittee must establish a 100-foot-wide or wider riparian corridor on each side of every perennial, intermittent, and ephemeral stream following the completion of mining activities. The corridor must be comprised of native trees and shrubs, including species with riparian characteristics. Section 515(b) of SMCRA generally requires that mine spoil be returned to the mined-out area and land be restored to its approximate original contour (AOC) after mining. Restoring AOC means that rock that is removed during coal mining is replaced in an effort to achieve the original contour, or surface topography, of the mined area (i.e., a level plateau or gently rolling contour). However, the statute recognizes that for some types of coal mining operations, meeting this requirement can be difficult. During mountaintop removal mining and steep slope mining, in particular, rock that is taken from its natural state and broken up "swells" by as much as 15-25%, and thus cannot be fully returned to the mountain or mine area. The remaining material, called overburden, often is retained in nearby valleys, thus creating valley fills that may bury stream segments. Section 515(c)(2) of SMCRA allows an exception from the AOC requirement for mountaintop removal mining operations. Under existing rules, mountaintop removal mining operations may be exempt from AOC restoration requirements if the post-mining land use and post-mining surface topography requirements of SMCRA are met. To obtain a permit for mountaintop removal mining operations, the proposed post-mining land use must be a commercial, industrial, residential, agricultural, or public facility land use. The regulatory authority must find that the proposed post-mining land use meets all requirements for alternative post-mining land uses and is an equal or better economic or public use of the land compared to its pre-mining use. The proposed rule was generally similar to existing rules in allowing mountaintop removal mining operations to be exempt from the law's AOC requirement. The proposed rule would have required that applicants for AOC variances for mountaintop removal operations demonstrate that no damage would result to natural watercourses within the watershed(s) of the proposed permit and adjacent area. The applicant would have to demonstrate that there would be no adverse changes in parameters of concern in discharges to surface water and groundwater and that no change would occur in the size or frequency of peak flows, as compared to the peak flows that would occur if the permittee restored the site to AOC. The permittee would have to reforest the site with native species, if the site was forested before submission of the permit application, unless reforestation would be inconsistent with the post-mining land use. Section 515(d) of SMCRA also allows surface coal mining operations in steep slope areas to apply for and receive a variance from the law's AOC requirement, in exchange for creation of specific post-mining land use that is compliant with the statute and regulations. Under existing rules, AOC variances for steep slope mining operations are allowed. The proposed post-mining land use must be of an industrial, commercial, residential, or public (including recreational facilities) nature. The post-mining use must be an equal or better economic or public use. The applicant must demonstrate that the proposed operation will improve the watershed when compared to either pre-mining conditions or the conditions that would exist if the applicant restored the area to AOC after mining. Under the proposed rule, requirements allowing steep slope operations to seek AOC variances were generally similar to those under existing rules. Under the proposal, for approval of steep slope variances, permit applicants would have to demonstrate that certain criteria are met. The criteria would include the operation will result in fewer adverse impacts to the aquatic ecology of the impact area than would occur if the site were mined and restored to AOC; surface water flow in the watershed would be improved over both pre-mining conditions and conditions that would exist if the area were mined and restored to AOC; the variance would not result in construction of an excess spoil fill in an intermittent or perennial stream; and any deviations from the pre-mining surface configuration are necessary, appropriate, and no larger than needed to achieve the post-mining land use. Under existing rules, the permittee must restore all disturbed areas to a condition in which they are capable of supporting the uses that they were capable of supporting before any mining or higher or better uses. The permittee must salvage and redistribute all topsoil, unless alternative overburden materials are approved as being equal to or better than the existing available topsoil to support vegetation. Revegetation success standards must be based on the effectiveness of the vegetation to support the approved post-mining land use and general requirements, such as a diverse and permanent vegetative cover. The proposed rule was similar to existing rules, but with greater emphasis on restoration of the site's ability to support the uses it supported before any mining, regardless of the approved post-mining land use. The proposal also placed greater emphasis on construction of a growing medium with an adequate root zone for deep-rooted species and on revegetation with native tree and plant species. It would have required salvage and redistribution of all organic matter (e.g., vegetative materials such as treetops and small logs) from native species in accordance with an approved plan developed by a qualified ecologist or similar expert. Burning and burial of debris from native vegetation would be prohibited, and the operator would have to use materials not otherwise used in the reclamation plan to construct fish and wildlife enhancement measures. Under the existing 1983 rules, in addition to including fish and wildlife resource information for the proposed permit area and adjacent area, each permit application must also include a fish and wildlife protection and enhancement plan. The mine operator must, to the extent possible using best technology currently available (BTCA), minimize disturbances and adverse impacts to fish, wildlife, and related environmental values and enhance such resources where practicable. Surface mining activities must not jeopardize the continued existence of endangered or threatened species or result in the destruction or adverse modification of designated critical habitats of such species in violation of the Endangered Species Act. The permittee must avoid disturbances to wetlands and riparian vegetation along rivers and streams and must avoid disturbances to habitats of unusually high value for fish and wildlife. These resources must be restored or enhanced, where practicable. Where fish and wildlife habitat is to be a post-mining land use, existing rules require that plant species on reclaimed areas be selected based upon their proven nutritional value for fish or wildlife, their use as cover for fish or wildlife, and their ability to support and enhance fish or wildlife habitat after bond release. The proposed rule was similar to existing rules regarding protection of threatened and endangered species, but it also would have codified dispute resolution provisions between OSM and the U.S. Fish and Wildlife Service that have been utilized since 1996 but are not included in existing rules. Likewise, the proposal was similar to existing rules regarding the fish and wildlife resource information and protection and enhancement plan required in the permit application. It further would have required the permittee to establish a 100-foot-wide or wider permanent riparian corridor on each side of every perennial, intermittent, and ephemeral stream following the completion of mining activities. The corridor would have to be comprised of native trees and shrubs, using appropriate species of woody plants if the land would naturally revert to forest under natural succession. Fish and wildlife enhancement measures would be mandatory whenever the proposed operation would result in long-term loss of native forest, loss of other native plant communities, or filling of a segment of an intermittent stream. The proposed rule would have allowed the regulatory authority to prohibit mining of high-value habitats within the proposed permit area. According to the Draft RIA, a final Stream Protection Rule, when promulgated, would take effect in states with federal programs (currently Tennessee and Washington) and on Indian lands 60 days after publication in the Federal Register . Generally, permit applications approved after that date must comply with the rule, and existing mining operations must comply with provisions of the rule no later than the time of permit renewal (within five years). The Draft RIA estimated that in primacy states with approved regulatory programs, implementation may take up to 42 months, as these states develop regulations and policies consistent with a new federal rule (generally taking about 18 months), OSM reviews and approves state program amendments (generally about seven months), and states implement the approved program amendments (within one year from OSM approval). Primacy states would not lose authority over their programs during this period, which could extend beyond the estimated 42 months. Existing mining operations must comply with provisions of the rule no later than the time of their permit renewal (within five years). The Draft RIA report presented OSM's estimates of costs and benefits of the proposed rule, and it also described uncertainties associated with the analyses. OSM estimated that the coal industry will incur annual compliance costs of $52 million under the proposed rule, above baseline costs that would be incurred in the absence of the rule. Forecast compliance costs vary significantly by mine type and between regions. The $52 million total consists of $45 million annually for surface coal mining operations and $7 million annually for underground mining operations. Nearly 46% of the expected compliance costs reflect new regulatory requirements on coal mining operations in the Appalachia region. Of the increased costs for operations in Appalachia, OSM estimated that 72% are for costs to surface mining operations there—or, 33% of the total cost of the rule. Surface mines in the Illinois Basin and Western Interior regions are expected to experience cost increases of $0.60 per ton as a result of the proposed rule, while underground mines in those regions are expected to experience no increase in operational costs. In Appalachia, the average compliance cost for surfaces mines was estimated to increase operational costs by $0.40 per ton, while compliance costs for underground mines in Appalachia are expected to increase $0.01 per ton. OSM also estimated administrative costs of the proposed rule for industry and government, representing primarily monitoring and permitting activities. In most cases, according to the agency, added administrative costs resulting from the rule are expected to be small for industry, adding on average about $0.01 per ton of coal mined. Costs in Appalachia will be slightly higher: $0.03 per ton for surface mining operations and $0.04 per ton for underground mines. Additional administrative costs for government entities are estimated to range from $1,830 per mine for underground mining regulating agencies in the Illinois Basin and the Western Interior, to $2,546 per mine for surface area mining regulating agencies in Central Appalachia and in the Northwest. In total, OSM estimated that government administrative costs will average $46,000 annually, with the highest annual costs experienced by regulating agencies in the Northern Rocky Mountains and Great Plains region ($24,200 total annualized costs). OSM estimated that 382 mines operated by small entities (i.e., mines with fewer than 500 employees, which is the Small Business Administration's definition of small entity) would be affected by the proposed rule. Of the total, 91% of such mines are located in Appalachia. OSM also estimated that 76% of the mines in Appalachia owned by small entities would experience compliance and administrative costs of less than 5% as a share of their revenues. However, nearly 11% of such mines in Appalachia would incur costs of 10% or more. In the Draft RIA, OSM notes that SMCRA Section 507(c) establishes a small operator assistance program and says that, if appropriations for it are made available, this program could assist some small operators with training and financial assistance in preparing elements of permit applications. OSM estimated that compliance costs for SBA small entities would range between zero and 3.6% of gross annual revenues, depending on the mining region. In Appalachia, compliance costs are estimated to average 4.7% of gross annual revenues for surface mines and 2.5% of gross annual revenues for underground mines. OSM estimated that the total aggregate annual compliance and related costs associated with the proposed rule would not exceed $60 million. Because the projected costs would not have an annual effect on the economy of $100 million or more, the rule is not considered an economically significant rule by the Office of Management and Budget, nor is it a major rule under the Small Business Regulatory Enforcement Fairness Act (5 U.S.C. §804.2). Absent the proposed rule, OSM's forecast for U.S. coal production showed a decrease of 162 million tons between 2020 and 2040, representing a 15% decrease during that period. The proposed rule was expected to affect coal production and consumption patterns across the United States over and above baseline conditions. OSM recognized that the proposed rule would increase the cost of producing coal, which may lead to an aggregate reduction in coal production. The agency estimates that under the proposed rule, coal production will decrease in aggregate by about 1.9 million tons annually, or approximately 0.2% compared with production expected under the baseline. OSM stated that the reduction largely reflects substitution of natural gas for coal among U.S. power plants, due to the increase in coal prices expected under the proposed rule. These changes in coal production would not be uniform and were expected to occur primarily in Appalachia (coal production is expected to decrease by 17.9 million tons between 2020 and 2040, or 0.4% of baseline production in the region), the Illinois Basin (an expected decrease of 6.4 million tons, or 0.2% of the region's baseline), and the Northern Rocky Mountain region (expected decrease of 14.7 million tons, or 0.1% of the region's baseline coal production). One measure of the proposed rule's effects could include reduction in coal reserve values associated with the rule, i.e., if coal reserves are "stranded." However, OSM's analysis indicated that there will be no increase in stranded reserves under the proposal (or any of the other alternatives that the agency evaluated to develop the proposal). That is, OSM's engineering analyses determined that the same volume of coal could be mined under the proposed rule as under existing rules. Coal industry employment was projected to decrease by over 15,000 full-time equivalents (FTEs, i.e., one full-time worker employed for one year) between 2020 and 2040, even absent the proposed rule, compared with 90,000 persons employed in 2012. OSM estimated that changes in coal industry employment resulting from the proposed rule will combine with these ongoing trends. Production-related reductions in annual employment demand were anticipated to range from 41 to 590 jobs below baseline projections, but they would be partially offset by annual employment demand increases ranging from 210 to 270 jobs above baseline projections. Some of the expected increased demand for coal-related labor would be for new highly skilled jobs (e.g., engineers and biologists), while others are expected to require similar skills as currently used by the industry (e.g., bulldozer operations). Overall, the proposed rule was expected to reduce coal-related employment by 260 jobs on average each year due to decreased coal mined, while an additional 250 jobs will be created from increased compliance activity on average each year. Severance tax revenue for a state is directly related to coal mining activity. Although the details of individual states' coal severance tax systems vary, regulatory changes that reduce production in a given region will result in reduced tax revenue. Changes in coal production under the proposed rule also were expected to result in changes in coal severance tax revenue to states. In total, OSM forecast an annualized decline in severance tax revenues of $2.5 million, across all coal-producing states. That estimate compares with over $1.1 billion in coal severance tax revenues collected by states in 2012. The anticipated decline would primarily be experienced in West Virginia and Kentucky, which OSM estimated will bear over 80% of the lost severance tax revenues. Overall, OSM asserted that changes in mining practices resulting from the Stream Protection Rule will likely reduce adverse impacts on the environment and human health. For some categories of impacts, OSM was able to quantify benefits in terms of biophysical changes. For example, the agency projected that the proposed rule would improve water quality because fewer stream miles will be adversely affected (i.e., 4 stream miles will not be filled annually, 29 stream miles will be restored annually; 1 downstream stream mile that does not experience adverse water quality impacts will be preserved annually; and 292 downstream stream miles will be improved annually). Similarly, stream restoration and reforestation provisions of the proposal were estimated to result in 2,811 acres of forest improved annually and 20 acres of forest preserved annually. However, because of data limitations, OSM was unable to quantify most categories of benefits or to reliably monetize any of benefits. Qualitatively, the agency projected that the proposed rule would have several types of benefits. Improved aesthetics may improve property values and the quality of recreational opportunities. Reforestation requirements and fill design changes will increase carbon storage and reduce emissions, thus reducing human health risks and climate-change related risks. Stream restoration and reforestation requirements will reduce human exposure to contaminants in drinking water and probability of adverse health effects. Improvements to water quality and forest and biological resources will result in potential for increased recreational opportunities. OSM acknowledged that there were a number of important caveats and limitations in its analyses of impacts of the proposed rule. For example, compliance costs and changes in industry practice that would be associated with the rule are not known with certainty and are likely to vary by mine type and location in ways that cannot be completely captured in OSM's analyses. Also, future coal supply and demand are not known with certainty. Whether the proposed rule will result in permitting delays is unknown, and future regulatory initiatives that could impact the industry are not known or accounted for (e.g., existing and potential environmental regulations beyond the proposed Stream Protection Rule). Finally, OSM's estimates of administrative costs may prove to differ from actual expenses, depending on the accuracy of OSM's assumptions, and the agency is asking for public comment on these costs. Regarding benefits, OSM acknowledged that limitations include the inability to accurately and reliably monetize quantified benefits that are associated with water quality and biological resource improvements, as well as the inability to quantify benefits from the proposed rule accruing to public health, air quality, and recreation. These limitations make it difficult to weigh economic impacts against environmental and public health benefits. Soon after release of the proposed rule, the president of the National Mining Association (NMA) issued a statement criticizing the rule, saying "This is a rule in search of a problem." He called on Congress to block the rule. According to NMA, OSM has produced no evidence to justify more regulations, and the rule will needlessly interfere with state agencies' mining and water quality laws. A statement by the West Virginia Coal Association was similarly critical. "OSM's estimate that 'only' 200 mining jobs would be lost due to the implementation of this plan has about as much validity [as] a carnival sideshow palm reading." In October 2015, NMA released a report that estimated that the proposed rule would eliminate from 40,000-78,000 coal mining jobs. Job losses in coal-related industries could total 281,000, the report said. In response, OSM officials said that they disagreed with some of the mining association study's base assumptions regarding, for example, industry's ability to continue longwall mining, and that those assumptions would mean greatly increased costs. Press reports indicate that state regulators have concerns about the proposed rule, in terms of changes in practices, policies, and state rules that new federal rules would require. Some contend that the proposal would usurp state primacy under SMCRA. States also say that OSM has underestimated administrative costs to regulators that could result from the rule. Some states and mining industry groups have focused particular criticism on OSM for, in their view, failing to adequately consult with affected states during development of the proposed rule. States cooperated, or worked with, OSM in the initial stages of developing the proposed rule, but most dropped out of that process after 2010, reportedly out of concern with the substance of the rule and lack of access to relevant documents. The states' concerns led Congress in December 2015 to direct OSM to provide states with documents, data, drafts, and other material and to re-engage with states prior to finalizing the rule. OSM officials and states disagree about whether the agency has been fully responsive to this congressional directive. Environmental advocacy groups have supported OSM's efforts to develop a more environmentally protective rule, but many are now critical of the proposed rule. Some say that it is long-overdue, but that it does not do enough to protect streams. Press reports indicate that some contend that a rule to prohibit mining activities entirely within the buffer zone would be preferable, in their view. Some advocates fault OSM for not proposing the most environmentally stringent regulatory alternative among those that the agency considered. Regulatory Alternative 2, which OSM did not select, would have prohibited all mining activities in or within 100 feet of perennial streams and would have prohibited the placement of excess spoil in both perennial and intermittent streams. It would have allowed no exceptions from the requirement to restore mined lands to their approximate original contour. These changes would require an amendment to SMCRA, because the law currently allows exceptions to the AOC requirement for mountaintop removal mining and steep slope mining operations. According to OSM, this alternative would have greater benefits than the proposed rule (e.g., 8 stream miles not filled annually, compared with 4 stream miles under the proposal, and 57 stream miles restored annually, compared with 29 stream miles under the proposal), but also nearly twice the compliance costs and twice the reduction in coal production. Environmental groups have expressed concern that, no matter how protective a rule is adopted, enforcement should be strengthened. Congressional interest in OSM's efforts to develop new SMCRA implementing rules has been strong for some time. Senate and House authorizing and appropriations committees have held hearings to examine the proposed rule, raising many issues of concern to policymakers, including transparency of the rule development process, sufficiency of coordination between OSM and state regulators, and potential economic impacts and job loss resulting from the rules. Legislation was introduced in the 114 th Congress to halt or re-direct OSM's activities concerning the Stream Protection Rule. One such bill, the Supporting Transparent Regulatory and Environmental Actions in Mining Act (STREAM Act, H.R. 1644 ), was passed by the House January 12, 2016. The bill would have amended SMCRA to authorize OSM, in cooperation with the Interstate Mining Compact Commission and its member states, to enter into an agreement with the National Academy of Sciences (NAS) to conduct a study on the regulatory effectiveness of the 1983 Stream Buffer Zone rule in order to determine the need for an update of the rule. It also would have required the Secretary of the Interior to make scientific data and information used by OSM to develop any rule, policy, or guidance publicly available. A similar Senate bill, S. 1458 , also titled the STREAM Act, would have amended SMCRA to require the Secretary to make scientific data and information used to develop any rule publicly available, but it did not include a provision for a study by the NAS. A bill reported by the House Appropriations Committee in 2015, making FY2016 appropriations for the Department of Interior, Environment and Related Agencies ( H.R. 2822 ), included provisions to prevent OSM from expending FY2016 appropriated funds to develop, carry out, or implement any guidance, policy, or directive to change the 1983 stream buffer zone rule in FY2016. The House debated this bill in July 2015, but did not take final action on it. The FY2016 appropriations act (Division G of P.L. 114-113 ), enacted in December 2015, did not include provisions to halt OSM's development of the rule. The restriction in H.R. 2822 , had it been enacted, would not have prohibited OSM from utilizing unexpired unobligated balances in the OSM Regulation and Technology Account that could still be available for the rulemaking. OSM released the final Stream Protection Rule on December 19, 2016, to be effective on January 19, 2017. The rule was published in the Federal Register on December 20. The final rule closely resembles the 2015 proposed rule but also reflects a number of revisions. Requirements for baseline water quality monitoring data are revised to reduce required frequency and minimum parameters (see " Baseline Data Collection "). Stream definitions and classifications (e.g., ephemeral, intermittent, and perennial) in the rule are revised for consistency with U.S. Army Corps of Engineers definitions by limiting the scope to conveyances with channels that have a bed-and-bank configuration and an ordinary high water mark. The definition of "material damage to the hydrologic balance outside the permit area" is revised by removing all proposed criteria and instead providing a list of factors that the regulatory authority, in consultation with the Clean Water Act authority, must identify in identifying material damage thresholds (see " Definition of 'Material Damage to the Hydrologic Balance Outside the Permit Area' "). Post-mining requirements for mountaintop removal mining operations are revised. For example, permit applicants will be required to have substantially, but not fully, implemented approved post-mining land use prior to final bond release, and applicants will not be required to post additional bond sufficient to ensure that lands approved for an AOC variance can be returned to AOC if the proposed post-mining land use is not implemented (see " Approximate Original Contour (AOC) and AOC Variances "). OSM provided clarification in response to industry criticism that the rule would effectively prohibit underground mining using longwall technology. The final rule states that it does not prohibit temporary impacts to streams and other water resources as a result of longwall mining as long as those impacts do not rise to the level of material damage to the hydrologic balance outside the permit area. The final Stream Protection Rule clarifies that streamside vegetative corridors, or riparian corridors, which are required to be adjacent to streams that are mined through, are to be at least 100-feet wide on each side of a restored stream, not 50 feet on either side of a stream. OSM prepared a Final Regulatory Impact Analysis (RIA) for the final rule that forecasts lower baseline coal production and increased industry compliance costs, compared with the draft RIA. A number of aspects of OSM's analysis changed as a result of regulatory changes reflected in the final rule, revised estimates based on public comments, and other factors. For example, OSM revised its baseline coal demand estimates because of continuing decline of the coal industry, largely due to substitution of natural gas for coal among U.S. power plants. As a result of reduced demand, the Stream Protection Rule, and other developments, OSM forecast a 10% decrease in national coal production (84 million tons, or 10%) between 2020 and 2040, compared with its previous estimates. Overall, the total compliance costs of the rule increased from the draft to the final rule. The Final RIA concludes that the coal industry will incur annual compliance costs of $81.5 million under the final rule (or 0.1% or less of aggregate annual industry revenues), compared with $52 million under the proposal (see " Impacts of the Proposed Rule "). This was caused by increases in forecasts for total industry and regulatory costs due to the rule, particularly with regard to bonding costs, industry administrative costs such as monitoring, and regulatory authority administrative costs. Despite the higher compliance cost forecast, OSM estimates that employment impacts will be minimal: coal employment will be reduced by 124 coal jobs on average each year due to decreased coal mined, while an additional 280 jobs will be created from increased compliance activity on average each year, for a net employment gain of 156 fulltime equivalents. Industry critics dispute OSM's estimates of compliance costs and employment impacts, and they argue that adverse effects on coal production will be greater than OSM states. The final rule does not reflect more stringent regulatory approaches favored by some advocacy groups. In the Final Environmental Impact Statement for the rule, OSM stated that it continues to believe (as it stated when the rule was proposed in 2015) that approaches such as absolutely prohibiting all surface coal mining and reclamation activities in or within 100 feet of all streams would result in an unacceptable impact on the nation's energy production via coal. Opposition to the final revised rule by coal industry groups and some Members of Congress was immediate after its release, and legislation to overturn the rule was soon introduced, including H.J.Res. 11 and H.J.Res. 16 in the 115 th Congress. These bills would overturn the rule under procedures of the Congressional Review Act (CRA), which established a special parliamentary mechanism whereby Congress can disapprove a final rule promulgated by a federal agency. At least one legal challenge to the final rule was filed in federal court. If the final rule were overturned by legislative or presidential action in the 115 th Congress or by a court, existing rules (i.e., the 1983 stream buffer zone rule) would remain in place, unless or until new rules or guidance were issued. | On July 16, 2015, the Office of Surface Mining Reclamation and Enforcement (OSM) of the Department of the Interior proposed a Stream Protection Rule that would revise regulations implementing Title V of the Surface Mining Control and Reclamation Act (SMCRA). Revised rules are intended to avoid or minimize adverse impacts of coal mining on surface water, groundwater, fish, wildlife, and other natural resources by limiting the mining of coal in or through streams, placement of waste in streams and limiting the generation of mining waste. Some of the existing regulations that would be replaced by the proposed rule were promulgated more than 30 years ago. OSM asserts that updated rules, which have been under development since 2009, are needed to reflect current science, technology, and modern mining practices. The proposal retained the core of existing rules in many respects, including the stream buffer zone rule. It requires that land within 100 feet of a perennial or intermittent stream shall not be disturbed by surface mining activities, including the dumping of mining waste, unless the regulatory authority grants a variance that specifically authorizes surface mining activities closer to or through such a stream. The 2015 proposed rule, called the Stream Protection Rule, also included new requirements for baseline data collection to determine the impacts of proposed mining operations, more specificity on reclamation plans, and more specificity on measures to protect fish and wildlife. OSM estimated that the coal industry would incur annual compliance costs of $52 million under the proposal. These costs would be above baseline costs that would be incurred in the absence of the rule. Costs of the proposed rule were expected to consist of $45 million annually for surface coal mining operations and $7 million annually for underground mining operations. Nearly 46% of the expected compliance costs reflect new regulatory requirements on coal mining operations in Appalachian states. Of the increased costs in those states, OSM estimated that 72% are for costs to surface mining operations there—or, 33% of the total cost of the rule. Other regions also are expected to experience operational costs, but impacts are anticipated to vary across mine type (e.g., surface or underground) and region. Because of data limitations, OSM could not quantify benefits of the proposal, but qualitatively, the agency said that the rule is expected to reduce the adverse impacts of coal mining on water resources and aquatic habitat. To stakeholders, OSM's Stream Protection Rule raised a number of questions, including whether new regulations are needed; if so, whether benefits of the proposed rule justify the projected compliance and associated costs; and whether an alternative regulatory approach with greater benefits but also increased costs would better achieve SMCRA's purposes. Concern that OSM's efforts to develop a new rule would be costly and burdensome to the coal industry has led to strong congressional interest for some time. Oversight hearings have been held, and legislation was introduced in the 114th Congress to halt or re-direct OSM's initiatives, including H.R. 1644 (passed by the House January 12, 2016), S. 1458, and a provision of H.R. 2822. Mining industry groups were very critical of the costs of the proposal, while environmental groups that have generally supported strengthening SMCRA regulations contended that the rule should be stronger to provide more protection to streams. A number of states say that the rule would undermine state authority and that OSM failed to consult adequately with states during development of the rule. OSM issued the final revised Stream Protection Rule on December 19, 2016. Opposition by coal industry groups and some Members of Congress was immediate, and legislation to overturn the rule was introduced, including H.J.Res. 11 and H.J.Res. 16 in the 115th Congress. If the final rule were overturned by legislative or presidential action, the existing rules (i.e., the 1983 stream buffer zone rule) would remain in place, unless or until new rules or guidance were issued. This report briefly describes SMCRA and the context for the 2015 proposed rule. It discusses major elements of the proposal and OSM's estimates of its costs and benefits. It describes congressional activity concerning the proposed rule and highlights key elements of the final rule, which was released on December 19, 2016. |
From the earliest days of commercial radio, the Federal Communications Commission (FCC) and its predecessor, the Federal Radio Commission, have encouraged diversity in broadcasting. This concern has repeatedly been supported by the U.S. Supreme Court, which has affirmed that "the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public," and that "assuring that the public has access to a multiplicity of information sources is a governmental purpose of the highest order, for it promotes values central to the First Amendment." The FCC's policies seek to encourage four distinct types of diversity in local broadcast media: diversity of viewpoints, as reflected in the availability of media content reflecting a variety of perspectives; diversity of programming, as indicated by a variety of formats and content, including programming aimed at various minority and ethnic groups; outlet diversity, to ensure the presence of multiple independently owned media outlets within a geographic market; and minority and female ownership of broadcast media outlets. In addition to promoting diversity, the FCC aims, with its broadcast media ownership rules, to promote localism and competition by restricting the number of media outlets that a single entity may own or control within a geographic market. Localism addresses whether broadcast stations are responsive to the needs and interests of their communities. In evaluating the extent of competition, the FCC considers whether stations have adequate commercial incentives to invest in diverse news and public affairs programming tailored to serve viewers within their communities. In contrast, antitrust authorities primarily consider the prices stations charge advertisers to air commercials during programming, and, in the case of television stations, the prices they charge cable and satellite operators for the retransmission of broadcast programming. Section 202(h) of the Telecommunications Act of 1996 directs the FCC to review its media ownership rules every four years to determine whether they are "necessary in the public interest as a result of competition," and "repeal or modify any regulation it determines to be no longer in the public interest." Section 257(b) of the act directs the FCC to promote policies favoring the diversity of media voices and vigorous economic competition. In 2004, 2011, and 2016, the U.S. Court of Appeals, Third Circuit, directed the FCC to review its broadcast ownership diversity policies in conjunction with the media ownership rules. The FCC must balance this mandate with the requirement that its rules withstand the U.S. Supreme Court's scrutiny of any rules selectively applied to organizations based on the race or gender of their owners. In August 2016, the FCC completed the 2014 Quadrennial Review of its media ownership rules. The final decision contains rules related to (1) the determination and disclosure of media ownership (attribution rules); (2) limits on the type and number of media properties a single entity may own (media ownership rules); and (3) rules designed to enhance media ownership diversity. Three months earlier, the Third Circuit Court of Appeals admonished the FCC for failing to complete the congressionally mandated quadrennial media ownership review, noting that as of May 2016, both the 2010 and 2014 reviews remained open. The new media ownership rules became effective December 1, 2016. The National Association of Broadcasters filed a petition with the FCC requesting that the agency reconsider its 2016 decision by repealing and/or relaxing the rules. The News Media Alliance (formerly known as the Newspaper Association of America) appealed the FCC's rules in the U.S. Court of Appeals, District of Columbia, claiming that the Newspaper/Broadcast Cross-Ownership Rules in particular (described in " Newspaper/Broadcast Cross-Ownership Rules ") are "antiquated" and "no longer serve the public interest," and that the FCC's decision "violates the Administrative Procedure Act, 5 U.S.C. § 706 and the Telecommunications Act of 1996." Prometheus Radio Project has appealed the FCC's rules in the U.S. Court of Appeals, Third Circuit, arguing, among other things, that the FCC's modifications to the rules "permit increased concentration of ownership," and that its decision "violate[s] the Administration Procedure Act, 5 U.S.C. § 551." These cases have been consolidated in the District of Columbia Circuit. The debate over media ownership rules is occurring against the background of sweeping changes in news consumption patterns. Figure 1 illustrates these general trends. Based on surveys conducted by Pew Research Center, the percentage of adults citing local broadcast television as a news source declined from 65% in 1996 to 46% in 2016. Nevertheless, local television still outranks other local news sources. The percentage of respondents who stated that they "got news yesterday" from online sources grew from 2% in 1996 to 38% in 2016. In contrast, those citing printed newspapers as a source they "read yesterday" or use regularly declined from 50% in 1996 to 20% in 2016. These trends raise questions as to whether common ownership of multiple media outlets in the same market might limit diversity of viewpoints as much today as two decades ago. Two characteristics of broadcast television and broadcast radio stations determine whether or not the media ownership rules described in later sections of this report are triggered: (1) the geographic range (or contours ) of their signals, and (2) the limits of their media markets as determined by the Nielsen Company, a market research firm. In the past, the FCC employed analog broadcast television signal contours as one criterion in determining whether television licensees were complying with media ownership rules. On June 12, 2009, however, full-power television stations completed a transition from analog to digital service pursuant to a statutory mandate, thereby rendering the analog contour criteria obsolete. In 2016, the FCC modified the media ownership rules to reflect two digital television service contours: 1. The digital "principal community contour" (digital PCC). This contour specifies the signal strength required to provide television service to a station's community of license. The FCC sought, when defining the digital PCC, to provide television stations with flexibility in siting and building their facilities while still preventing stations from straying too far from their respective communities of license. 2. The digital "noise limited service contour" (digital NLSC). The FCC designed this contour to define a geographic area in which at least 50% of residents can receive the signal a majority of the time. The FCC wanted to ensure that after the digital transition, broadcasters would be able to reach the same audiences they served previously with analog transmissions. The 1 millivolt-per-meter (1 mv/m) contour for FM radio represents a signal that will result in satisfactory service to at least 70% of the locations on the outer rim of the contour at least 90% of the time. In its rules for AM radio stations, the FCC delineates three types of service areas: (1) primary, (2) secondary, and (3) intermittent. Some classes of radio stations render service to two or more areas, while others usually have only primary service areas. The FCC defines the primary service area of an AM broadcast radio station as the service area in which the groundwave is not subject to objectionable interference or fading. The signal strength required for a population of 2,500 or more to receive primary service is 2 millivolts-per-meter (2 mv/m). For communities with populations of fewer than 2,500, the required signal strength is 0.5 mV/m. When the FCC first proposed incorporating AM contour signals in its media ownership rules, it noted that "a one mv/m AM signal is somewhat less than the signal intensity needed to provide service to urban populations, but somewhat greater than the signal at the outer limit of effective non-urban service." The FCC uses Designated Market Areas (DMAs), created by the Nielsen Company, to define local television markets. Nielsen has constructed 210 DMAs by assigning each county in the United States to a specific DMA, based on the predominance of viewing of broadcast television stations licensed to operate in a given Standard Metropolitan Statistical Area. The FCC also relies on the Nielsen Company to define local radio markets. These markets, called "Metros," generally correspond to the metropolitan statistical areas defined by the U.S. government's Office of Management and Budget (OMB), but are subject to exceptions based on historical industry usage or other considerations at the discretion of Nielsen. In contrast to television markets, radio markets do not include every U.S. county. To determine the number of radio stations within a radio market, the FCC uses a database compiled and updated by BIA Kelsey, another market research firm. Many owners of commercial broadcast stations have relationships that fall short of the FCC's definition of common ownership, yet allow the owner of one station to exert substantial influence over the operation and finances of another station. To minimize such behavior, the FCC has developed attribution rules "to identify those interests in or relationships to licensees that confer a degree of influence or control such that the holders have a realistic potential to affect the programming decisions of licensees or other core operating functions." The following summarizes the media attribution rules, as described and modified in the 2014 Quadrennial Review Second Report and Order, and related FCC policies. Joint sales agreements (JSAs) enable the sales staff of one broadcast station to sell advertising time on a separately owned station within the same local market. In 2014, the FCC adopted rules specifying that television JSAs allowing the sale of more than 15% of the weekly advertising time on a competing local broadcast television station are attributable as ownership or control. Congress subsequently twice extended the period by which parties must comply with these rules, ultimately extending the deadline to September 30, 2025. In May 2016, the Third Circuit Court of Appeals ruled that the FCC's initial adoption of such rules in 2014 was procedurally invalid. The court determined that media ownership attribution rules are inextricably linked to media ownership rules. The court ruled that the FCC could not adopt new attribution rules without deciding whether or not to retain its media ownership rules. The court offered no opinion on substantive challenges to the television JSA attribution rules. In August 2016, the FCC readopted its JSA attribution rules in conjunction with its decision to retain the "duopoly rule," which, as described in " Local Television Ownership Rules (Television Duopoly Rules) ," limits ownership of multiple television stations within a market. The FCC's rules also specify that stations must file copies of attributable JSAs with the commission. However, the transition procedures are different from those FCC adopted in 2014. The FCC retained its previous deadline, March 31, 2014, for television licensees to ask the agency to grandfather its JSAs, and gives stations until September 30, 2025, to comply with the JSA rules. Until that time the FCC will permit parties to transfer JSAs to other parties without terminating the grandfathering provisions. The FCC did not specify whether the procedures it adopted in 2014 allowing JSA waivers on a case-by-case basis still apply. Likewise, it did not state how its 2016 decision to allow stations to transfer JSAs would affect the Media Bureau's 2014 public notice regarding close scrutiny of any license transfers involving both JSAs or other operational agreements and a contingent interest or loan guarantee. In August 2016, the FCC adopted new disclosure requirements for all joint operating agreements, broadly encompassed by the term "shared services agreements" (SSAs) among broadcast television stations. Pending approval from the OMB, each station that is a party to an SSA, whether in the same or different television markets, must file a copy of the SSA in its online public inspection file. Licensees may redact confidential or proprietary information. Broadcast licensees must report the substance of oral SSAs in writing to the FCC. The FCC defined an SSA as any agreement or series of agreements, whether written or oral, in which (1) a station provides any station-related services including, but not limited to, administrative, technical, sales, and/or programming support, to a station that is not directly or indirectly under common de jure control permitted under the [FCC's] regulations; or (2) stations that are not directly or indirectly under common de jure control permitted under the [FCC's] regulations collaborate to provide or enable the provision of station-related services, including, but not limited to, administrative, technical, sales, and/or programming support, to one or more of the collaborating stations. The term "station" includes the licensee, including any subsidiaries and affiliates, and any other individual or entity with an attributable interest in the station. SSA disclosure requirements do not apply to noncommercial television stations, radio stations, and newspapers. The FCC concluded that industry-wide disclosure of SSAs is necessary to enable the FCC and the public to comprehensively evaluate the extent to which broadcast television stations use various types of SSAs, the nature of the contractual relationships, and the manner in which specific types of agreements affect competition, diversity, or localism. The FCC declined to make SSAs attributable, but stated that it may do so later. The FCC has five distinct sets of rules governing ownership of multiple media outlets in a single market: (1) local television ownership rules (known as the television duopoly rules); (2) local radio ownership rules; (3) radio/television cross-ownership rules; (4) newspaper/broadcast cross-ownership rules; and (5) the dual network rule. Local television ownership rules (known as the television duopoly rules) limit common ownership of television stations serving the same geographic region. An entity may own or control two television stations in the same television market, so long as the overlap of the stations' signals is limited and the joint control does not violate the "top four/eight voices test" (described below). The FCC uses broadcast television signals to determine when the rules are triggered, and uses television markets to count the voices. The FCC initially adopted a TV duopoly rule in 1941, barring a single entity from owning two or more broadcast television stations that "would substantially serve the same area." In 1964, the FCC adopted the signal overlap component of the rules. The FCC sought to limit "future ownership to a maximum of two stations in most states and, thus ... act indirectly to curb regional concentrations of ownership as well as overlap itself." In 1999, the FCC adopted the "top four ranked/eight voice" component of these rules, as well as the waiver criteria. The "top four ranked" stations in a local market generally are the local affiliates of the four major English-language broadcast television networks—ABC, CBS, Fox, and NBC. The rules apply to the stations' ranking at the time they apply for common ownership. Taking into account geographically large DMAs where viewers on the outskirts of a DMA may not receive the signal of some broadcasters in the DMA, the FCC, in a reconsideration order of January 19, 2001, determined to count toward the eight voices only those stations whose analog signal contours overlap. The "eight voices" test effectively limits duopolies to larger television markets, which have more separately owned television stations than smaller markets. Table 1 summarizes the rules. In August 2016, the FCC changed the applicable signal contours to the digital NLSC to reflect stations' transition to digital television. The FCC found that this modification "accurately reflects current digital service areas while minimizing any potential disruptive impact." In addition, the FCC found that retaining the DMA and contour overlap approach promotes local television service in rural areas by enabling station owners in rural areas to build or purchase an additional station in remote portions of the DMA, as long the digital NTSC contours do not overlap. In August 2016, the FCC prohibited "affiliation swaps" that would enable broadcast licensees to obtain control over two of the top four stations in a market through an exchange of network affiliations with other licensees, such as the swap that occurred in Honolulu, HI, in 2011. In 2016, the FCC retained its "failed station/failing station" waiver test. Under this policy, to obtain a waiver of the local television rules, an applicant must demonstrate that (1) one of the broadcast television stations involved in the proposed transaction is either failed or failing; (2) the in-market buyer is the only reasonably available candidate willing and able to acquire and operate the station; and (3) selling the station to an out-of-market buyer would result in an artificially depressed price. The FCC declined to relax its criteria for determining whether a station is failing or failed, stating that parties might be able to manipulate the data used to determine the criteria. The FCC also preserved the failed station solicitation rule (FSSR). The FSSR requires licensees seeking to apply for a failed station/failing station waiver of the television duopoly rules to notify the public that a failed/failing station is for sale, and demonstrate that it was unsuccessful in securing an out-of-market buyer for the station. The FCC reiterated its assessment in 1999 that the rules promote new entry in a local television market by ensuring that entities located outside of the DMA that are interested in purchasing a station, including women and minorities, will have an opportunity to bid. For more on the relationship between the FSSR and the FCC's diversity policies, see " Ownership Diversity ." The local radio ownership rules limit ownership of radio stations serving the same geographic area. After initially using radio broadcast signals to define the relevant geographic area, the FCC switched to radio markets. The FCC does not have any specific waiver criteria for the local radio ownership rules similar to the failed/failing station criteria it uses for its local television ownership rules. FCC first adopted rules limiting ownership of FM radio stations serving "substantially the same service area" in 1940. In 1943, the FCC adopted rules limiting ownership of AM radio stations "where such station renders or will render primary service to a substantial portion of the primary service area of another [AM] broadcast station." In 1964, the FCC amended the rules to use the service contours of FM and AM stations to define the service area. The FCC first adopted rules limiting ownership of AM and FM stations serving the same area in 1970 and amended them in 1989. In 1992, to address the fact that many radio stations were facing difficult financial conditions, the FCC relaxed the radio ownership rules to establish numerical limits on radio station ownership based on the total number of commercial stations within a market, rather than on whether their signals overlapped. In 1996, as part of the Telecommunications Act of 1996, Congress directed the FCC to revise the rules; the caps specified in Section 202(b) of the Telecommunications Act of 1996, described in Table 2 , remain in place today. In 2016, FCC retained the local radio ownership rules without modification, but adopted some clarifications. The FCC clarified certain aspects of its local radio ownership rules to assign radio stations to Nielsen Audio Metros for the purpose of determining whether a radio station complies with its local radio ownership rules. The FCC stated that in Puerto Rico, the FCC will use radio station signal contour overlaps, rather than the Nielsen Audio Metro, to apply local radio ownership rules due to topographical and market conditions. The radio/television cross-ownership rules limit ownership of broadcast radio and television stations serving the same geographic area. The rules specify conditions regarding the proximity of radio and television stations that trigger the application of the rules, and how to count the number of media voices in a market, including television stations, radio stations, newspapers, and cable systems. The FCC uses broadcast signals to determine when the rules are triggered and a combination of broadcast signals and markets to determine how to count the voices. The FCC first adopted such rules in 1970, characterizing them as an extension of the local radio and television ownership rules. In evaluating when to trigger the rule, FCC used contour limits that were less restrictive than those it adopted in 1964 for the local television and radio ownership rules. In other words, the stations had to be closer together for their joint ownership to be a violation of the rules. In 1999, the FCC added the "media voice" component of the rule. The FCC also adopted the failed station waiver standard it uses for the TV duopoly rule, but declined to adopt a standard for "failing" or "dark" stations. The FCC did not believe that these additional waivers were necessary given its relaxation of the radio/television cross-ownership rules, and the relaxation of radio ownership limits in the 1996 Telecommunications Act. In contrast to the waivers for local television ownership rules, FCC did not apply a FSSR for radio/TV cross-ownership waivers. The rules use Nielsen's DMAs as the geographic regions for counting the number of independently owned and operated voices (i.e., television stations, daily newspapers with circulations exceeding 5% of the households within the DMA, and cable systems). The rules count broadcast television stations with overlapping signals as a single television voice. To count the number of radio voices, the rules specify that the FCC include the number of independently owned radio stations that are in the radio Metro (as defined by a nationally recognized national radio service, such as Nielsen Audio) of (1) the television stations' communities of license, or (2) the radio stations' communities of license. In 2001, the FCC amended the rules to incorporate larger analog signal contour limits of television stations for the purposes of counting voices. In 2016, the FCC retained its radio/television cross-ownership rules, with some modifications, after considering their repeal. The FCC uses two different types of broadcast television signals for the purpose of (1) triggering the radio/television cross-ownership rules, and (2) counting the number of independent television voices within a DMA. In 2016, the FCC redefined the applicable broadcast television signal contours to reflect stations' transition to digital television. The FCC uses the smaller digital PCC for the rules' trigger, and the larger digital NLSC for the television voice count. When explaining why it would use the digital PCC (rather than a digital NLSC) for triggering the rules, the FCC stated that "a television station's [digital] PCC ensures reliable service for the community of license, is already defined in the [FCC's] rules, and can be verified easily in the event of a dispute." The FCC stated that using the digital NLSC to count the number of independent voices is consistent with its approach to the television duopoly rule. The FCC prohibits common ownership of a broadcast television station and an FM radio station if the digital PCC of the television station encompassed the entire community of license of the FM radio station, or the 1 mv/m contour of the FM station encompassed the entire community of license of the broadcast television station. The FCC prohibits common ownership of a broadcast television station and an AM radio station if the digital PCC contour of the television station encompassed the entire community of license of the AM radio station, or the 2 mv/m contour of the AM station encompassed the entire community of license of the broadcast television station. Table 3 further describes the rules. The newspaper/broadcast cross-ownership (NBCO) rules limit ownership of broadcast stations and newspapers serving the same geographic area. In 2016, the FCC modified the rules to consider radio and television markets as well as broadcast signals to determine when the rules are triggered. In contrast to the local television and radio/television cross-ownership rules, the NBCO rules do not include a voice test. For the purposes of these rules, the FCC defines a daily newspaper as "one which is published four or more days per week, which is in the dominant language in the market, and which is circulated generally in the community of publication." A broadcaster may start a new daily newspaper in a local market in which it owns a television or radio station, but may not combine with an existing newspaper. The FCC first adopted NBCO rules in 1975. In evaluating when to trigger the rules, FCC used signal contour limits that were parallel to those it adopted for the radio/television cross-ownership rules. The FCC prohibited common ownership of broadcast stations and newspapers where these signals encompassed the locality of a newspaper. The FCC stated that television and radio stations could be expected, through public affairs programming, to provide coverage of problems of the communities encompassed by the city grade signals, including the newspaper's locality. The FCC stated that it was unreasonable to expect stations to serve the needs of communities located outside of their city grade signal contours, "and it would be unfair to impose any such burden on them to attempt it." Therefore, the FCC did not base its criteria on the overall viewing patterns of a station, but instead on whether the station could "provide meaningful attention to local problems and issues." In 2016, the FCC retained its radio/newspaper cross-ownership (NBCO) rules after considering their repeal. It also retained the general prohibition on the cross-ownership of newspapers and television stations. In addition, the FCC (1) replaced the analog television signal contours specified in the rules with digital signals, and (2) revised the trigger of the NBCO rules to consider the relevant television and radio markets of the stations as well as their signals. Similar to the radio/television cross-ownership rules—but in contrast to the television duopoly rules—the FCC uses the digital PCC for the NBCO rules' trigger. The FCC stated that a television station's [digital] PCC "can be verified in a straightforward manner, which ensures reliable service for the [broadcast television station's] community of license." In 2016, the FCC modified the geographic scope of the NBCO rules by incorporating television DMAs into the rules governing cross-ownership of newspapers and television stations, and Nielsen Audio Metro markets in the rules governing cross-ownership of newspapers and radio stations. Specifically, the FCC prohibits cross-ownership of a full-power television station and a daily newspaper when the community of license of the television station and the community of publication of the newspaper are in the same Nielsen DMA, and the digital PCC of the television station encompasses the entire community in which the newspaper is published. The FCC stated that the DMA requirement ensures that the newspaper and television station serve the same media market, and the contour requirement ensures that they actually reach the same communities and consumers within that large geographic market. The FCC prohibits cross-ownership of a full-power radio station and a daily newspaper, in areas designated as Nielsen Audio Markets, when the community of license of the radio station and the community of publication of the newspaper are in the same Nielsen Audio Metro market, and the service contour of the radio station (i.e., the 1 mV/m contour of an FM station, the 2 mV/m contour of an AM station) encompasses the entire community in which the newspaper is published. When both the community of license of the radio station and the community of publication of the newspaper are not located in the same Nielsen Audio Metro market, then only the second condition applies. The FCC stated that it believes that Nielsen's determination of a radio market's boundaries is useful in considering whether particular communities rely on the same media voices. It further stated that it believes that such a determination, combined with the actual service areas of the respective facilities, gives a stronger picture of the relevant market and instances in which the FCC should prohibit common ownership. Table 4 further illustrates the rules. In 2016, the FCC described three ways licensees can seek relief from the NBCO rules: (1) qualifying for an outright exception to the rules by demonstrating that the broadcast station or newspaper is financially failing or has failed; (2) applying for a waiver by demonstrating, on a case-by-case basis, that the waiver would not unduly harm viewpoint diversity; and (3) qualifying for grandfathered status as a result of the FCC's changes to the geographic scope of the rules. The FCC adopted an exception, rather than a waiver standard, to the rules for proposed mergers involving a failed or failing broadcast station or newspaper, and stated that it would consider waivers of the rules on a case-by-case basis, if the applicants can show the proposed mergers would not harm viewpoint diversity. In adopting the failed/failing station or newspaper exception, the FCC stated the following: It stands to reason that a merger involving a failed or failing newspaper or broadcast station is not likely to harm viewpoint diversity in the local market. If the entity is unable to continue as a standalone operation, and thus contribute to viewpoint diversity, then preventing its disappearance from the market potentially can enhance, and will not diminish, viewpoint diversity. For granting exceptions to the NBCO rules, FCC adopted the same failed/failing criteria it uses for its case-by-case waivers of the television duopoly rules. Applicants need not show, either at the time of their application or during subsequent license renewals, that the tangible and verifiable public interest benefits of the combination would outweigh any harm. The FCC explained that it would not require a public interest showing because it was creating an exception to the NBCO rule, rather than a waiver. The FCC stated that "recognizing that an absolute ban on newspaper/broadcast cross-ownership is overly broad, we believe it is appropriate to provide greater flexibility and certainty in the context of this rule." The FCC did not impose an FSSR requirement for parties seeking to take advantage of this exception to the NBCO rules. The FCC adopted a case-by-case approach to considering waivers of the NBCO rules. The FCC plans to evaluate waiver requests by assessing "the totality of the circumstances for each individual transaction" without measuring it against a set of defined criteria or awarding the applicant an automatic presumption based on a prima facie showing of particular elements. An applicant will need to show the grant of the waiver would not unduly harm viewpoint diversity in the local market. The FCC stated that it believed a case-by-case waiver approach would give it flexibility to allow due consideration of all factors relevant to a case, and enable it to home in quickly on the most important considerations of the proposed transaction and approach them with an openness that might not occur with a set framework. As a result, the FCC stated, it will be able to determine more accurately and precisely whether a proposed combination would have an adverse impact on viewpoint diversity in the relevant local market. Moreover, the FCC stated that specifically allowing for a waiver of the NBCO Rule[s] in cases where applicants can demonstrate that the proposed combination will not unduly harm viewpoint diversity, we signal our recognition that there may be instances where enforcing the prohibition against ownership of a newspaper and broadcast station is not necessary to serve the rule's purpose of promoting viewpoint diversity in the local market. Indeed, it is our determination herein that the public interest would not be served by restricting specific combinations that do not unduly harm viewpoint diversity. To enable a timely public response to waiver requests, the FCC will require broadcast and radio station licensees to file their requests prior to a newspaper acquisition, and commission staff will place the waiver requests on public notice. The FCC will grandfather, to the extent required, any existing newspaper-broadcast combinations that no longer comply with the NBCO rules as a result of the FCC's 2016 changes but will not allow licensees to transfer grandfathered newspaper-broadcast combinations, including those subject to permanent waivers. In addition, the FCC will continue to allow all combinations currently in existence that have been grandfathered or approved by permanent waiver to the extent that grandfathering/permanent waivers are still necessary to permit common ownership. The FCC stated that this policy is consistent with long-standing precedent of requiring transferees or assignees of properties to comply with FCC rules in effect at the time of the transaction. In addition, the FCC stated the policy will drive the broadcast industry toward compliance with current rules when owners voluntarily decide to sell their properties, while minimizing hardships on licensees who would otherwise be forced to sell properties as a result of the FCC's modifications. The dual network rule (described in detail at 47 C.F.R. §73.658(g)) prohibits common ownership of two of the "top four" networks but otherwise permits common ownership of multiple broadcast networks. Generally, the four broadcast networks covered by this definition are ABC, CBS, Fox, and NBC. The FCC first adopted this rule, which originally prohibited ownership of any two networks, with respect to radio in 1941, as part of the Chain Broadcasting Report . The FCC directed the rule at NBC, the only company at that time with two radio networks. The FCC found that the operation of two networks gave NBC excessive control over its affiliated broadcast radio stations, and an unfair competitive advantage over other broadcast radio networks. The FCC extended the dual network rule to television networks in 1946. Section 202(e) of the Telecommunications Act of 1996 directed the FCC to revise its dual network rule to prohibit a party from affiliating with an entity if that entity controlled more than one of the four largest networks—ABC, CBS, Fox, and NBC—or with an entity that controlled one of these four networks and either of two emerging networks in existence at that time. In 2001, the FCC revised the rule to permit one of the four major networks to jointly own one of those emerging networks, which have since merged into the CW network. Today, the CBS Corporation has a partial ownership interest in the CW broadcast network. In 2016, the FCC retained the "dual network" rule without modification, in order to foster its goals of preserving competition and localism. Table 5 summarizes the public-interest rationales for each of the rules. In 2004, 2011, and 2016, the U.S. Court of Appeals, Third Circuit, directed the FCC to review its broadcast ownership diversity policies in conjunction with the media ownership rules. Specifically, the U.S. Court of Appeals ordered the FCC to consider a range of standards for defining entities that would be eligible for exceptions to its media ownership rules, and what the exceptions might be. As evidence of the FCC's "statutory obligation to promote minority and female broadcast ownership," the Third Circuit cited two sections of the Communications Act of 1934. Due to the manner in which the FCC licenses new broadcast stations, however, it is possible that only one of these two sections currently applies. The first section, Section 309(i)(3)(A) of the Communications Act, states, in the context of applications to the FCC for a random selection for licenses or construction permits, that "to further diversify the ownership of the media of mass communications, an additional significant preference shall be granted to any group controlled by a member or members of a minority group." In 1997, however, as part of the Balanced Budget Act of 1997 ( P.L. 105-33 ), Congress directed the FCC to resolve competing applications for commercial broadcast stations by competitive bidding , rather than random selection, and expanded the FCC's competitive bidding authority under Section 309(j) of the Communications Act. The second section cited by the Third Circuit is Section 309(j)(3)(B) of the Communications Act of 1934, which specifies that in awarding licenses and permits via competitive bidding, one of the FCC's objectives must be promoting opportunities for, among others, "businesses owned by members of minority groups and women." To achieve this goal, Section 309(j)(4)(D) of the Communications Act directs the FCC to "ensure that small businesses, rural telephone companies, and businesses owned by members of minority groups and women are given the opportunity to participate in the provision of spectrum-based services, and, for such purposes, consider the use of tax certificates, bidding preferences, and other procedures." In 1999, the FCC relaxed several of its media ownership rules. Acknowledging that various parties expressed concern that greater consolidation of broadcast ownership could make it more difficult for new licensees to enter the broadcasting industry, the FCC stated that (1) it was conducting studies that would enable it to address the requirement that its rules withstand the U.S. Supreme Court's scrutiny of any rules selectively applied to organizations based on the race or gender of their owners, and (2) upon completion of the studies, it would examine steps it could take to expand opportunities for minorities and women to enter the broadcast industry. In addition, as described in " Local Television Ownership Rules (Television Duopoly Rules) ," the FCC reasoned that the notification requirement would give minorities and women interested in purchasing a station an opportunity to bid. The commission reiterated that "the [FCC] has made a number of efforts separate from this proceeding to address minority and female ownership issues, and we hope to take further steps in this area." In 2002, the FCC issued an order repealing and/or further relaxing several media ownership rules, including the failed station solicitation rule (FSSR), described in " Local Television Ownership Rules (Television Duopoly Rules) ," arguing that "the efficiencies associated with operation of two same-market stations, absent unusual circumstances, will always result in the buyer being the owner of another station in that market." The FCC deferred consideration of other proposals to advance minority and female ownership, stating that it would address them in a future rulemaking. In 2004, in Prometheus Radio Project v. Federal Communications Commission (shorthanded as Prometheus I ), the U.S. Third Circuit Court of Appeals remanded the repeal of the FSSR, noting that the FCC did "not explain that preserving minority ownership was the purpose of the FSSR, nor [did] it argue that the FSSR was harmful or ineffective toward this purpose." Also in Prometheus I , the Third Circuit directed the FCC to consider proposals to promote minority broadcast ownership at the same time that it addressed other media ownership rules. The FCC reinstated the FSSR as part of the 2006 Quadrennial Review Order, which it adopted in 2007. In 2003, to help promote diversity of ownership, the FCC established a class of broadcast licensees called "eligible entities" that would be eligible for an exception to its radio/television cross-ownership rules. Specifically, the FCC permitted broadcast licensees to assign or transfer control of a grandfathered combination of radio and television stations to any entity that would qualify as a small business consistent with revenue-based standards for its industry grouping, as established by the Small Business Administration. In 2008, in response to the Third Circuit's directive in Prometheus I , the FCC adopted a range of additional measures designed to promote the diversification of media ownership. The measures enabled eligible entities to abide by less restrictive media ownership and attribution rules, and more flexible licensing policies, than their counterparts. Once again, the FCC used a revenue-based definition. The FCC claimed that the measures would "be effective in creating new opportunities for a variety of small businesses and new entrants, including those owned by women and minorities." It also stated that such a "race- and gender-neutral definition" would enable the FCC to avoid "constitutional difficulties" that might impede timely implementation of its efforts to diversify media ownership. In 2011, in Prometheus Radio Project v. Federal Communications Commission (shorthanded as Prometheus II ), the Third Circuit vacated and remanded each of the measures adopted in the 2008 Diversity Order, ruling that the FCC failed to provide evidence that its revenue-based eligible entity definition would meet its goal of increasing broadcast ownership by minorities and women. The Third Circuit also directed the FCC to consider other proposed definitions for eligible entities, so that the FCC might "adequately justify or modify its approach to advancing broadcast ownership by minorities and women." In 2016, in Prometheus Radio Project v. Federal Communications Commission (shorthanded as Prometheus III ), the Third Circuit concluded that the FCC had unreasonably delayed action on its definition of an eligible entity, and ordered the FCC to "act promptly." In 2016, the FCC adopted rules designed to increase broadcast ownership diversity, and addressed whether the agency believes that it has the constitutional authority to adopt rules specifically targeting minority and female ownership of broadcast stations. The FCC found in 2016 that, though there were differing opinions on the interpretation of the case law, the U.S. Supreme Court could deem the FCC's interest in promoting a diversity of viewpoints sufficient to pass its legal tests for regulations targeting minorities and females. However, even if the FCC's interest in promoting viewpoint diversity were deemed sufficient, the FCC concluded that it lacked sufficient evidence to pass other elements of the Supreme Court's tests for such rules. The FCC cited two reasons: 1. The studies it commissioned on media ownership and Hispanic television (based in part on data from its broadcast ownership reports), as well as studies submitted by commenters, did not demonstrate adequately that the connection between minority and female ownership and viewpoint diversity is direct and substantial. 2. The record did not reveal a feasible means of adopting race- or gender-based measures in a flexible, nonmechanical way. The FCC stated that it did not believe that either Section 257 of the 1996 Telecommunications Act or Section 309(j) of the Communications Act of 1934 requires it to adopt race- or gender- conscious measures in order to promote ownership diversity. The FCC did not discuss Section 309(i) of the Communications Act of 1934. In 2016, the FCC reinstated the revenue-based eligible entity standard, using the Small Business Administration's definition of a "small business." Entities that own broadcast stations and have total annual revenue of $38.5 million or less qualify for exemption from the media ownership rules. Such a definition could potentially apply to entities that own stations engaged in the joint financial and operational arrangements, described in " Joint Sales Agreements ," that the Media Bureau stated it would carefully scrutinize. In 2016 the FCC also reinstated the six measures from its 2008 Diversity Order to enable eligible entities to abide by less restrictive media ownership and attribution rules, and more flexible licensing policies, than their counterparts. By exempting small businesses from some of its ownership and attribution rules, the FCC could potentially undermine the rationales for retaining and tightening these rules, other portions of the 2014 Quadrennial Review, and the Media Bureau Public Notice. | From the earliest days of commercial radio, the Federal Communications Commission (FCC) and its predecessor, the Federal Radio Commission, have encouraged diversity in broadcasting. This concern has repeatedly been supported by the U.S. Supreme Court, which has affirmed that "the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public," and that "assuring that the public has access to a multiplicity of information sources is a governmental purpose of the highest order, for it promotes values central to the First Amendment." The FCC's policies seek to encourage four distinct types of diversity: (1) diversity of viewpoints, as reflected in the availability of media content reflecting a variety of perspectives; (2) diversity of programming, as indicated by a variety of formats and content; (3) outlet diversity, to ensure the presence of multiple independently owned media outlets within a geographic market; and (4) minority and female ownership of broadcast media outlets. In addition to promoting diversity, the FCC aims, with its broadcast media ownership rules, to promote localism and competition by restricting the number of media outlets that a single entity may own or control within a local geographic market. Two characteristics of broadcast television and broadcast radio stations determine whether or not media ownership rules are triggered: (1) the geographic range of their signals, and (2) the boundaries of their media markets as determined by the Nielsen Company, a market research firm. After first adopting rules limiting common ownership of multiple local radio stations, multiple local television stations, and multiple national broadcast networks in the 1940s, the FCC continued to expand and modify media ownership rules. It began to limit cross-ownership of radio and television stations in 1970, and cross-ownership of newspapers and television stations in 1975. The Telecommunications Act of 1996 requires the FCC to review these rules every four years and repeal or modify those it no longer deems to be in the public interest. Following its most recent review, the FCC retained its media ownership rules in 2016, and readopted rules counting broadcast stations that jointly sell advertising time as commonly owned. Pending approval from the Office of Management and Budget (OMB), the FCC will require independently owned broadcast television stations to include resource-sharing agreements in their online public inspection files. In addition, as directed by the U.S. Court of Appeals, Third Circuit, the FCC reviewed its broadcast ownership diversity policies. It concluded that it did not believe the 1996 Telecommunications Act nor the Communications Act of 1934 requires it to adopt race- or gender-conscious measures in order to promote ownership diversity. In order to increase broadcast ownership diversity, FCC also reinstated rules enabling certain small businesses to abide by less restrictive media ownership and attribution rules, and more flexible licensing policies, than their counterparts. The newly approved media ownership and diversity rules took effect on December 1, 2016. The FCC's 2016 review occurred against the background of sweeping changes in news consumption patterns. Surveys conducted by the Pew Research Center show 20% of respondents citing printed newspapers as a source they "read yesterday" or used regularly in 2016, down from 50% in 1996. While the percentage of adults citing local broadcast television as a news source declined from 65% in 1996 to 46% in 2016, it still outranked other local news sources. These trends, along with increased consumption of news online, are contributing to debate in Congress as to whether common ownership of multiple media outlets in the same market might limit diversity of viewpoints as much today as 20 or 40 years ago. |
RS21324 -- Iraq: A Compilation of Legislation Enacted and Resolutions Adopted by Congress, 1990-2003 Updated March 27, 2003 House H.J.Res. 658 Supported the actions taken by the President with respect to Iraqi aggression against Kuwait and confirmed United States resolve. Passed in the House: October 1, 1990 H.Con.Res. 382 Expressed the sense of the Congress that the crisis created by Iraq's invasion and occupation of Kuwait must be addressed and resolved on its own terms separately from otherconflicts in the region. Passed in the House: October 23, 1990 Senate S.Res. 318 Commended the President for his actions taken against Iraq and called for the withdrawal of Iraqi forces from Kuwait, the freezing of Iraqi assets, the cessation of all armsshipments to Iraq, and the imposition of sanctions against Iraq. Passed in the Senate: August 2, 1990 Public Laws P.L. 101-509 ( H.R. 5241 ). Treasury, Postal Service, and General Government Appropriations Act FY1991 (Section 630). Urged the President to ensure that coalition allies were sharing theburden of collective defense and contributing financially to the war effort. Became public law: November 5, 1990 P.L. 101-510 ( H.R. 4739 ). Defense Authorization Act FY1991 (Section 1458). Empowered the President to prohibit any and all products of a foreign nation which has violated the economicsanctions against Iraq. Became public law: November 5, 1990 P.L. 101-513 ( H.R. 5114 ). The Iraq Sanctions Act of 1990 (Section 586). Imposed a trade embargo on Iraq and called for the imposition and enforcement of multilateral sanctions inaccordance with United Nations Security Council Resolutions. Became public law: November 5, 1990 P.L. 101-515 ( H.R. 5021 ). Department of Commerce, Justice, and State Appropriations Act FY1991 (Section 608 a & b). Restricted the use of funds to approve the licensing for export of anysupercomputer to any country whose government is assisting Iraq develop its ballistic missile program, or chemical,biological, and nuclear weapons capability. Became public law: November 5, 1990 Public Laws P.L. 102-1 ( H.J.Res. 77 ). Authorization for Use of Military Force Against Iraq Resolution . Gave congressional authorization to expel Iraq from Kuwait in accordance with United NationsSecurity Council Resolution 678, which called for the implementation of eleven previous Security CouncilResolutions. Became public law: January 12, 1991 P.L. 102-138 ( H.R. 1415 ). The Foreign Relations Authorization Act for FY1992 (Section 301). Stated that the President should propose to the Security Council that members of the Iraqiregime be put on trial for war crimes. Became public law: October 28, 1991 P.L. 102-190 ( H.R. 2100 ). Defense Authorization Act for FY1992 (Section 1095). Supported the use of "all necessary means to achieve the goals of United Nations Security CouncilResolution 687 as being consistent with the Authorization for Use of Military Force Against Iraq Resolution ( P.L.102-1 )." Became public law: December 5, 1991 Public Laws P.L. 103-160 ( H.R. 2401 ). Defense Authorization Act FY1994 (Section 1164). Denied defectors of the Iraqi military entry into the United States unless those persons had assisted U.S. orcoalition forces and had not committed any war crimes. Became public law: November 30, 1993 P.L. 103-236 ( H.R. 2333 ). Foreign Relations Authorization Act FY1994, 1995 (Section 507). Expressed the sense of Congress that the United States should continue to advocate themaintenance of Iraq's territorial integrity and the transition to a unified, democratic Iraq. Became public law: April 30, 1994 House H.Res. 120 Urged the President to take "all appropriate action" to secure the release and safe exit from Iraq of American citizens William Barloon and David Daliberti, who had mistakenlycrossed Iraq's border and were detained. Passed in the House: April 3, 1995 Senate S.Res. 288 Commended the military action taken by the United States following U.S. air strikes in northern Iraq against Iraqi radar and air defense installations. This action was taken duringthe brief Kurdish civil war in 1996. Passed in the Senate: September 5, 1996 House H.Res. 322 Supported the pursuit of peaceful and diplomatic efforts in seeking Iraqi compliance with United Nations Security Council Resolutions regarding the destruction of Iraq'scapability to deliver and produce weapons of mass destruction. However, if such efforts fail, "multilateral militaryaction or unilateral military action should be taken." Passed in the House: November 13,1997 H.Con.Res.137 Expressed concern for the urgent need of a criminal tribunal to try members of the Iraqi regime for war crimes. Passed in the House: January 27, 1998 H.Res. 612 Reaffirmed that it should be the policy of the United States to support efforts to remove the regime of Saddam Hussein in Iraq and to promote the emergence of a democraticgovernment to replace that regime. Passed in the House: December 17, 1998 Senate S.Con.Res. 78 Called for the indictment of Saddam Hussein for war crimes. Passed in the Senate: March 13, 1998 Public Laws P.L. 105-174 ( H.R. 3579 ). 1998 Supplemental Appropriations and Rescissions Act (Section 17). Expressed the sense of Congress that none of the funds appropriated or otherwise madeavailable by this act be used for the conduct of offensive operations by the United States Armed Forces against Iraqfor the purpose of enforcing compliance with United Nations Security CouncilResolutions, unless such operations are specifically authorized by a law enacted after the date of the enactment ofthis act. Became public law: May 1, 1998 P.L. 105-235 ( S.J.Res. 54 ). Iraqi Breach of International Obligations . Declared that by evicting weapons inspectors, Iraq was in "material breach" of its cease-fire agreement. Urged thePresident to take "appropriate action in accordance with the Constitution and relevant laws of the United States, tobring Iraq into compliance with its international obligations." Became public law:August 14, 1998 P.L. 105-338 ( H.R. 4655 ). Iraq Liberation Act of 1988 (Section 586). Declared that it should be the policy of the United States to "support efforts" to remove Saddam Hussein from power inIraq and replace him with a democratic government. Authorized the President to provide the Iraqi democraticopposition with assistance for radio and television broadcasting, defense articles and militarytraining, and humanitarian assistance. Became public law: October 31, 1998 House H.J.Res. 75 Stated that Iraq's refusal to allow weapons inspectors was a material breach of its international obligations and constituted "a mounting threat to the United States, its friends andallies, and international peace and security." Passed in the House: December 20, 2001 Public Laws P.L. 107-243 ( H.J.Res. 114 ). To Authorize the Use of United States Armed Forces against Iraq . Authorized the President to use armed force to defend the national security of the United Statesagainst the threat posed by Iraq and to enforce all relevant U.N. resolutions regarding Iraq. Became public law:October 16, 2002 House H.Con.Res. 104 Expresses the unequivocal support and appreciation of the nation (1) to the President as Commander-in-Chief for his firm leadership and decisive action in the conduct ofmilitary operations in Iraq as part of the on-going Global War on Terrorism; (2) to the members of the U.S. armedforces serving in Operation Iraqi Freedom, who are carrying out their missions withexcellence, patriotism, and bravery; and (3) to the families of the U.S. military personnel serving in Operation IraqiFreedom, who are providing support and prayers for their loved ones currently engagedin military operations in Iraq. Passed in the House: March 21, 2003. Senate S.Res. 95 Commends and supports the efforts and leadership of the President, as Commander in Chief, in the conflict against Iraq. Commends, and expresses the gratitude of the nation to allmembers of the U.S. armed forces (whether on active duty, in the National Guard, or in the Reserves) and thecivilian employees who support their efforts, as well as the men and women of civiliannational security agencies who are participating in the military operations in the Persian Gulf region, for theirprofessional excellence, dedicated patriotism, and exemplary bravery. Expresses the deepcondolences of the Senate to the families of brave Americans who have lost their lives in this noble undertaking,over many years, against Iraq. Expresses sincere gratitude to British Prime Minister TonyBlair and his government for their courageous and steadfast support, as well as gratitude to other allied nations fortheir military support, logistical support, and other assistance in the campaign againstSaddam Hussein's regime. Passed in the Senate: March 20, 2003. For a complete list of 108th legislation related to Iraq that has been proposed in either the House or the Senate, please see Iraq - U.S. Confrontation: Legislation in the 108th Congress (3) available online at http://www.crs.gov/products/browse/iraqleg.shtml . | This report is a compilation of legislation on Iraq from 1990 to the present. The list is composed of resolutions and public laws relating to military action ordiplomatic pressure to be taken against Iraq. (1) Thelist does not include foreign aid appropriations bills passed since FY1994 that deny U.S. funds to any nation inviolation of the United Nations sanctionsregime against Iraq. (2) Also, measures that were not passed only in either the House or the Senate are not included (with the exceptionof the proposals in the 108th Congress and several relevant concurrentand joint resolutions from previous Congresses ). For a more in-depth analysis of U.S. action against Iraq, see CRS Issue Brief IB92117, Iraq, Compliance, Sanctions and U.S. Policy. This report will beupdated periodically. |
The United States has gradually shifted its formal drug policy from a punishment-focused model toward a more comprehensive approach—it is now one that focuses on prevention, treatment, and enforcement. The Obama Administration stated that it coordinated "an unprecedented government-wide public health and public safety approach to reduce drug use and its consequences." In its FY2018 budget request, the Trump Administration requested funds for both public health and public safety efforts to combat the opioid epidemic. The proliferation of drug courts in American criminal justice fits this new comprehensive model. Broadly, these specialized court programs are designed to divert some individuals away from traditional criminal justice sanctions such as incarceration. Many drug courts offer a treatment and social service alternative for those who otherwise may have faced traditional criminal sanctions for their offenses. In some drug courts, individuals that have been arrested are diverted from local courts into special judge-involved programs; these courts are often viewed as "second chance" courts. Other drug court programs offer reentry assistance after an offender has served his or her sentence. According to some research, these courts help save on overall criminal justice costs, provide treatment for defendants/offenders with substance abuse issues, and help offenders avoid rearrest. This report will explain (1) the concept of a "drug court," (2) how the term and programs have expanded to include wider meanings and serve additional subgroups, (3) how the federal government supports drug courts, and (4) research on the impact of drug courts on offenders and court systems. In addition, it briefly discusses how drug courts might provide an avenue for addressing the opioid epidemic and other emerging drug issues that Congress may consider. The term "drug courts" refers to specialized court programs that present an alternative to the traditional court process for certain criminal defendants and offenders. Traditionally, these individuals are first-time, nonviolent offenders who are known to abuse drugs and/or alcohol. While there are additional specialized goals for different types of drug courts (e.g., veterans drug courts, tribal drug courts, and family drug courts), the overall goals of adult and juvenile drug courts are to reduce recidivism and substance abuse. Drug court programs may exist at various points in the justice system, but they are often employed postarrest as an alternative to traditional criminal justice processing. Figure 1 illustrates a deferred prosecution, pretrial drug court model where defendants are diverted into drug court prior to pleading to a criminal charge. In many drug court programs, participants have the option to participate in the program. Figure 2 illustrates a postadjudication model where defendants must plead guilty to charges (as part of a plea deal) in order to participate in the drug court program. Upon completion of this type of program, their sentences may be amended or waived, and in some jurisdictions, their offenses may be expunged. These diagrams illustrate two common models of drug courts, but other models (or variations on the above) have been developed around the country. For example, some drug court referrals may come as a condition of probation. Many drug courts, including some federal drug court programs, are actually reentry programs that assist a drug-addicted prisoner with reentering the community while receiving treatment for substance abuse. While drug courts vary in composition and target population, they generally have a comprehensive model involving offender screening and assessment of risks and needs, judicial interaction, monitoring (e.g., drug and alcohol testing) and supervision, graduated sanctions and incentives, and treatment and rehabilitation services. Drug courts are usually managed by a team of individuals from (1) criminal justice, (2) social work, and (3) treatment service. Drug courts typically utilize a multiphase treatment approach including a stabilization phase, an intensive treatment phase, and a transition phase. The stabilization phase may include a period of detoxification, initial treatment assessment, and education, as well as additional screening for other needs. The intensive treatment phase typically involves counseling and other therapy. Finally, the transition phase could emphasize a variety of reintegration components including social integration, employment, education, and housing. A group of criminal justice professionals established the first drug court in Florida in 1989; they are credited with sparking a national movement of problem-solving courts that address specific needs and concerns of certain types of offenders. There are around 3,000 drug courts (of various types) operating in the United States. Drug courts have diversified to serve specialized groups including veterans, juveniles, and college students. Many drug courts are hybrid courts and address issues beyond drug abuse including mental health and alcohol-impaired driving. In some ways, the term "drug courts" appears to be a catch-all phrase for specialized programs for addicted defendants and offenders at various points in the criminal justice process. While the Judicial Conference of the United States has long opposed the creation of specialized federal courts, there has been growing support within the federal court system and the Department of Justice (DOJ) for reentry programs that incorporate some features of drug courts. While some federal district courts have created special programs for drug-involved offenders—these programs are sometimes referred to as "drug courts"—they are largely reentry programs that manage an inmate's reintegration to the community. A few federal drug court programs, however, manage offenders with "front end" diversion options. There have been questions about the effectiveness of drug court programs at the federal level due to the nature of federal crimes and the individuals who are arrested for allegedly committing them. Federal district courts fund these specialized programs from decentralized allotments given to the districts for general treatment and supervision of offenders. As federal districts have budget autonomy, they may elect to establish these specialized court programs. Of note, in 2017 the President's Commission on Combating Drug Addiction and the Opioid Crisis recommended that DOJ establish a federal drug court in every federal judicial district. Enacted in 2016, Section 14003 of the 21 st Century Cures Act (the Cures Act; P.L. 114-255 ) required DOJ to establish a pilot program to determine the effectiveness of federal drug and mental health courts. Within one year of enactment, DOJ, with assistance from the Administrative Office of the United States Courts and the United States Probation Offices, must establish a pilot program in at least one U.S. judicial district that will divert certain offenders with mental illness or intellectual disabilities from federal prosecution, probation, or prison and place the offenders in these specialized courts. As of January 2018, this pilot program is still in the planning stages. Postdeployment, many veterans face unique challenges in readjusting to civilian life, and these challenges may contribute to involvement with the criminal justice system. According to the Bureau of Justice Statistics' (BJS's) National Inmate Survey from 2011 to 2012, approximately 8% (181,500) of the total incarcerated population in the United States are veterans. For approximately 14% (25,300) of these incarcerated veterans, the most serious offense that led to their incarceration was a drug offense, and for approximately 4% (7,100), their most serious offense was driving while intoxicated or impaired. Older BJS survey data indicate that 43% of veteran state prisoners and 46% of veteran federal prisoners met the criteria for drug dependence or abuse in 2004, as opposed to 55% of nonveteran state prisoners and 45% of nonveteran federal prisoners. While veterans in state prison reported lower levels of past drug use than nonveterans, a larger percentage of veterans (30%) than nonveterans (24%) reported a "recent history of mental health services." In 2008, the first veterans court was created in Buffalo, NY, in response to the combined mental health and substance abuse treatment needs of justice system-involved veterans. These court programs are a hybrid model of drug treatment and mental health treatment courts. As of June 2015, there were approximately 306 veterans treatment courts and 6 federal veterans courts. The federal government has demonstrated growing support for the drug court model primarily through financial support of drug court programs, research, and various drug court initiatives. The Department of Justice (DOJ) supports research on drug courts, training and technical assistance for drug courts, and grants for their development and enhancement. The primary federal grant program that supports them is the Drug Court Discretionary Grant Program (Drug Courts Program). DOJ's Office of Justice Programs (OJP), Bureau of Justice Assistance (BJA) jointly administers this competitive grant program along with the Substance Abuse and Mental Health Administration (SAMHSA) within the Department of Health and Human Services (HHS). Grants are distributed to state, local, and tribal governments as well as state and local courts themselves to establish and enhance drug courts for nonviolent offenders with substance abuse issues. See Table 1 for a five-year history of DOJ appropriations for the Drug Courts Program. Drug courts funded through this program may not use federal funding and matched funding to serve violent offenders. Offenders may be characterized as "violent" according to current or past convictions as well as current charges. Of note, an exception to the violent offender restriction is made for veterans treatment courts that are funded through the Drug Courts Program. Since FY2013, BJA has funded the Veterans Treatment Court Program through the Drug Courts Program using funds specifically appropriated for this purpose (see amounts in Table 1 ). As mentioned, these amounts are not subject to the violent offender exclusion according to BJA. The purpose of the Veterans Treatment Court Program is "to serve veterans struggling with addiction, serious mental illness, and/or co-occurring disorders." Grants are awarded to state, local, and tribal governments to fund the establishment and development of veterans treatment courts. While veterans treatment court grants have been part of OJP's Drug Courts Program for several years, the Comprehensive Addiction and Recovery Act of 2016 (CARA; P.L. 114-198 ), authorized DOJ to award grants to state, local, and tribal governments to establish or expand programs for qualified veterans, including veterans treatment courts, peer-to-peer services, and treatment, rehabilitation, legal, or transitional services for incarcerated veterans. Based on a review of program activity at the Department of Veterans Affairs (VA), the VA does not offer funding for veterans treatment courts; however, the VA operates a Veterans Justice Outreach (VJO) program, which provides outreach and linkage to VA services for justice system-involved veterans, including those involved with veterans courts or drug courts. Other DOJ grants, including the Edward Byrne Memorial Justice Assistance Grants (JAG) and Juvenile Accountability Block Grants (JABG), may be used to fund drug courts. One of the broader purpose areas of the JAG program is to improve prosecution and courts programs as well as drug treatment programs. The JABG program includes a purpose area to establish juvenile drug courts. Of note, the last time JABG received an appropriation was in FY2013, and it has been unauthorized since it expired in FY2009. The Office of National Drug Control Policy (ONDCP), under its Other Federal Drug Control Programs account, offers drug court training and technical assistance grants, as well as support for other initiatives. As mentioned, SAMHSA jointly administers the Drug Courts Program with BJA. In addition, SAMHSA administers other grants that support drug courts. Grants go toward the creation, expansion, and enhancement of adult and family drug courts and treatment drug courts. For FY2016, SAMHSA funded 122 drug court continuations, 60 new drug court grants, and four contracts. In FY2017, SAMHSA planned to fund 103 drug court continuations, 71 new drug court grants, and two contracts. Jurisdictions have sought to utilize drug courts to treat individuals' drug addictions, lower recidivism rates for drug-involved offenders, and lower costs associated with processing these defendants and offenders. Since the inception of drug courts, a great deal of research has been done to evaluate their effectiveness and their impact on offenders, the criminal justice system, and the community. Much of the research yields positive outcomes. Over the last decade, the National Institute of Justice, through its CrimeSolutions.gov evaluation program, has evaluated 21 drug court programs and found that 19 of them had either "effective" or "promising" ratings while two had ratings of "no effects." Most reported positive results for recidivism outcomes. For cost evaluations, only some programs had these data and these evaluations showed mixed results. Some programs showed significant cost savings while others had insignificant findings for cost impacts. Several studies have demonstrated that drug courts may lower recidivism rates and/or lower costs for processing defendants and offenders compared to traditional criminal justice processing. For example, one group of researchers examined the impact of a drug court over 10 years and concluded that treatment and other costs associated with the drug court (investment costs) per offender were $1,392 less than investment costs of traditional criminal justice processing. In addition, savings due to reduced recidivism (outcome costs) for drug court participants were more than $79 million over the 10-year period. A collaboration of researchers conducted a five-year longitudinal study of 23 drug courts from several regions of the United States and reported that drug court participants were significantly less likely than nonparticipants to relapse into drug use and participants committed fewer criminal acts than nonparticipants after completing the drug court program. Still, some are skeptical of the impact of drug courts. The Drug Policy Alliance has claimed that drug courts help only offenders who are expected to do well and do not truly reduce costs. This organization also has criticized drug courts for punishing addiction because drug courts dismiss those who are not able to abstain from substance use. Congress has long been concerned over illicit drug use and abuse in the United States. Recently, Congress has given attention to opioid abuse, and especially overdose deaths involving prescription and illicit opioids. In 2015, there were 52,404 drug overdose deaths in the United States, including 33,091 (63.1%) that involved an opioid. Also, in 2016 SAMHSA estimated that 329,000 Americans age 12 and older were current users of heroin and approximately 3.8 million Americans were current "misusers" of prescription pain relievers. Policymakers may debate whether drug courts are an effective tool in the package of federal efforts to address the opioid epidemic. Policy options include, but are not limited to, increasing federal funding for drug courts, expanding federal drug court programs, and amending the Drug Courts Program to possibly include a broader group of offenders, among other potential changes. As discussed, grant recipients of the federal Drug Courts Program, with the exception of veterans treatment courts, must exclude violent offenders; however, some argue that drug courts should include violent offenders. One group of researchers compared the outcomes for violent and nonviolent offenders and concluded that courts should consider the current charge rather than the offender's history of violence, and the type and seriousness of the offender's substance abuse problem when selecting individuals for drug court programs. They found that while it appeared that individuals with a history of violence (defined as at least one violent charge before entering drug court) were more likely to fail the program than those who never had been charged with a violent crime, the relationship between history of violence and drug court success disappeared when controlling for total criminal history. More serious offenders are less likely than low-level or first-time offenders to abstain from crime, and some argue that drug courts may be the best option for these individuals. Substance abuse and crime have long been linked, and diversion and treatment may assist some individuals in avoiding criminal behavior. Congress may wish to maintain the exclusion of violent offenders from the Drug Courts Program, or it may consider broadening the pool of eligible offenders that may participate in BJA-funded drug court programs to include certain violent offenders. | The United States has gradually shifted its formal drug policy from a punishment-focused model toward a more comprehensive approach—one that focuses on prevention, treatment, and enforcement. The proliferation of drug courts in American criminal justice fits this more comprehensive model. These specialized court programs are designed to divert certain defendants and offenders away from traditional criminal justice sanctions such as incarceration while reducing overall costs and helping these defendants and offenders with substance abuse issues. Drug courts present an alternative to the traditional court process for some criminal defendants and offenders—namely those who are considered nonviolent and are known to abuse drugs and/or alcohol. While there are additional specialized goals for certain types of drug courts, the overall goals of adult and juvenile drug courts are to reduce recidivism and substance abuse among nonviolent offenders. Drug court programs may exist at various points in the justice system, but they are most often employed postarrest as an alternative to traditional criminal justice processing. The federal government has demonstrated growing support for the drug court model primarily through financial support of drug court programs, federal drug courts, research, and various drug court initiatives. For example, each year, the Bureau of Justice Assistance (BJA) and Substance Abuse and Mental Health Administration (SAMHSA) distribute grants to states and localities to support the creation and enhancement of drug courts. In FY2017, over $100 million in federal funding was appropriated for drug courts. As the opioid epidemic continues, policymakers may debate whether drug courts could be an effective tool in efforts to address opioid abuse. Policy options include, but are not limited to, increasing federal funding for drug courts and reauthorizing (with or without amendments) the Drug Court Discretionary Grant Program (Drug Courts Program). Further, Congress may wish to maintain the exclusion of violent offenders from the Drug Courts Program, or, conversely, broaden the pool of eligible offenders that may participate in BJA-funded drug court programs to include some violent offenders. |
The question of whether a political advertisement is issue advocacy (including lobbying) or campaign activity is an important one under the tax laws, particularly for tax-exempt 501(c) organizations. This is because the Internal Revenue Code (IRC) imposes limitations on the ability of 501(c) groups to engage in campaign activity. Any activity that is truly issue advocacy would not be subject to these limitations. Some 501(c) groups—primarily 501(c)(3) charitable organizations, including houses of worship, charities, and educational institutions—are prohibited under the IRC from engaging in any campaign intervention. They are, however, allowed to take positions on policy issues and conduct an insubstantial amount of lobbying. Others types of 501(c)s—primarily 501(c)(4) social welfare organizations, 501(c)(5) labor unions, and 501(c)(6) trade associations —may engage in campaign intervention. However, because these groups' primary purpose must be their tax-exempt purpose (e.g., promoting social welfare), campaign activity, along with any other non-exempt purpose activity, cannot be their primary activity. Recently, this standard has received significant attention because 501(c) organizations have reportedly spent millions of dollars on campaign activity and allegations have been made that some should have their tax-exempt status revoked. Any activity that is truly issue advocacy would not be counted as campaign intervention when determining whether a group has violated the primary purpose test. Relatedly, even though some types of 501(c) organizations may engage in campaign activity under the IRC, they are subject to tax if they make an expenditure for "influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office or office in a political organization, or the election of Presidential or Vice-Presidential electors." The tax is imposed at the highest corporate rate on the lesser of the organization's net investment income or the total amount of these expenditures. True issue advocacy would fall outside the reach of the tax. In order to understand what issue advocacy is under the tax code, it is helpful to begin by looking at its opposite—campaign intervention. The IRC and regulations offer little insight into what constitutes campaign intervention. The IRC does not define the term other than to say it "includ[es] the publishing or distributing of statements" on behalf of or in opposition to a candidate. A Treasury regulation defines candidate as "an individual who offers himself, or is proposed by others, as a contestant for an elective public office, whether such office be national, State, or local." As to what types of activities are campaign intervention, the regulation adds little besides specifying they include "the publication or distribution of written or printed statements or the making of oral statements on behalf of or in opposition to such a candidate." Clearly, any advertisement that expressly endorses or opposes a candidate is campaign activity. It is also clear that there is no rule that campaign intervention occurs only when an organization expressly advocates for or against a candidate. What is less clear is what happens when an ad merely refers to a candidate. Guidance released by the IRS shows that in any situation that falls short of express advocacy, this issue does not lend itself to bright-line rules. The focus is essentially on whether the activity exhibits a preference for or against a candidate. Preference can be subtle, and the IRS takes the position that it is not necessary for the organization to expressly mention a candidate by name—rather, referring to party affiliation or "distinctive features of a candidate's platform or biography" may be sufficient to identify a candidate. As a result, the line between issue advocacy and campaign activity can be difficult to discern. The IRS has released two revenue rulings that discuss when an issue advocacy communication has crossed the line into campaign activity. Both contain a non-exhaustive list of factors to be considered, as well as some examples. Consistent with the above discussion, there are no bright-line rules. Rather, the determination is made by looking at the facts and circumstances of each case, focusing on whether the ad or statement includes anything that indicates a candidacy should be supported or opposed based on the issue. A point to keep in mind is that these rulings indicate the IRS' position on this issue, but they have not been challenged in court and therefore no court has given its approval to the analysis contained in them. Some might argue that this point may be particularly relevant in a context like this one, where the classification of an activity as campaign activity subjects it to regulation and therefore may have First Amendment implications. Commentators have raised constitutional concerns about the campaign intervention standard, arguing, among other things, that it may be unconstitutionally vague in at least some circumstances. No court has addressed this issue. One of the rulings deals with the definition of campaign intervention in the context of the 501(c)(3) prohibition. It appears likely the same analysis would be used for the 501(c) primary purpose test. According to the IRS, key factors to be examined in determining whether an issue advocacy communication crosses the line into campaign intervention include the following: whether it identifies a candidate for a given public office by name or other means, such as party affiliation or distinctive features of a candidate's platform or biography; whether it expresses approval or disapproval for any candidate's positions or actions; whether it is delivered close in time to an election; whether it refers to voting or an election; whether the issue it addresses has been raised as one distinguishing the candidates; whether it is part of an ongoing series by the group on the same issue and the series is not timed to an election; and whether its timing and the identification of the candidate are related to a non-electoral event (e.g., a scheduled vote on legislation by an officeholder who is also a candidate). The other ruling addresses whether an expenditure for an issue advocacy expenditure is subject to the 527(f) tax. It is generally similar to the above, but there are some differences. According to that ruling, factors that tend to show that an expenditure for an issue advocacy communication is taxable include the following: the communication identifies a candidate for public office; the communication identifies the candidate's position on the subject of the communication; the candidate's position has been raised (either by the communication or in other public communications) to distinguish him or her from other candidates; the communication is timed to coincide with an electoral campaign; the communication is targeted at voters in a particular election; and the communication is not part of an ongoing series of substantially similar advocacy communications by the organization on the same issue. Factors that tend to show the expenditure is not taxable include the following: the absence of one or more of the above factors; the communication identifies specific legislation or an event outside the organization's control that the organization hopes to influence; the communication's timing coincides with a specific event outside the organization's control that it hopes to influence; the candidate is identified solely as a government official who is in a position to act on the issue in connection with a specific event (e.g., will vote on the legislation); and the candidate is identified solely in a list of the legislation's key sponsors. It is not clear that the differences between the two rulings have much practical import for purposes of the general discussion contained in this report. This is illustrated by the fact that, as discussed below, both include examples and the same conclusion would be reached for each example under either ruling. The determination of whether an advertisement is actually campaign activity is entirely dependent on the facts and circumstances of each case. This requires actually looking at the ad in question. Additionally, it requires being familiar with the organization's other activities—e.g., is the group running a series of ads on the issue, and one just happens to coincide with an election? It also requires knowing information about the election—e.g., has the issue been raised to distinguish the candidates? Illustrating the importance of the overall context in which the ad is run, and not just the text of the ad itself, is the fact that it is not necessary for the ad to expressly mention a candidate by name. Rather, the IRS takes the position that simply referring to such things as party affiliation or "distinctive features of a candidate's platform or biography" may be sufficient in some cases to count as identifying a candidate. According to the IRS, a statement or ad is "particularly at risk" of being classified as campaign intervention when it refers to candidates or to voting in an upcoming election. However, even in those situations, "the communication must still be considered in context before arriving at any conclusions," thus emphasizing that any determination is highly fact specific. The following example shows how these points come together. Shortly before an election, a group whose mission is to educate the public about community development issues releases an ad that discusses some general issues and mass transit in particular. It ends with the following: For those of you who care about quality of life in District X and the growing traffic congestion, there is a very important choice coming up next month. We need new mass transit. More highway funding will not make a difference. You have the power to relieve the congestion and improve your quality of life in District. Use that power when you go to the polls and cast your vote in the election for your state Senator. While the ad references the upcoming election, no candidate is identified by name at any point during it. The group's position on mass transit is clearly stated, but the ad is silent on how any candidate running in the election feels about the issue. Is this campaign intervention? Making the determination would require knowing additional facts not discussed in the ad. The most important would likely be whether mass transit and/or highway funding had been raised during the election to distinguish the candidates, looking at such things as whether it was a prominent issue in the campaign; whether either candidate had made it a part of his/her platform; and whether other public communications discussed the candidates' position on it. If the answer is yes, then the IRS would likely find the ad to be campaign intervention, particularly in light of the ad including the group's position on the issue. The two rulings contain several examples that are useful because they address the treatment of a very common type of ad where people are urged to contact an elected official, who is also a candidate, to support or oppose an issue or legislation. The examples illustrate how the factors are applied in order to determine whether anything in the ad indicates support or opposition to the official's candidacy. The first example involves a situation with pending legislation. A group runs an ad that states pending Senate legislation would provide educational opportunities for state residents and identifies one of the state's Senators as someone who had previously opposed similar bills. The ad ends by urging people to contact the Senator and tell him/her to vote for the bill. The ad was published in newspapers throughout the state shortly before a Senate vote on the bill, which was also right before a primary election in which the Senator was running. Educational issues had not been raised to distinguish the Senator from other candidates. The IRS ruled the ad was not campaign intervention. While the ad was run shortly before an election and identified the Senator's position as contrary to that of the group, it did not mention the election or Senator's candidacy; education issues had not been raised as distinguishing the Senator from other candidates; the ad's timing and identification of the Senator were directly related to the bill and an upcoming Senate vote; and the Senator was in the position to vote on the bill. Two other examples illustrate how a few changes in the fact pattern can result in a different outcome. An anti-death penalty group runs television ads that included information about countries that have abolished the death penalty and alleged inequities in its application. In one example, the ads were run regularly before scheduled executions and end by noting the governor's support of the death penalty and encouraging people to contact him/her to stop the upcoming execution. One of these ads is run before a scheduled execution, which coincides with an election in which the governor is running. In the other example, the ad was not part of an ongoing series timed to run before scheduled executions, and it ended by noting that the governor's support for the death penalty and encouraging people to contact him/her to demand a moratorium. That ad was run shortly before the election, when no executions were scheduled in the near future. The IRS ruled that the first example was not campaign activity because the ad was part of an ongoing series of substantially similar advocacy communications; identified an event outside the group's control that it hoped to influence; its timing coincided with the event; and the candidate was a public official in a position to take action in connection with the event. On the other hand, the second example was determined to be campaign activity because it identified the governor shortly before an election in which he/she was a candidate; identified the governor's position as opposite to that of the group; was not part of an ongoing series; and was not timed to coincide with a non-electoral event. As the second death penalty example illustrates, when there is no pending legislative vote or other non-electoral activity, the IRS rulings suggest it can be difficult for an ad to avoid being classified as campaign activity. Another example of this principle involves an education reform group that released an ad supporting an increase in state funding for public education. The ad encourages people to "Tell the Governor what you think about our under-funded schools," without indicating the governor's position on public education funding. The ad, which was not part of an ongoing series, was run several times, the first of which was before an election in which the governor was running for reelection. At that time, no legislative vote or other non-electoral activity was scheduled. The governor's opponent had made public education funding an issuing in the campaign by highlighting, in public appearances and campaign literature, the governor's veto of a tax increase to fund education. The IRS ruled this was campaign intervention because it identified a candidate; was run shortly before the election; was not part of an ongoing series; was not timed to coincide with a nonelectoral event; and even though the ad did not state the governor's position on the issue, the issue has been raised by the other candidate as a way to distinguish them. The same result was reached on a similar fact pattern except that the issue had not been raised to distinguish the candidate/officeholder from any opponents, but the ad did identify his/her position as agreeing with that of the group. An ad released shortly before an election without a link to a pending non-electoral action may not always be campaign activity. One IRS example dealt with a union that advocated for better law enforcement personnel conditions. The union ran a series of ads that called for more federal money for law enforcement. The series ran in large newspapers throughout the state regularly throughout the year, and one time an ad was published right before an election in which one of the state's Senators was up for reelection. The ad urged people to contact both of the state's Senators to support increased federal funding, without indicating either one's position on the issue. At the time it ran, no legislative vote or other Senate activity on the issue was scheduled. Law enforcement issues had not been raised as an issue to distinguish the Senator from any opponent. The IRS ruled this was not campaign activity because it was part of an ongoing series of substantially similar advocacy communications by the group; it identified both Senators as public officials who would vote on this issue; did not identify the position of the Senator who was running for reelection; and law enforcement issues had not been raised in the election to distinguish the Senator from any opponent. When it comes to regulating the political activities of tax-exempt organizations, both the IRC and the Federal Election Campaign Act (FECA) have a role to play. One recurring issue is that similar or identical terms in tax and campaign finance law and policy do not always have the same meanings. Thus, it should not be assumed that the characterization or treatment of an activity for campaign finance purposes necessarily results in the same characterization or treatment for tax purposes, and vice versa. When thinking about activities that the tax world might consider to be "issue advocacy" or "campaign intervention," the campaign finance world might be concerned about whether the relevant activities are "independent expenditures" or "electioneering communications." It seems clear that any "independent expenditure," which by definition involves expressly advocating for or against a candidate, is per se campaign intervention for purposes of the IRC. "Electioneering communications" present a trickier situation. FECA defines them as broadcast, cable, or satellite communications that refer to a federal candidate and are made within 60 days of a general election or 30 days of a primary. As discussed above, there is no analogous bright-line standard in the IRC for determining whether communications that merely refer to a candidate are campaign intervention. Rather, making this type of determination for tax law purposes requires looking at the facts and circumstances of each case to assess whether the communication indicates a preference for or against the candidate. The communication's timing is only one factor to consider. Because of this mismatched intersection between tax and campaign finance law, it is possible that an issue advocacy communication might, depending on its timing and content, be an electioneering communication under FECA, but not be treated as campaign intervention under the IRC. Thus, it appears that just because a group reports an ad as an electioneering communication to the Federal Election Commission (FEC), this does not necessarily mean the ad would be treated as campaign intervention for purposes of the IRC. The opposite is true as well—not all campaign activity under the IRC will necessarily be reported to the FEC. What this means in practice is that, for example, when trying to figure out whether a 501(c) group has violated the primary purpose test by engaging in "too much" campaign activity, the amount reported to the FEC might not accurately reflect the amount of campaign activity actually engaged in for tax purposes. | Television and radio airwaves are inundated with political ads right now, and their numbers will only increase as the November 2012 elections get closer. Some ads expressly tell viewers or listeners which candidate to vote for or against. Others take a different approach. These ads typically urge people to contact an elected official, who also happens to be a candidate in the upcoming election, and tell him/her to support an issue or piece of legislation. Sometimes they do not even mention any candidate/officeholder by name, yet some still feel political in nature. The question of whether an advertisement has crossed the line into campaign activity is an important one under the tax laws, particularly for tax-exempt 501(c) organizations. There are two main reasons. First, 501(c)(3) charitable organizations (including churches and other houses of worship) are prohibited under the Internal Revenue Code (IRC) from engaging in campaign activity. They are, however, permitted to take policy positions and engage in an insubstantial amount of lobbying. Second, other types of 501(c)s—primarily 501(c)(4) social welfare organizations, 501(c)(5) labor unions, and 501(c)(6) trade associations—may engage in campaign activity. However, it (along with any other non-exempt purpose activity) cannot be their primary activity. This standard has been the focus of congressional and public scrutiny, as 501(c) groups have reportedly spent millions of dollars on campaign activity in the post-Citizens United era, and allegations have been made that some should have their status revoked for engaging in too much campaign activity. Whether an advertisement is campaign activity is key in this context because a "true" issue ad, as defined for tax purposes, would not be counted as campaign activity when determining whether revocation of 501(c) status is appropriate. The standard for determining whether something is campaign activity under the IRC is whether it exhibits a preference for or against a candidate. Clearly, ads that tell people who to vote for or against are campaign intervention. However, in situations involving something short of express advocacy, this standard does not lend itself to bright-line rules. Preference can be subtle, and the IRS takes the position that it is not always necessary to expressly mention a candidate by name. As a result, the line between issue advocacy and campaign activity can be difficult to discern. The IRS has released two rulings that provide a non-exhaustive list of factors the agency considers when determining whether an issue advocacy communication is electioneering. The most important point to keep in mind is that the determination of whether an ad is actually campaign activity is entirely dependent on the facts and circumstances of each case. This requires looking at the ad in question, as well as being familiar with some of the organization's other activities (e.g., has the group run a series of similar ads?) and the election (e.g., has the issue been raised to distinguish among the candidates?). Finally, the term "issue advocacy" is also used when people talk about campaign finance law and policy. The terminology used in tax and campaign finance law and policy do not always match. Thus, it should not be assumed that the characterization or treatment of an activity for campaign finance purposes necessarily results in the same characterization or treatment for tax purposes, and vice versa. |
P rivatization is a broad term that generally refers to the transfer of public or governmental functions or services to private entities. Privatization of government functions involves a "host of arrangements," including public-private contractual relationships where private entities provide goods or services for the government or the public. For example, federal agencies often contract with private entities to assist in the rulemaking process, including drafting proposed regulations and preparing legal opinions. Other types of privatization include government-funded voucher programs or other subsidies that allow individuals to purchase private goods or services. In other contexts, Congress has empowered private entities or created entities in a variety of forms to (1) deliver services or perform functions previously provided by governmental entities or (2) advance legislative objectives. One form of privatization is the creation of government corporations. As noted by the U.S. Government Accountability Office: "The federal government has created entities using a corporate device, in various forms and contexts, for a long time." Congress has created numerous corporations, including Amtrak and the Communications Satellite Corporation (COMSAT). Congress established Amtrak in 1970 as a for-profit corporation to take over the passenger rail service from private railroad companies. In addition, Congress created COMSAT, a publicly traded corporation, in the Communications Satellite Act of 1962, to develop a commercial communications satellite system. More recently, in the 114th and 115th Congresses, legislation was proposed to create a nonprofit corporation to provide air traffic control services that are currently administered by the Federal Aviation Administration. Other recent privatization efforts include legislative proposals to establish a wholly owned government corporation to provide bond guarantees and loans for state or local government-sponsored transportation, energy, water, communications, or educational facility infrastructure projects. While the federal government employs various forms of privatization, the transfer of government functions and services to other entities has its constitutional limits. As explained by Supreme Court Justice William J. Brennan: "The Government is free, of course, to 'privatize' some functions it would otherwise perform. But such privatization ought not automatically release those who perform Government functions from constitutional obligations . " Congressional efforts to privatize or delegate functions or services may raise constitutional questions regarding Congress's authority to empower other entities. To what extent can Congress transfer or delegate authority to other entities? Are these entities considered private or governmental actors? Does such delegation of authority implicate due process concerns? Are managing directors and employees who govern a government-created corporation considered "Officers of the United States" subject to the requirements of the Appointments Clause? This report will explore these questions by reviewing how courts apply constitutional principles to privatization differently, depending on whether the authority is delegated to governmental entities, private entities, or government-created corporations. To define what constitutional limits could apply when Congress delegates authority to an entity to perform a governmental function, courts must first determine whether the entity in question is a private or governmental entity. The answer to this threshold question is central to how a court would review the constitutional issues underlying the delegation of authority to that entity. As one legal scholar explained, "the public-private distinction is primary—all other legal distinctions are subsumed beneath this first-order division of legal life." For example, constitutional provisions, such as the Due Process Clause, apply only to governmental entities, while the private nondelegation doctrine that prohibits the delegation of governmental functions to nongovernmental entities is relevant only if Congress improperly delegates authority to private entities. While certain entities such as federal agencies can be readily characterized as governmental entities, the distinction between a public and a private entity is often unclear for government-created corporations. Courts cannot rely on the legislative origins of these corporate entities because the Supreme Court has held that a legislative declaration that an entity is either a private or governmental entity is not dispositive for purposes of determining the entity's status. Thus, courts have developed various tests and weighed different factors to classify these entities. Recent case law highlights "the judiciary's unsettled approach to analyzing the constitutional status of 'boundary agencies' that sit at the public-private border." For "boundary agencies" set up as private corporations with varying degrees of governmental involvement and oversight, it is unclear whether courts would consider these corporations as private or governmental entities and what test courts would apply in reviewing constitutional challenges to their authority. In the most recent Supreme Court case on this issue, Department of Transportation v. Association of American Railroads , the Supreme Court reviewed a determination by the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) that concluded that Amtrak was a private entity "with respect to Congress's power to delegate regulatory authority." Consistent with that threshold determination, the D.C. Circuit invalidated joint regulations established by Amtrak and the Federal Railroad Administration (FRA) pursuant to the Passenger Rail Investment and Improvement Act of 2008 (PRIIA). These joint regulations set performance metrics and standards to enforce Amtrak's statutory priority over other trains. The standards would have been used in part to determine when the Surface Transportation Board should investigate if delays in Amtrak's passenger rail service are being caused by freight railroad operators failing to comply with their statutory mandate to prioritize Amtrak traffic over freight traffic on their tracks. The Association of American Railroads (AAR), a trade association acting on behalf of its freight railroad members, filed suit to challenge the PRIIA as an unconstitutional delegation of authority to a private entity and a violation of the Fifth Amendment's Due Process Clause. The D.C. Circuit concluded that "[f]ederal lawmakers cannot delegate regulatory authority to a private entity. To do so would be 'legislative delegation in its most obnoxious form.'" On appeal, the Supreme Court vacated the D.C. Circuit opinion, holding that "Amtrak is a governmental entity, not a private one, for purposes of determining the constitutional issues presented in [the] case." The Court reasoned that "for purposes of Amtrak's status as a federal actor or instrumentality under the Constitution, the practical reality of federal control and supervision prevails over Congress' disclaimer of Amtrak's governmental status." As a result, the Court gave little weight to Congress's declaration that Amtrak "is not a department, agency, or instrumentality of the United States Government' and 'shall be operated and managed as a for-profit corporation.'" In concluding that Amtrak was a governmental entity, the Court relied on a multifactor test, looking to Amtrak's (1) ownership and corporate structure; (2) political branches' supervision over its priorities and operations; (3) statutory goals; (4) day-to-day management; and (5) federal financial support. The Court determined that: Given the combination of these unique features and its significant ties to the Government, Amtrak is not an autonomous private enterprise. Among other important considerations, its priorities, operations, and decisions are extensively supervised and substantially funded by the political branches. A majority of its Board is appointed by the President and confirmed by the Senate and is understood by the Executive to be removable by the President at will. Amtrak was created by the Government, is controlled by the Government, and operates for the Government's benefit. In applying this multifactor test, the Court concluded that, "in its joint issuance of the metrics and standards with FRA, Amtrak acted as a governmental entity for purposes of the Constitution's separation-of-powers provisions. And that exercise of governmental power must be consistent with the design and requirements of the Constitution, including those provisions relating to the separation of powers." Of note, the Court did not explain the relative importance of the various factors in the test announced in Association of American Railroads , and the Court provided little guidance on how the test might apply beyond the specific circumstances respecting Amtrak. The Supreme Court remanded the case to the D.C. Circuit to reconsider the nondelegation, due process, and other constitutional claims raised by the plaintiffs in light of the determination that Amtrak is a governmental entity. Because case law on the threshold question of whether an entity is a private or governmental entity is undeveloped and fact-dependent, it is difficult to conclude with any certainty how a court will apply the Association of American Railroads test with respect to other government-created corporations or other entities performing government functions. In general, when applying this multifactor test, courts have examined these entities in a holistic manner instead of focusing on the specific challenged action of the entity. For example, in 2016, then-Judge Gorsuch, writing on behalf of a panel of the U.S. Court of Appeals for the Tenth Circuit, examined the factors considered in Association of American Railroads to determine that the National Center for Missing and Exploited Children (NCMEC) was a government entity to which the Fourth Amendment applied. The court looked at NCMEC as a whole, reviewing the participation of law enforcement in its daily operations, "sizable" presence of government officials on its board, and government funding in determining NCMEC's governmental status. Once the court determined that NCMEC was a governmental entity, it then addressed whether NCMEC violated the Fourth Amendment when it searched an individual's email without a warrant. Congress's authority to delegate and privatize governmental functions and services is potentially limited by constitutional principles, including the nondelegation doctrine, the Due Process Clause, and the Appointments Clause. Courts have applied these principles in legal challenges to (1) the scope of Congress's authority to delegate its legislative power; (2) the manner in which Congress delegates these powers; (3) the types of entities that exercise delegations of authority; (4) the nature and scope of the delegated powers or functions; and (5) the authority to appoint the individuals that exercise certain powers. Under Article I of the Constitution, "[a]ll legislative Powers herein granted shall be vested in a Congress of the United States." The Supreme Court has broadly defined "legislative power" as "the power to make laws." Although the Court has interpreted the Constitution to prohibit Congress from delegating its legislative authority, the Court has explained that Congress may "delegate to others at least some authority that it could exercise itself." The "nondelegation doctrine" has traditionally been applied to limit Congress's authority to delegate "legislative power" to the other governmental entities. This doctrine is based on the larger doctrine of separation of powers and exists primarily to prevent Congress from abdicating its core legislative function as established under Article I of the Constitution. How courts apply the nondelegation doctrine depends on whether an entity is considered a private or governmental entity. The Supreme Court has upheld delegations of authority to governmental entities, including the President, executive officials, judicial bodies, and federal agencies when Congress provides an "intelligible principle" to govern its delegation. In allowing limited delegation of legislative authority, the Court acknowledged in Mistretta v. United States that "no statute can be entirely precise, and that some judgments, even some judgments involving policy considerations, must be left to the officers executing the law and to the judges applying it." The "intelligible principle" test requires that Congress, not the delegatee, be the entity that delineates a legal framework to guide and constrain the authority of the delegatee, such as a federal executive agency. Congressional delegation of regulatory power to a federal agency is often accompanied by the authority to implement the delegation through rulemaking. The Supreme Court has upheld very broad congressional delegations of authority to federal agencies as satisfying the "intelligible principle" test, having invalidated federal laws only twice under the test. For example, the Court has previously held that broad delegations to regulate in the "public interest" or a "fair and equitable" manner satisfy the "intelligible principle" test. In contrast to the relative latitude given to delegations to official governmental entities under the "intelligible principle" test, the Supreme Court has limited the types of authority and functions that Congress can delegate to a purely private entity. The seminal case addressing delegations to a private entity is Carter v. Carter Coal Co . In Carter Coal , the Supreme Court invalidated the Bituminous Coal Conservation Act of 1935, a law that granted a majority of coal producers and miners in a given region the authority to impose maximum hour and minimum wage standards on all other miners and producers in that region. The Court reasoned that by conferring on a majority of private individuals the authority to regulate "the affairs of an unwilling minority," the law was "legislative delegation in its most obnoxious form; for it is not even delegation to an official or an official body, presumptively disinterested, but to private persons whose interests may be and often are adverse to the interests of others in the same business." Carter Coal has not been interpreted by courts as a comprehensive ban on private involvement in regulation. In the context of private parties aiding in regulatory functions and decisions, the Court has indicated that Congress may empower a private party to play a more limited role in the regulatory process. For example, in Currin v. Wallace , the Court upheld a law that authorized the Secretary of Agriculture to issue a regulation respecting the tobacco market, but only if two-thirds of the growers in that market voted for the Secretary to do so. Distinguishing Carter Coal , the Court stated that "this is not a case where a group of producers may make the law and force it upon a minority." Rather, it was Congress that had exercised its "legislative authority in making the regulation and in prescribing the conditions of its application." Similarly, in Sunshine Anthracite Coal Co. v. Adkins , the Supreme Court upheld a provision of the Bituminous Coal Act of 1937, which authorized private coal producers to propose standards for the regulation of coal prices. Those proposals were provided to a governmental entity, which was then authorized to approve, disapprove, or modify the proposal. The Court approved this framework, relying heavily on the fact that the private coal producers did not have the authority to set coal prices, but rather acted "subordinately" to the governmental entity (the National Bituminous Coal Commission). In particular, the Sunshine Anthracite Court relied on the fact that the commission and not the private industry entity determined the final industry prices to conclude that the "statutory scheme" was "unquestionably valid." In Currin and Adkins , the Supreme Court did not evaluate whether Congress laid out an "intelligible principle" guiding these private entities. Rather than applying the "intelligible principle" test, the Court reviewed whether the responsibilities given to the private entities were acts of legislative or regulatory authority. In both statutes challenged in Currin and Adkins , the private entities did not impose or enforce binding legal requirements. Because the private entity's responsibilities were primarily administrative or advisory, the Court determined that the statute did not violate the nondelegation doctrine. Other courts have relied on the Supreme Court's holdings in Currin and Adkins to uphold limited delegation of authority to private entities so long as the government retained "pervasive surveillance and authority" over the entity in question. For example, in Pittston Co. v. United States , the U.S. Court of Appeals for the Fourth Circuit concluded that the delegation of authority to a private entity to collect premiums to be paid by market participants was permissible because such a power was "administrative or advisory in nature." Other courts have held that the private entities were not exercising regulatory authority but rather performed limited administrative or advisory functions subject to considerable governmental oversight. As discussed above, the nondelegation doctrine exists primarily to prevent Congress from ceding its legislative power to other entities not vested with legislative authority under the Constitution. As interpreted by the courts and legal scholars, the doctrine helps to ensure that legislative decisions are made by the elected Members of Congress or governmental officials subject to "democratic responsibility and accountability." However, delegations of authority to governmental entities may raise additional constitutional concerns if those delegations deny due process to those subject to those delegated powers. The Due Process Clause of the Fifth Amendment prohibits the federal government from depriving any person of "life, liberty, or property without due process of law." The Supreme Court has interpreted the Due Process Clause to, in part, ensure principles of fundamental fairness, including the notion that decisionmakers must be disinterested and unbiased. Issues of potential unfairness and denial of rights can arise when self-interested entities such as profit-seeking corporations are delegated "coercive" regulatory power. The potential Due Process issues related to delegations of authority to certain types of governmental entities have their roots in the same case as the origin of the private nondelegation doctrine, Carter Coal. Although Carter Coal concerned the delegation of authority to private entities and not governmental bodies, some commentators have suggested that it may more accurately be viewed as a due process case. In striking down the delegation to coal producers and miners to impose standards on other producers and miners, the Supreme Court focused on the coercive power that the majority could exercise over the "unwilling minority." The opinion articulated the due process problems involved with providing regulatory authority to private entities: The difference between producing coal and regulating its production is, of course, fundamental. The former is a private activity; the latter is necessarily a governmental function, since, in the very nature of things, one person may not be entrusted with the power to regulate the business of another, and especially of a competitor. And a statute which attempts to confer such power undertakes an intolerable and unconstitutional interference with personal liberty and private property. The delegation is so clearly arbitrary, and so clearly a denial of rights safeguarded by the due process clause of the Fifth Amendment, that it is unnecessary to do more than refer to decisions of this court which foreclose the question. The Court's reasoning in Carter Coal suggests that delegating authority to coal producers and miners to impose standards on other miners violates both the nondelegation doctrine and the constitutional protections of the Due Process Clause. As the D.C. Circuit pointed out, it is unclear what aspect of the "delegation [in Carter Coal ] offended the Court. By one reading, it was the Act's delegation to 'private persons rather than official bodies. By another, it was the delegation to persons 'whose interests may be and often are adverse to the interests of others in the same business' rather than persons who are 'presumptively disinterested,' as official bodies tend to be. Of course, the Court also may have been offended on both fronts. But as the opinion continues, it becomes clear that what primarily drives the Court to strike down this provision is the self-interested character of the delegatees'. . . ." Courts have applied these due process principles in cases challenging the authority delegated to government-created corporations that have both private and governmental aspects. Congress has created different types of corporations to support its legislative objectives and provide certain government services or functions. As one court stated, "Congress may use any appropriate vehicle to promote constitutionally permissible ends. If it chooses to make use of a 'corporation,' Congress is not limited by traditional notions of corporate powers and organization but may mold its vehicle in any way which appears useful to the accomplishment of the legislative purpose." Congress has established for- and nonprofit "private corporations" that are managed by boards of directors and not (as declared in the enabling legislation) "agencies" or "instrumentalities" of the Government. For example, Congress created Amtrak in 1970 as a for-profit corporation to provide railroad passenger service, requiring by law for Amtrak to "maximize its revenues." The increased use of corporations that have both public and private aspects has complicated how courts have analyzed challenges to the authority delegated to these entities. The potential self-interested nature of these government-created corporations can raise concerns beyond violations of the nondelegation doctrine. These concerns include whether the self-interested nature of a corporation combined with its coercive power over its competitors violates the Due Process Clause. The D.C. Circuit has applied a higher level of scrutiny to these types of government-created corporate entities to address these due process concerns. In Association of American Railroads v. Department of Transportation ( American Railroads II ), the D.C. Circuit reviewed whether the delegating of authority to Amtrak, a government-created for-profit corporation, violates the Due Process Clause. American Railroad II was decided on remand after the Supreme Court held that Amtrak is a governmental entity in Department of Transportation v. Association of American Railroads . First, the D.C. Circuit determined that the "Supreme Court's conclusion that Amtrak is a governmental entity resolved the nondelegation issue that was the primary focus" of its decision in American Railroads I . The court then focused its review on whether the delegation of authority to Amtrak as a "public-private enterprise" violates the Due Process Clause. The court explained that: the government's increasing reliance on public-private partnerships portends an even more ill-fitting accommodation between the exercise of regulatory power and concerns about fairness and accountability. Curbing the misuse of public power was the aim of the Magna Carta, and the Supreme Court has consistently concluded the delegation of coercive power to private parties can raise similar due process concerns. . . . Make no mistake; our decision today does not foreclose Congress from tapping into whatever creative spark spawned the Amtrak experiment in public-private enterprise. But the Due Process Clause of the Fifth Amendment puts Congress to a choice: its chartered entities may either compete, as market participants, or regulate, as official bodies. After all, "[t]he difference between producing . . . and regulating . . . production is, of course, fundamental ." To do both is an affront to "the very nature of things," especially due process. The court determined that due process of law is violated if the entity is "(1) a self-interested entity (2) with regulatory authority over its competitors." The court held that "giving a self-interested entity rulemaking authority over its competitors" violated the Due Process Clause. It reasoned that "what primarily dr[ove] the [Supreme] Court" in Carter Coal was not the delegation of authority to "private persons," but rather the "self-interested character" of the empowered coal producers. In applying this due process test, the D.C. Circuit first concluded that Amtrak, though governmental, is similarly "self-interested" in that it is operated as a "for-profit corporation" and is required by law to "maximize its revenues." Importantly, the court suggested that even if a corporation is deemed a "governmental entity," a court may not necessarily conclude that it is a "disinterested" official body. "Delegating legislative authority to official bodies is inoffensive because we presume those bodies are disinterested, that their loyalties lie with the public good, not their private gain." However, delegating regulatory authority to a self-interested entity with power over its competitors would constitute an "unconstitutional interference with personal liberty and private property." This distinction between a self-interested governmental entity and an official governmental body such as a federal agency indicates that a court may view a "boundary agency" such as Amtrak as a separate type of government entity that is subject to a different type of scrutiny under the Due Process Clause. In applying the second part of the test, the court determined that Amtrak has regulatory power over its competitors. The court explained that the failure of an Amtrak competitor to incorporate the metrics and standards developed by Amtrak and "constrained very partially" by the Federal Railroad Administration (FRA), could increase the risk of enforcement. "Because obedience to the metrics and standards materially reduces the risk of liability, railroads face powerful incentives to obey. That is regulatory power." As such, the court invalidated the PRIIA's provision of joint regulatory authority to Amtrak, holding that the fundamental principle of "fairness" that emanates from the Due Process Clause does not permit Congress to delegate to Amtrak the "coercive power to impose a disadvantageous regulatory regime on its market competitors." It is unclear how courts will apply the American Railroads II due process test with respect to the other types of government-created corporations. Future judicial decisions will likely further define the American Railroads II due process test as courts will apply the test to different types of corporations with unique governing structures and specific delegated authorities. Privatization of government services and functions may also implicate the Constitution's requirements regarding the appointment of certain federal officials under the Appointments Clause. As suggested earlier, given the wide variety of privatization forms that can be utilized by Congress, clear rules concerning the applicability of constitutional principles to "private" entities can be difficult in the abstract. A threshold question when considering the nature of any particular entity created by Congress thus might be whether it exercises the sovereign authority of the United States at all. In other words, no matter the form chosen by Congress when creating an entity to carry out specific functions, private or otherwise, an essential issue for constitutional purposes is whether that entity is charged with carrying out the sovereign power of the government. For instance, in the Sarbanes-Oxley Act of 2002, Congress created the Public Company Accounting Oversight Board (PCAOB or Board) to oversee aspects of the accounting industry. The Board is modeled after "private self-regulatory organizations in the securities industry . . . that investigate and discipline their own members subject to Commission oversight." Congress established the PCAOB as a private, nonprofit corporation whose employees and Board members are not, at least for statutory purposes, considered government employees or officers. Nonetheless, because of the various governmental duties delegated to the Board by Congress, in a challenge to the constitutional structure of the Board in Free Enterprise v. Public Company Accounting Oversight Board , the parties agreed that the PCAOB was a governmental entity and that the Board's members are officers of the United States subject to the requirements of the Appointments Clause. Similarly, in Association of American Railroads , Justice Alito, in a concurring opinion, raised concerns that the method of appointment for the president of Amtrak violated the Appointments Clause. At the time, Amtrak's president, a voting member of the Board, was appointed by the Amtrak Board, rather than the President of the United States. Subsequently, Congress passed legislation to remove the voting powers of Amtrak's president, apparently alleviating these concerns by reducing the position's authority. The Appointments Clause of Article II of the Constitution requires "Officers of the United States" to be appointed by the President "with the Advice and Consent of the Senate," although Congress may vest the appointment of "inferior" officers "in the President alone, in the Courts of Law, or in the Heads of Departments." In contrast, non-officers are not subject to any constitutionally required method of appointment. The Appointments Clause has been viewed as one of the Constitution's key features that preserve a separation of powers among the executive, legislative, and judicial branches. The Appointments Clause and the concomitant power of removal of executive branch officials ensure a measure of accountability for executive branch actions by vesting decisionmaking in individuals accountable to the President who, in turn, is accountable to the voters. Congress may not aggrandize its own power at the expense of the executive branch by arrogating to itself authority to appoint officers. Moreover, the Constitution bars the "diffusion" of the appointment power by, for example, placing the power to appoint a principal officer in the hands of someone other than the President. Accordingly, a crucial threshold question respecting the Appointments Clause is thus who constitutes an "officer" of the United States. A position's degree of authority generally determines whether it reaches officer status under the Appointments Clause. In the seminal case explaining who qualifies as an officer, Buckley v. Valeo , the Supreme Court established that "Officers of the United States" are those positions "exercising significant authority pursuant to the laws of the United States." In that case, the Court examined the appointment of certain members of the Federal Election Commission (FEC) charged with regulating federal elections by enforcing the Federal Election Campaign Act. In examining whether the FEC members wielded significant authority, the Buckley Court distinguished among three types of powers the members exercised—functions concerning (1) the flow of information—"receipt, dissemination, and investigation"; (2) the implementation of the statute—"rulemaking and advisory opinions"; and (3) the enforcement of the statute—"informal procedures, administrative determinations and hearings, and civil suits." The Buckley Court held that the first category of FEC duties was not executive in nature because they were "investigative and informative," essentially "in aid of the legislative function of Congress." Therefore, such functions could be exercised by individuals not appointed in conformity with the Appointments Clause. The latter two categories of functions, however, were executive in nature and constituted "significant authority." The duties regarding implementation of the statute—including rulemaking, disbursal of funds, and decisions about who may run for a federal office—constituted significant authority that could be executed only by "Officers of the United States." Likewise, the power to enforce the underlying statute, "exemplified by [the Commissioner's] discretionary power to seek judicial relief" by instituting civil litigation to vindicate public rights, amounted to authority that, according to the Court, must be exercised by an officer appointed pursuant to the Appointments Clause. Nearly 15 years after Buckley , the Supreme Court's opinion in Freytag v. Commissioner of Internal Revenue again examined what responsibilities qualify an individual as an officer of the United States, concluding that a special trial judge of the U.S. Tax Court qualifies as such an officer. The Court ruled that the special trial judges were officers because of the significance of the duties they held. In contrast with the position of special masters, who temporarily assist Article III judges on an "episodic" basis, and whose positions, "duties[,] and functions are not delineated in a statute," the Court noted that the special trial judges are "established by Law" and their "duties, salary, and means of appointment" are specified in statute. Further, special trial judges are entrusted with duties beyond "ministerial tasks," exercising significant discretion in taking testimony, conducting trials, ruling on evidence, and enforcing compliance with discovery orders. In addition, the Court noted that even leaving aside these duties, special trial judges qualified as officers because the underlying statute authorized the Chief Judge of the Tax Court to assign authority to special trial judges to render binding independent decisions in certain cases. While the Supreme Court has articulated "significant authority" as the standard for weighing whether a position is subject to the Appointments Clause, precisely what duties are encapsulated in this metric is disputed. Accordingly, predicting exactly what type of functions would render the head of a government-created corporation an officer for constitutional purposes is difficult. A circuit split among the federal courts of appeals concerning the constitutional status of Administrative Law Judges (ALJs) at the Securities and Exchange Commission (SEC) illustrates the uncertainty of the question. The SEC is charged with bringing enforcement actions for violations of the federal securities laws both in internal administrative proceedings and federal court. ALJs are selected by an agency employee from an available pool—not in accordance with the Appointments Clause—and preside over administrative actions in adjudications that share similarities with a trial. The ALJ's decision is appealable to the Commissioners and then to federal court. The U.S. Court of Appeals for the Tenth Circuit, in a challenge to the constitutional status of ALJs at the SEC, focused on the range of discretionary duties exercised by the ALJs and found that they qualified as officers who must be appointed pursuant to the Appointments Clause. The court noted that the ALJs' positions are established by law and their duties, salaries, and method of appointment were set by statute. The ALJs also exercise similar discretion to the officers in Freytag , including taking testimony, overseeing the production of documents and depositions, ruling on the admissibility of evidence and motions, issuing subpoenas, and making credibility determinations that are afforded "considerable weight" at the agency review stage. In addition, ALJs can render initial decisions and issue sanctions, which become final absent appeal. And even when an appeal occurs, the agency can decline to review certain cases. Finally, ALJs can enter default judgments, control the outcome of proceedings by requiring attendance at settlement conferences, and modify temporary sanctions imposed by the agency. In a parallel challenge, the D.C. Circuit has taken the opposite view. Under its analysis, whether a position exercises significant authority depends on (1) "the significance of the matters resolved"; (2) the discretion exercised; and (3) the finality of their decision. That court determined that SEC ALJs do not satisfy the final requirement—finality—because the Commission retains power to review their decisions de novo . And even when the Commission decides not to review a decision, it must issue an order saying so and specifying the date that any applicable sanctions will take effect. The ALJ's decision, therefore, is not truly final until affirmative action is taken by the Commission. For the D.C. Circuit, because ALJs do not render final decisions on behalf of the government, they do not qualify as officers under the Appointments Clause and their current method of selection is, therefore, appropriate. Although it is well established that "significant authority" is the test that demarks officers and employees, the test that distinguishes between principal officers and inferior officers is less clear. As mentioned above, principal officers of the United States must be appointed by the President and confirmed by the Senate, but Congress may vest the appointment of inferior officers in the President alone, the courts of law, or the heads of departments. At times, the Court has employed a multifactor, holistic balancing test that would suggest that the principal/inferior distinction is governed by an evaluation of the degree of authority exercised. More recently, however, in Edmond v. United States , the Court adopted a different analysis, suggesting that the distinction between a principal and inferior officer hinges on whether the officer is subject to some measure of supervision and control by a principal officer, not on the amount of overall authority exercised by the officer. Under this approach, principal officers are generally subject only to supervision by the President, whereas inferior officers are generally subject to supervision and control by a higher ranking Senate-confirmed official. Vesting governmental power in an ostensibly private entity may also implicate the President's constitutional power to remove executive officers. Assuming a position established by Congress qualifies as an officer under the Appointments Clause, Article II's vestment of executive power in the President requires that the President retain some measure of control over the office. The Supreme Court has established that the Constitution's grant of the appointment power to the President includes discretion to remove officers. The Court has outlined the scope of this authority in a series of cases. In the 1926 case of Myers v. United States , the Court invalidated a statutory provision that prohibited the President from removing Postmasters General without first obtaining the advice and consent of the Senate. In striking down the limitation, the Court held that Article II grants the President "the general administrative control of those executing the laws, including the power of appointment and removal of executive officers. . . . " The otherwise broad holding in Myers was curtailed shortly thereafter in the case of Humphrey ' s Executor v. United State s. In that case, the Court held that Congress had the authority to limit the President's ability to remove members of the Federal Trade Commission (FTC) by providing commissioners with "for cause" removal protections. The Court noted a difference between purely executive departments, such as the one at issue in Myers , whose heads the President generally must be able to remove at will, and other agencies engaged in quasi-legislative or quasi-judicial functions that are intended to function with decreased presidential control. The Court has also upheld restrictions on the removal of certain inferior officers. In Morrison v. Olson , the Court altered its analysis of removal restrictions and upheld a statute that provided for the appointment of an independent counsel who could be removed by the Attorney General only "for cause." The Court acknowledged that its opinion in Humphrey's Executor had relied on a distinction between executive officers and those exercising quasi-legislative or quasi-judicial functions. Nonetheless, the Court asserted that the crucial question in examining restrictions on the removal of executive officers is whether Congress has "interfere[d] with the President's" executive power and his "duty to 'take care that the laws be faithfully executed.'" The Court recognized that the independent counsel operated with a measure of independence from the President, but concluded that the statute gave "the Executive Branch sufficient control over the independent counsel to ensure that the President is able to perform his constitutionally assigned duties." More recently, the Court announced an important outer limit on Congress's ability to shield executive branch officers from removal. In Free Enterprise Fund v. P ublic Company Accounting Oversight Board ( PCAOB ), the Court invalidated statutory structural provisions providing that members of the PCAOB could be removed only "for cause" by the Securities and Exchange Commission, whose members were, in turn, also protected from removal by for-cause removal protections. The Court concluded that while Humphrey 's approved such protections for independent agencies, and Morrison did the same for inferior officers, the combination of dual "for cause" removal protections "impaired" the President's "ability to execute the laws." Accordingly, in addition to boundaries set by the nondelegation doctrine and the Due Process Clause, efforts to privatize governmental functions must respect the limits set forth by the Appointments Clause. The appointment of positions vested with significant authority of the United States must comply with the requirements of the Appointments Clause, and any restrictions on the President's power to remove such officers may not impair his duty to execute the laws of the United States. | Privatization is a broad term that encompasses various types of public-private arrangements, including contractual relationships with private entities for goods or services and government-funded voucher programs that allow individuals to purchase private goods or services. In other contexts, Congress has empowered private entities or chartered corporations to deliver services previously provided by governmental entities or to advance legislative objectives. Congress has created various corporations, including Amtrak and the Communications Satellite Corporation. More recently, in the 114th and 115th Congresses, legislation was proposed to create a corporation to provide air traffic control services that are currently administered by the Federal Aviation Administration. While the federal government employs various forms of privatization, Congress's authority to delegate governmental functions and services to other entities has its constitutional limits. Constitutional principles, such as the nondelegation doctrine, the Due Process Clause, and the Appointments Clause, may constrain Congress's authority to delegate federal authority to private, governmental, or quasi-governmental entities. Courts have defined these constitutional limits when reviewing Congress's efforts to privatize public services or functions. When reviewing privatization issues, a court must first determine whether the entity in question is a private or governmental entity. While certain entities such as traditional federal agencies can be readily characterized as governmental entities, the distinction between a public and a private entity can be unclear. For example, corporations established by Congress are not always treated as private entities by the courts. The Supreme Court has held that a legislative declaration that an entity is either a private or governmental actor is not dispositive for purposes of determining the entity's status. Therefore, courts have weighed various factors in making this threshold determination. The court's determination of an entity's governmental or private status typically guides its review of delegations of authority. Courts have applied different tests for private versus governmental entities in reviewing challenges under the "nondelegation doctrine." This doctrine, as interpreted by the courts, limits Congress's authority to delegate its legislative power to the other entities. In general, courts have upheld delegations of authority to governmental entities such as federal agencies. However, courts have subjected private entities to a higher level of scrutiny and limited the types of services and functions that Congress can delegate to them. Congressional delegations of power to government entities, including government-created corporations, may implicate other provisions of the Constitution. For instance, case law has explored whether delegation of power to quasi-governmental actors violates the Due Process Clause of the Fifth Amendment. The increased use of corporations that have both public and private aspects has complicated how courts have analyzed due process challenges to the authority delegated to these entities. Further, the Constitution's requirements regarding the appointment of certain federal officials under the Appointments Clause may be relevant to government privatization efforts. The Appointments Clause of Article II of the Constitution generally requires "officers of the United States" to be appointed by the President "with the Advice and Consent of the Senate," although Congress may vest the appointment of "inferior" officers "in the President alone, in the Courts of Law, or in the Heads of Departments." In contrast, non-officers are not subject to any constitutionally required method of appointment. A crucial threshold question respecting the Appointments Clause is who constitutes an "officer" of the United States. This report focuses on the constitutional principles and judicial decisions that may constrain certain types of privatization that involve private and government-created entities. |
The FY2006 legislative funding bill, H.R. 2985 , was signed into P.L. 109-55 by President Bush on August 2, 2005. Prior to House and Senate consideration of the FY2006 funding bill, Congress agreed to a FY2005 supplemental containing funds for salaries and expenses of the Capitol Police and for an interim congressional off-site delivery and screening facility and design of a permanent facility, funded within the budget of the Architect of the Capitol. The annual legislative branch appropriations bill usually contains two titles. Appropriations for legislative branch agencies are contained in Title I. These entities, as they appear in the annual appropriations bill, are the Senate; House of Representatives; Joint Items; Capitol Police; Office of Compliance; Congressional Budget Office; Architect of the Capitol, including the Capitol Visitor Center; Library of Congress, including the Congressional Research Service; Government Printing Office; Government Accountability Office; and Open World Leadership Program. Title II contains general administrative provisions and, from time to time, appropriations for legislative branch entities. For example, Title II of the FY2003 Act contained funds for the John C. Stennis Center for Public Service Training and Development and the Congressional Award Act. On occasion the bill may contain a third title for out of the ordinary legislation. For example, the pending House-passed version of the FY2006 legislative branch appropriations bill contains language providing for the continuity of congressional representation in the event of an emergency. Congress changed the structure of the annual legislative branch appropriations bill effective in FY2003. Prior to enactment of the FY2003 bill, and effective in FY1978, the legislative branch appropriations bill was structured differently. Title I, Congressional Operations, contained budget authorities for activities directly serving Congress. Included in this title were the budgets of the Senate; House of Representatives; Joint Items; Office of Compliance; Congressional Budget Office; Architect of the Capitol, except funds for Library of Congress buildings and grounds; Congressional Research Service, within the Library of Congress; and congressional printing and binding activities of the Government Printing Office. Title II, Related Agencies, contained budgets for activities considered by the Committee on Appropriations not to directly support Congress, including those for the Botanic Garden; Library of Congress (except the Congressional Research Service, which was funded in Title I); Library of Congress buildings and grounds maintained by the Architect of the Capitol; Government Printing Office (except congressional printing and binding costs, which was funded in Title I); and Government Accountability Office, formerly named the General Accounting Office. Periodically from FY1978 through FY2002 the annual legislative appropriations bill contained additional titles for such purposes as capital improvements and special one-time functions. In addition to activities funded in the annual legislative branch appropriations bill, funds are contained in the legislative branch section of the U.S. Budget for other programs and entities. These include permanent budget authority for both federal and trust funds, and for non-legislative entities. Permanent federal funds are available as the result of previously enacted legislation and do not require annual action. Permanent trust funds are monies held in accounts credited with collections from specific sources earmarked by law for a defined purpose. Trust funds do not appear in the annual legislative bill since they are not budget authority. They are included in the U.S. Budget, prepared by the Office of Management and Budget, either as budget receipts or offsetting collections. The U.S. Budget also contains non-legislative entities within the legislative branch budget. They are funded in other appropriation bills, but are counted as legislative branch funds by the Office of Management and Budget for bookkeeping purposes. For a more accurate picture of the legislative branch budget as contained in the annual legislative branch appropriation bill, the total legislative branch request of $4.412 billion in the FY2006 U.S. Budget must be adjusted. This is accomplished by subtracting permanent federal and trust funds, non-legislative entities' funds, intergovernmental funds, and including offsetting receipts and intrafund transactions. After making these adjustments, the request for entities funded in the regular annual appropriation bill is $4.028 billion. Prior to the 109 th Congress, the legislative branch appropriations bill was handled by the House Subcommittee on Legislative Branch, Committee on Appropriations. Under a House Appropriations Committee reorganization plan released on February 9, 2005, the subcommittee was abolished and its jurisdiction assumed by the full Appropriations Committee. Although changes were made in the structure of the Senate Committee on Appropriations, announced in March 2005, the Subcommittee on Legislative Branch was retained. On February 7, 2005, the President submitted the FY2006 U.S. Budget containing $4.028 billion in legislative branch budget authority, a 13.7% increase. A substantial part of the increase was requested by legislative branch entities is to meet (1) mandatory expenses, which include funding for annual salary adjustments required by law and related personnel expenses, such as increased government contributions to retirement based on increased pay, and (2) expenses related to increases in the costs of goods and services due to inflation. In response to the request, some members of the Committees on Appropriations early on indicated the probability of a tight budget pursuant to agency revisions of their budget priorities. On April 13, 2005, the chairman of the Senate Subcommittee on Legislative Branch, Committee on Appropriations, Senator Wayne Allard, stated that: Clearly, in the constrained budget environment in which we will be operating, an increase of this level (over 13%) will be difficult if not impossible to provide. So we will be seeking to ensure that all agencies have prioritized their budget requests, are taking steps to operate as cost-effectively as possible, and are eliminating wasteful or unnecessary spending. On May 3, the chairman of the House Appropriations Committee, Representative Jerry Lewis, referred to the impossibility of providing requested funding in view of the President's 2.1% cap on FY2006 discretionary funding. As required by law, both houses approved separate 302(b) budget allocations for legislative discretionary funds in FY2006. The House allocation of $3.719 billion represents a 3.2% over the enacted FY2005 budget authority of $3.605 billion, while the Senate's allocation of $3.904 billion is an 8.3% increase. As enacted into law, H.R. 2985 contained new discretionary budget authority of $3.804 billion, exceeding the 302(b) allocation by $85 million. The Senate Subcommittee on Legislative Branch, Committee on Appropriations, completed hearings on the FY2006 proposals of the Secretary of the Senate and the Architect of the Capitol (April 13, 2005), the Library of Congress, Congressional Research Service, Open World Leadership Center, and Government Accountability Office (April 19), and the Senate Sergeant at Arms and Capitol Police Board (April 27). On May 11 a hearing was held on requests of the Government Printing Office and Congressional Budget Office, and May 17, on the Capitol Visitor Center. In addition to his comments on a "constrained budget environment," Senator Wayne Allard, chairman of the Senate Subcommittee on Legislative Branch, considered the schedule and budget for completion of the Capitol Visitor Center to be of primary importance. The House Committee on Appropriations considered the request of the AOC during a 2 ½ hour May 3 hearing, which focused primarily on costs, completion deadlines, and space provisions of the CVC. Approval of obligation plans by the ranking minority member of the House Appropriations Committee, required for some work to proceed on the center, was temporarily halted by the member until further studies and decisions are made regarding the allocation of space in the center. A second hearing was held by the committee May 23 on the budgets of the House of Representatives, Government Accountability Office, Library of Congress, and Congressional Research Service On June 16, the full committee marked its version of the FY2006 bill at a 1.7% increase over current budget authority. Accounts are increased or reduced from current levels as follows: House of Representatives, +1.2%; Joint items, +5.4%; Capitol Police, -0.7%; Office of Compliance, +30.0%; Congressional Budget Office, +2.3%; Architect of the Capitol, +5.6%; Library of Congress, +1.4%; Congressional Research Service, +3.99%; Government Printing Office, +2.4%; Government Accountability Office, +3.3%; and Open World Leadership Center, +4.5%. Two amendments introduced by Chairman Jerry Lewis were adopted during markup by voice vote: Manager's amendment which authorizes a Governing Board for the Capitol Visitors Center, reinstates funds for the Open World Leadership Center Trust Fund, and contains other provisions. Amendment to insert language on continuity in representation, passed by the House earlier this year in separate legislation, at the end of the bill. The amendment contains rules for filling vacancies in the House of Representatives due to extraordinary circumstances, such as those caused by acts of terrorism. The House Appropriations Committee reported its marked version of H.R. 2985 on June 20, 2005 ( H.Rept. 109-139 ), which contained $2.870 billion, a 1.7% increase. The funding figure reflects an increase of $4.0 million over the committee's pre-markup bill of $2.865 billion. This $4.0 million increase reflects the addition of $14.0 million for reinstatement of the Open World Leadership Center and a rescission of $10.0 million from the salaries and expenses account of the Library of Congress to be used to partially fund the center. Funds from the Library's account were originally made available for the National Digital Information Infrastructure and Preservation Fund for a copyright reengineering project. On June 23, the House passed H.R. 2985 (yea and nay vote, 330-82) after voting to reduce by $5.4 million the congressional printing and binding account of the Government Printing Office (from $88.09 million to $82.69 million). The amended House bill, as passed, contained $2.864 billion. During consideration of H.R. 2985 , the House took the following actions: rejected an Obey motion to recommit the bill to the Committee on Appropriations (recorded vote, 180-232); agreed to a Flake amendment to reduce the Government Printing and Binding budget by $5.4 million in order to reduce the number of Congressional Records printed each day (voice); rejected a McHenry amendment to increase funding for general expenses of the Capitol Police (voice); rejected a Baird amendment to strike Title III, relating to the continuity in representation act (recorded vote, 143-268); rejected a JoAnn Davis (Virginia) amendment to strike the language in the bill which prohibited the Capitol Police from operating a mounted horse unit and required the transfer of current horses and equipment to the U.S. Park Police (recorded vote, 185-226); and, rejected a Hefley amendment to reduce the overall appropriations in the bill by 1.0% (recorded vote, 114-294). The Senate Committee on Appropriations marked its version of H.R. 2985 and ordered the bill reported on June 23. As amended the committee's bill contains $3.83 billion, including funds for House items. The Senate mark was a 6.4% increase over the current FY2005 budget. The committee adopted the Allard amendment providing an additional $80,000 to the Secretary of the Senate for a feasibility study of Senate staff. It also agreed to the Byrd move to strike from the House version of the spending bill, Title III containing language on the continuity of representation in the House of Representatives in event of a major emergency. The Senate approved H.R. 2985 as reported by the Senate Appropriations Committee, after agreeing to an amendment offered by Senator Allard (for Lott/Dodd). The amendment made $800,000 available to the Librarian of Congress to pay telecommunications expenses of the rapid dissemination of periodicals and daily newspapers available to blind and physically handicapped readers. The amendment did not change the total new budget authority in the bill, since the money was made available from funds already provided for elsewhere in the bill. H.R. 2985 was agreed to on June 30 by unanimous consent. Conferees, who issued their report on July 26 ( H.Rept. 109-189 ), retained a House-passed provision in Title III, which provides for expedited special elections to replace Members of the House of Representatives when 100 or more of the seats in the House are vacant due to "extraordinary circumstances." Other actions by conferees are noted throughout this report. Conferees on the FY2005 $81 billion emergency supplemental bill, H.R. 1268 , agreed to $11.0 million for the Capitol Police, General Expenses; $8.2 million for Architect of the Capitol, Capitol Grounds, to complete Capitol Square perimeter security; $4.1 million for Architect of the Capitol, Capitol Police Buildings and Grounds; $162,100 for death gratuity payment to the spouse of a deceased Member of Congress (equal to one year's salary); and $39.0 million for the House of Representatives, Salaries and Expenses, to remain available until expended, for "House operations related to Business Continuity/Disaster Recovery, security and digital mail, and information system security." The Senate version of the supplemental contained $23.3 million for the Capitol Police, Salaries and Expenses, and $23 million for the Architect of the Capitol, Capitol Police Buildings and Grounds, for construction of an off-site delivery facility. The Senate passed H.R. 1268 on April 21. The House version of H.R. 1268 did not contain a legislative branch supplemental. Administrative provisions in the conference version of H.R. 1268 : direct that fees for use of the House exercise facility be deposited in the House Services Revolving Fund, under the account House of Representatives, House Services Revolving Fund; provide technical corrections to provisions regarding the Library of Congress by changing references to the chair of the Subcommittee on Legislative Branch to the chair of the Committee on Appropriations of the House for membership on the Joint Committee on the Library and the Board of Trustees of the Open World Leadership Program (to reflect the abolishment of the House Subcommittee on Legislative Branch at the beginning of the 109 th Congress); and eliminate the statutory requirement that the chair and ranking minority member of the House Appropriations Committee be required to approve the obligation of funds by the AOC for the CVC; the amendment requires approval by the House Appropriations Committee. The House approved the conference language on May 5, 2005, by a vote of 368-58. The Senate approved the conference report on May 10 (100-0). Congress provided $249.46 million for the police, a 3.31% increase. The House bill contained $239.7million, a reduction of 0.7% from the FY2005 budget authority of $241.5 million, while the Senate version included $264.6 million, an increase of 9.6%. The department's original request of $290.1 million represented a 20.2% increase; however, in May 2005 the department received $11.0 million of its request in the FY2005 supplemental ( P.L. 109-13 ). Appropriations for the police are contained in two accounts: the salaries account , for which $230.2 million was requested, a 14.1% increase; the House bill contained $210.4 million; the Senate bill, $222.6 million; and the conference report, $217.46 million; the general expenses account, for which $59.9 million was requested, a 109.2%increase; the House bill contained $29.4 million; the Senate bill, $42.0 million; and the conference report, $32.0 million; The salaries account contains funds for the salaries of employees, including overtime, hazardous duty pay differential, and government contributions for employee health, retirement, social security, professional liability insurance, and other benefit programs. The general expenses account contains funds for expenses of vehicles, communication equipment, security equipment and its installation, dignitary protection, intelligence analysis, hazardous material response, uniforms, weapons, training programs, medical, forensic, and communications services, travel, relocation of instructors for the Federal Law Enforcement Training Center, and other administrative and technical support, among other expenses. A second appropriation relating to the Capitol Police appears within the Architect of the Capitol account for Capitol Police buildings and grounds. P.L. 109-55 contains $14.9 million, an increase of 50.4%. While the House bill contained a 69.9% increase, or $16.8 million, the Senate bill contained a 1.3% increase, or $10.0 million, or a 1.3% increase. The Architect's request of $35 million represented an increase of $29.2 million (502.1%), with most of the funds ($23.7 million) to remain available until September 30, 2010. Language inserted by conferees: terminates the Capitol Police mounted horse unit, transferring horses and equipment to the U.S. Park Police; requires Capitol Police employees to file annual reports with the Clerk of the House pursuant to the Ethics in Government Act; establishes an Office of Inspector General of the Capitol Police; requires the Capitol Police to file semiannual reports on disbursements; extends authority of the Capitol Police to fill vacancies on the Library of Congress police force with Capitol Police officers; directs the Government Accountability Office (GAO) to review Capitol Police overtime usage; waives repayment of certain overtime compensation "incorrectly paid" and "encourages the Capitol Police Board to work closely with the Committee on House Administration and the Senate Committee on Rules and Administration to address any further issues [on its authority to provide overtime and compensatory pay to certain employees] which may arise from [a pending opinion of GAO]; directs GAO to report on police management of the truck interdiction program (the program was not repealed as proposed by the House); and directs the Capitol Police chief to "implement a structured internal control program" and to submit a report outlining improvements in internal controls by October 1, 2005. Conferees on the FY2005 $81 billion emergency supplemental bill, H.R. 1268 , agreed to additional funding for the Capitol Police of $11.0 million for the General Expenses account, and additional funding of $4.1 million for the Architect of the Capitol, Capitol Police Buildings and Grounds account. The supplemental was signed into P.L. 109-13 on May 11, 2005. The Senate version of the supplemental contained $23.3 million for the Capitol Police, Salaries and Expenses account, including (1) $10.0 million for Capitol Police salaries to allow hiring of up to 50 officers "to ensure adequate coverage of all existing and new posts," and (2) $13.3 million for emergency security requirements. Some of the funds were to be held in a reserve fund to meet future emergencies. The bill also contained $23 million for the Architect of the Capitol, Capitol Police Buildings and Grounds, for construction of an off-site delivery facility. The House version of H.R. 1268 did not contain funds for the Capitol Police. As originally submitted by the Capitol Police, the FY2005 supplemental request was $59.5 million, which included $36.5 million for the salaries account "to provide for workforce staffing and overtime resources to support law enforcement, security, emergency preparedness, screening, interdiction, and hazardous material/device response operations." The additional money funded "overtime, hazardous duty pay differential, and Government contributions for health, retirement, social security, professional liability insurance, and other applicable employee benefits." The remainder of the supplemental request, $23.0 million, provided additional funds to the Capitol Police general expenses account for "emergency expenses for the security of the United States Capitol complex" and for "the continuance of operational capabilities, assets, and services to support the mission of protecting the Legislative Branch." The legislative branch budget request submitted for inclusion in the President's FY2006 budget included an additional $36.9 million for the CVC project, and $35.285 million for CVC operations costs, of which $19.991 million was to remain available until September 30, 2010. The request included the following caveat: "That the Architect of the Capitol may not obligate any of the funds which are made available for the Capitol Visitor Center project without an obligation plan approved by the Committee on Appropriations of the Senate and House of Representatives." Also, included in FY2006 legislative branch budget request was $9.965 million for "supplies, materials, and other costs relating to the House portion of Expenses for the Capitol Visitor Center ... to remain available until expended." The Subcommittee on Legislative Branch, Senate Committee on Appropriations, held a number of hearings during which the status of the CVC was discussed. During an April 13, 2005, hearing, Architect of the Capitol Alan M. Hantman emphasized the General Accountability Office had concluded that approximately 75% of the increased costs of the CVC were largely beyond his control. He went on to innumerate several factors that had increased the cost of the center. Together, Hantman explained, these unanticipated aspects of the project, as well as a number of others identified early, have prompted the GAO to now project that the cost of the CVC could reach $515 million. On May 17, June 14, and July 14, 2005, the Senate Appropriations Subcommittee on the Legislative Branch, chaired by Senator Wayne Allard, held hearings on the progress of the Capitol Visitor Center. Chairman Allard has indicated that he intends to continue to hold monthly hearings on the center. Much of the focus of all three oversight hearings thus far held by the subcommittee has been reports by GAO on the progress of the project. GAO's work on the center was performed in response to requests from the Capitol Preservation Commission and as directed by the conference report of the Omnibus Consolidated and Emergency Supplemental Appropriations Act ( H.Rept. 105-825 ) and the conference report on the Legislative Branch Appropriations Act, 2004 ( H.Rept. 108-279 ) At the May 2005 hearing, David M. Walker, GAO Comptroller General, told the subcommittee that cost overruns and other problems could increase the price tag of the CVC to "between $552 million and $559 million, significantly more than originally estimated." While he emphasized that a "majority of the delays and cost increases were largely outside of AOC's control," he did say "[t]he weaknesses in AOC's schedule and contract management activities have contributed to a portion of the delays and cost overruns." Also, GAO's "analysis of the CVC worker safety data shows that injury and illness rate for 2003 was about 50 percent higher for the CVC than for comparable construction sites and that the rate for 2004 was about 30 percent higher than 2003." Walker continued by stressing that "a number of [AOC] monthly reports to Congress, in our view, have not fully and fairly reflected the project's construction schedules and costs and in some cases have not included accurate worker safety data. This has led to certain expectation gaps within Congress." While the "AOC's current scheduled completion date for the CVC is now September 2005," GAO concluded, "that given past problems and future risks and uncertainties that the completion date may be delayed until sometime between December 2006 and March 2007." To "help prevent further schedule delays, control cost growth and enhance worker safety," GAO reasoned, the "AOC urgently needs to give priority attention to managing the project's construction schedules and contracts, including those contract provisions that address worker safety." Such "actions are imperative if further cost growth, schedule delays, and worker safety problems are to be avoided. AOC also needs to see that it reports accurate information to Congress on the project." Additionally, "decisions by the Congress will have to be made regarding the additional funding needed to complete construction and to address any related risk and uncertainties that may arise." AOC Alan M. Hantman, in response to questions from subcommittee members, stated that he felt the CVC could be completed by September 2006, except for the extension space. Hantman's projection was supported by Bob Hixon, CVC project director. Hantman also indicated that the "completion date for the expansion space contractually is March 18, 2007." Both Walker and Hixon told the subcommittee that CVC contractors had taken a number of actions to promote and manage site safety. Senate appropriators learned in June 2005 that Manhattan Construction Co., the Sequence 2 contractor for the CVC, had met only three of the 11 "significant milestones" scheduled for completion by that date. Despite these setbacks, AOC Hantman told the Senate Subcommittee on the Legislative Branch that he still expected the center to be completed by September 2006. CVC project manager Bob Hixon also felt that while the project was slightly off schedule, the Architect was determined to complete the center on schedule. It would, however, Hantman acknowledged at the hearing, cost additional money to get the project back on schedule. Hantman did not provide an estimate of the additional funding needed to meet the scheduled completion date. Bernard Ungar, Director of Physical Infrastructure Issues at the Government Accountability Office, was less optimistic in his prepared testimony. Ungar told the Senate Subcommittee the Legislative Branch that "largely because of past problems and risks and uncertainties that face the [Capitol Visitor Center] project, we continue to believe that the project is more likely to be completed in the December 2006 to March 2007 time frame than in September 2006, as shown in AOC's schedule." While the "AOC and its construction management contractor have," Ungar emphasized, "continued their efforts to address two of the areas we identified during the Subcommittee's May 17 CVC hearing as requiring priority attention," the Architect "has not yet developed risk mitigation plans or, as the Subcommittee requested, prepared a master schedule that integrates the major steps needed to complete construction with the steps needed to prepare for operations." He was concerned that the "stacking of activities toward the end" will prevent them from finishing the project on time. "Until recently," Ungar explained, "AOC did not have funding to continue contractual support it had been receiving to help plan and prepare for CVC operations." As a consequence, GAO continues "to believe ... that the project's estimated cost at completion will be between $522 million and $559 million, and that, as we indicated during the May 17 hearing, AOC will likely need as much as $37 million more than it has requested to cover risks and uncertainties to complete the project." It was GAO's belief, "that most of these additional funds will be needed in fiscal years 2006 and 2007, although exactly how much will be needed at any one time is not clear." GAO recommended that in the fall of 2005, "AOC update its estimate of the cost to complete the project." Several new challenges Senate appropriators were told at a July 14, 2005 hearing, could further delay completion of the Capitol Visitor Center, and result in increased expenditures as well. Because of current problems, "past problems, remaining risks and uncertainties, and the number of activities that are not being completed on time," Terrell Dorn, GAO Assistant Director for Physical Infrastructure Issues, explained, "we continue to believe that the project is more likely to be completed in the December 2006 to March 2007 time frame than in September 2006." Dorn indicated "AOC and its construction management contractor [had] continued their efforts" to respond to two recommendations GAO "made to improve the project's management—having a realistic, acceptable schedule and aggressively monitoring and managing adherence to that schedule." Further improvement, however, still needed to be made. Dorn also reiterated GAO's belief "that the project's estimated cost at completion will be between $522 million and $559 million," and "AOC will likely need as much as $37 million more than it has requested to cover risks and uncertainties to complete the project." During the next several months, Dorn emphasized, AOC will likely face "competing demands for funds that can be used for either CVC construction or operations." Given this reality, "it will be important for AOC to ensure that the available funds are optimally used." Also, GAO was "concerned that AOC may incur costs to open the facility to the public in September 2006 that it would not incur if it postponed the opening until after the construction work is more or fully complete—that is, in March 2007, according to AOC's estimates." While much of the attention at the 2005 Senate hearings focused the overall construction and cost of the Capitol Visitor Center, a considerable portion of the discussion at a May 3, 2005, House Appropriations Committee hearing focused on the specifics of the unfinished House office space in the center. Representative David Obey of Wisconsin, ranking minority member of the committee, expressed concern "that the space we're getting seems to be almost all show and very little workspace." He questioned "that mix," and asked whether the House was "getting the space" it needed, and "even at this late date, isn't there any way that we can get more usable space." As he "saw it," the House was "getting only one room that is a public hearing room." Other House Members expressed concerns over the escalating cost of the center, which the Architect of the Capitol Hantman testified is expected to reach $517 million by the time the structure is completed. Although the Architect of the Capitol at several points during the hearing stated that the current plans had been reviewed and received approval from the House Office Building Commission, which includes the Speaker, House majority, and House minority leader, Representative Obey made it clear he intended to oppose the project unless changes were made. By virtue of a provision included in FY2002 Legislative Branch Appropriations Act, Representative Obey could have blocked this phase of the project. As enacted, PL. 107-68 prohibited the Architect of the Capitol from obligating funds for the House expansion space within the center without the approval of the chair and ranking minority member of the House Appropriations Committee. In subsequent action, the House on May 5, and the Senate on May 10, approved language in the conference report on the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Tsunami Relief, 2005, that struck the "chair and ranking minority member" requirement in the FY2002 Legislative Branch Appropriations Act. That language was included in PL. 109-13, which was signed into law on May 11, 2005. On June 16, 2005, the House Committee on Appropriations marked up and ordered reported its version of the FY2006 legislative branch funding bill. On a voice vote, the panel approved a draft spending bill that provided $36.9 million for the CVC project. The House figure was considerably less than the $72.2 million requested by the AOC, and did not provide any of the $35.285 million originally requested by the Architect for the center's operations. The House Appropriations Committee also included in the draft bill, $3.41 million in FY2006 for the House portion of expenses related to the CVC. This figure represented a $6.555 million reduction from the requested amount of $9.965 million. These funds were to used for "carpeting, furnishings, wiring, and audio/visual requirements." In addition, the House bill contained a provision (Section 1203) establishing a "'Capitol Visitor Center Governing Board' to address the issue of daily operations of the Visitor Center." On June 24, 2005, the Senate Appropriations Committee reported its version of the FY2006 legislative branch funding bill. The approved language provided $41.9 million for the CVC project, excluding Visitor Center operations. Senate appropriators in their report on H.R. 2985 emphasized that because the GAO felt the "amount requested by the Architect [$36.9 million] is unlikely to be sufficient to complete the CAC," the committee added $5 million "to the budget based on GAO's recommendation." Also, since the schedule September 2006 opening of center was "likely to be delayed well beyond the time frame on which budget estimates for operations were predicted," Senate appropriators reduced the budget for Visitor Center operations from the requested $35.3 million to $2.3 million. The Senate version of H.R. 2985 did not contain the House provision for a "Capitol Visitor Center Governing Board." By a 330 to 82 vote, the House passed H.R. 2985 , the FY2006 legislative branch bill on June 22, 2005. The House version of the spending bill, as approved, provided $36.9 million for the CVC project budget, and $3.41 million for the House portion of expenses related to the center. The bill approved by the House also contained a provision (Section 1203) establishing a "Capitol Visitor Center Governing Board" that would be responsible for "establishing the policies which govern the operations of the center, consistent with applicable law." On June 30, 2005, the Senate amended and passed H.R. 2985 by Unanimous Consent, and then insisted on its amendments and requested a conference with the House. The Senate version of H.R. 2985 called for $41.9 million for the CVC project, and $2.3 million for center operating costs. The Senate language also authorized the Architect of the Capitol to appoint an Executive Director of the Capitol Visitor Center. A little less than a month later, House and Senate conferees on July 26, 2005, in their report on H.R. 2985 , recommended an appropriation of "$44.2 million for the Capitol Visitor Center, as proposed by the Senate, instead of $36.9 million as proposed by the House." This figure included $41.9 million for the center project, and $2.3 million for the center's operations budget. The report also called for $3.4 million for and $3.41 million for other costs related to the House portion of expenses for the center. Conferees deleted the House language establishing a "Capitol Visitor Center Governing Board" to handle the center's daily activities was deleted by conferees, as well as the Senate language authorizing the Architect of the Capitol to appoint an executive director for the center. On July 28, 2005, the House by a vote of 305 to 122 concurred with the conference report FY2006 appropriation figures for the Capitol Visitor Center. The Senate followed suit on July 29, 2005, by a 96 to 4 margin. H.R. 2985 , then became P.L. 109-55 on August 2, 2005, with President Bush's signature. During hearings on the FY2006 legislative budget, Senator Wayne Allard, chairman of the Senate Subcommittee on Legislative Branch, expressed his desire to apply performance standards to legislative branch entities, similar to those required of executive branch agencies. He expressed his desire for some action to be taken by agencies before his consideration of the FY2007 budget in early 2006. Consequently, Senate report language on the FY2006 legislative funding bill reaffirms the Senate Appropriations Committee's support of the application to some degree of executive branch performance standards to legislative branch agencies. Language in the general statement section of the report reads: The Committee supports the applicability of many Government Performance and Results Act [GPRA] principles to the Legislative Branch. GPRA encourages greater efficiency, effectiveness, and accountability in Federal spending, and requires agencies to set goals and use performance measures for management and budgeting. While most Legislative Branch agencies have developed strategic plans, several agencies have not effectively dealt with major management problems and lack reliable data to verify and validate performance. While Legislative Branch agencies are not required to comply with GPRA, the Committee believes the spirit and intent of the Results Act should be applied to theses agencies. The Committee intends to monitor agencies' progress in developing and implementing meaningful performance measure, describing how such measures will be verified and validated, linking performance measures to day-to-day activities, and coordinating across "sister" agencies. The Committee directs all legislative branch agencies to submit their plans for achieving this goal within 90 days of enactment of this Act. The AOC is responsible for the maintenance, operation, development, and preservation of the United States Capitol Complex, which includes the Capitol and its grounds; House and Senate office buildings; Library of Congress buildings and grounds; Capitol Power Plant; Botanic Garden; Capitol Visitors Center; and Capitol Police buildings and grounds. The Architect is responsible for the Supreme Court buildings and grounds, but appropriations for their expenses are not contained in the legislative branch appropriations bill. Conferees agreed to an 18.3% increase ($66.3 million) in the AOC's operations, compared with the proposed 44.8% increase. The Architect requested $506.5 million in new budget authority, an increase of $156.6 million from the FY2005 budget authority of $349.9 million. His request contained $72.2 million in new budget authority for the CVC, which was not authorized new budget authority in FY2005. The $66.3 million increase is due primarily to fund construction of book storage modules for the Library of congress ($40.7 million) and the operating and project budgets of the CVC ($44.2 million). Five accounts of the AOC were reduced from FY2005 levels. Earlier, the House approved a 5.6% increase for AOC operations, providing $317.3 million, excluding funds for Senate office buildings which are determined by the Senate. The Senate subsequently approved $427.2 million, an 18.9% increase, including appropriations for both Senate and House office buildings . Operations of the Architect are funded in the following ten accounts: general administration; Capitol building; Capitol grounds; Senate office buildings; House office buildings; Capitol power plant; Library buildings and grounds; Capitol Police buildings and grounds; Capitol Visitors Center, and Botanic Garden. During his testimony, the AOC, Alan Hantman, stated that his request funded not only regular operations and renovation projects, with an emphasis on security, but also a number of major projects. Among these projects are the CVC, construction of Library of Congress storage modules, construction of a Capitol Police off-site delivery center, upgrades of fire and life safety services, completion of fire egress renovations, and installation of perimeter security measures. When questioned about the priority of projects within his request, Hantman responded that this year, for the first time, his operations are subject to a capitol improvements process (CIP) in which projects are ranked on issues of fire and life safety, physical security, historic preservation, mission impact, and expenses. If cuts had to be made, Hantman said, he would start at the bottom of the ranking. Chairman Allard then asked the Architect to provide his list of rankings and to give thought ahead of time to making cuts. This AOC account received a FY2005 supplemental appropriation in addition to new FY2006 money. Conferees on the FY2005 $81 billion emergency supplemental bill, H.R. 1268 , agreed to $4.1 million for Architect of the Capitol, Capitol Police Buildings and Grounds account, for the design of an off-site delivery facility. The Senate version of H.R. 1268 contained $23 million for Capitol Police Buildings and Grounds, but did not contain funds for Capitol Grounds. The Senate passed H.R. 1268 on April 21. The House version of H.R. 1268 did not contain a legislative branch supplemental. The $23 million was requested by the Capitol Police Board on February 7, 2005, for construction of an off-site delivery facility. Committee report language reads: The Committee believes this project is a very high priority and expects the Architect to move expeditiously to complete this facility in a timely manner. The Committee notes that this project has been a top priority for USCP since 1999. It has become an urgent requirement owing to construction of the new baseball stadium which will force USCP to relocate this facility within the year. Conferees agreed to $14.9 million for expenses associated with Capitol Police facilities, representing an increase of 50.4% over the current budget. The new budget authority contains $9.8 million for the operating budget and $5.0 million for the purchase of a vehicle maintenance facility. The conference agreement is in lieu of the House proposal of $16.8 million (an increase of 69.9% over the current level (which included a $4.1 million FY2005 supplemental) and the Senate proposal of $10.0 million, a 1.3% increase. Senate appropriators indicated their funding decision reflected an elimination of construction funding for an off-site screening facility, until a design study was completed, and the cost to lease space for the Capitol Police was revised. The Architect of the Capitol received a FY2005 supplemental of $8.2 million for the capitol grounds account to complete Capitol Square perimeter security. For its internal operations, the House requested $1.128 billion, an increase of 4.5%, when counting the FY2005 supplemental. As passed by the House and Senate, the House operations funding level is $1.1 billion, an increase of 1.2%. Funding for House committees, for which $143.6 million was requested, is contained in the appropriation heading "committee employees" that comprises two subheadings. The first subheading contains funds for personnel and nonpersonnel expenses of House committees, except the Appropriations Committee, as authorized by the House in a committee expense resolution. The FY2006 request of $117.9 million (an increase of 3.9%) was agreed to by the House and conferees. The second subheading contains funds for the personnel and nonpersonnel expenses of the Committee on Appropriations, for which $25.7 million was requested ( a 3.9% increase) and approved by the House and conferees. The House continues language requiring that any unspent FY2005 funds appropriated for Members' representation allowances (for staff and office operations) be used for deficit reduction. Although the Senate requested $823.1 million for its internal operations, an increase of $102.9 million (14.3 %) over the prior year's funding level of $720.2 million, the Senate Committee on Appropriations approved a 9.1% increase. Among offices and activities, other than committees, receiving increases are those for official personnel and office expenses of individual Senators, including funds for mandatory increases (9.2%); salaries of officers and their employees (9.1%); and Sergeant at Arms operations, including security and an upgrade of the Senate telecommunications system (11.7%). Appropriations for Senate committees are contained in two accounts: the inquiries and investigations account , containing funds for all Senate committees except Appropriations, for which $119.6 million was made available, an 8.8% increase, the same as requested; and the Committee on Appropriations account, for which $13.8 million was approved, an increase of 3.4%, also the same as requested. P.L. 109-55 contains the following Senate-passed provisions, which provide $80,000 to the Secretary of the Senate for a study of Senate employment trends, and the pay, hiring, and benefits practices of Senators; and eliminate statutory language approved in 1865 requiring Senators to submit excuses for absences from the Senate. On April 13, the Senate Subcommittee on Legislative Branch held a hearing on the request of the Secretary of the Senate, Emily Reynolds, for $23 million, a 7.0% increase. Chairman Allard, in his opening remarks, noted the adjustment primarily met pay and inflation-related increases and some upgrades. The Secretary testified the request represented $21 million for salaries and related expenses and $1.9 million for operational costs. Among activities addressed during her testimony were operations of the legislative department; implementation of a Financial Management Information System in the financial office; the role of the Senate Library in putting its complete catalog of 158,000 items on the Senate's Webster Intranet; and the ability of the Legislative Information Systems (LIS) staff to produce 75% of this year's bills and resolutions as XML documents. CBO is a nonpartisan congressional agency created to provide objective economic and budgetary analyses requested by law and by members of the House and Senate Committees on Budget and Committees on Appropriations, House Committee on Ways and Means, and other committees, and by Members of Congress. Conferees agreed to the House-approved funding level of $35.45 million, a 2.3% increase, less than the level approved by the Senate, $35.85 million, or 3.5% over current funding. CBO requested $35.9 million, an increase of $1.2 million (3.5%), most of which was to meet mandatory pay and related costs. These expenses account for approximately 90% of CBO's budget. The agency requested $1.59 million for mandatory pay and related costs and $81,000 for price-level changes, but with the two requests combined to be offset by $70,000 in recurring costs and $388,000 in changes in programs, projects, and activities changes. The FY2006 request supported a staff of 235 FTEs, the same level as FY2005. Report language did not indicate the staff level supported. LOC provides research support for Congress through a wide range of services, from research on public policy issues to general information. Among its major programs are acquisitions; preservation; legal research for Congress and other federal entities; administration of U.S. copyright laws by the Copyright Office; research and analyses of policy issues by the Congressional Research Service; and administration of a national program to provide reading material to the blind and physically handicapped. The Library also maintains a number of collections and provides a range of services to libraries in the United States and abroad. Congress approved a new appropriation of $560.57 million and authority to spend an additional $42.3 million derived from off-setting collections. The new appropriation reflects a rescission of $6.86 million, from $567.42 million approved by conferees, and represents a 2.8% increase over current funding. The new appropriation is 4.0% less than the agency's request, greater than the new appropriation of $542.95 million approved by the House, which was a decrease of 0.4% (due to a rescission of $15.5 million in the bill), and less than the $579.6 million mark in the Senate bill, which represented an increase of 6.3%. The Library requested (1) a net appropriation of $590.8 million, an increase of $45.4 million (8.3%); and (2) authority to use funds generated from receipts received by the Library of $37.0 million. Its FY2006 budget request supported a staff level of 4,365 FTEs, an increase of 74 FTEs from the FY2005 level of 4,291, for collections acquisition and preservation, security, information technology, and management of facilities. FY2006 new budget authorities for the Library's accounts are salaries and expenses – $389.4 million (and authority to spend an additional $6.35 million in receipts); Copyright Office – $22.66 million (and authority to spend an additional $35.95 million in receipts); Congressional Research Service – $101.92 million; and Books for the Blind and Physically Handicapped – $54.45 million. The total funding approved in conference for the above four accounts was $567.42 million, subject to the $6.86 million rescission. The FY2006 budget also provides for a staff level of 4,302 FTEs, a net increase of 11 FTEs; statutory authority for the Office of Inspector General in the Library; funding of $15.2 million for the National Audio-Visual Conservation Center to operate and staff the center's new digital preservation system; and authorization and funding of $5.86 million for the Digital Collections and Educational Curricula Program. An additional $40.7 million for construction of storage modules at Fort Meade, MD, is contained in the budget of the Architect of the Capitol in the Library Buildings and Grounds account. In response to a question from Chairman Allard on the Library's budget priorities, Librarian of Congress, James Billington, referred to the continuation of acquisition and preservation of materials, maintenance of basic services, and construction of storage projects, including the National Audio-Visual Conservation Center in Culpepper, Virginia, and book modules at Ft. Meade, MD. The Ft. Meade facility construction request of $41 million is contained in the request of the Architect of the Capitol. Chairman Allard also questioned the Librarian's $4 million request to hire 45 new Library police officers, even though a merger of Library police with the Capitol Police was pending. The Deputy Librarian, Donald Scott, explained the merger had experienced delays and in the meantime the Library faced a growing police shortage. The Library, he said, did not have authority to hire additional officers. The Librarian continues to maintain that he needs to be allowed to retain control over collections security subsequent to the pending merger. CRS works exclusively for Members and committees of Congress to support their legislative and oversight functions by providing nonpartisan and confidential research and policy analysis. Conferees agreed to a budget of $100.92 million, a 4.99% increase over current funding, in lieu of $99.95 million contained in the House bill and $101.8 million in the Senate version. The agency's request of $105.3 million represented an increase of $9.2 million (9.5%) over FY2005 budget authority of $96.1 million. Fifty-six percent of the requested $9.2 million increase ($5.1 million) was required to meet mandatory pay and related pay costs, such as the annual cost-of-living increase for staff and related adjustments in employer-paid benefits, as well as inflationary adjustments for annual price level increases supporting the acquisition of goods and services used in the day-to-day business operations of the Service. This portion of the funding request was the agency's top priority, since personnel expenses account for 88% of its budget. The remainder of the $9.2 million increase ($4.6 million) was to fund two requests. First, CRS was seeking a one-time budget base adjustment of $3.6 million to enable the agency to regain and sustain its authorized staff level of 729 FTEs. Without the $3.6 million adjustment, the agency will be limited to about 700 FTE positions for FY2005 and subsequent years. This request was based on budget shortfalls due to the lack of adequate funds over the past ten years to meet fully mandatory pay; the rising costs of employer-paid retirement benefits due to a growing proportion of the workforce participating in the more expensive FERS; and the cumulative impact of a number of rescissions. Second, CRS requested $1.0 million to counter the rising cost of research material and to expand its collection of electronic research materials, including (1) an expansion of currently acquired material to all CRS desktops; (2) the addition of a number of electronic products, such as PIERS, which provides statistics on exports and imports and cargo shipments (to enhance container security analysis); (3) an addition of prescription drug pricing proprietary databases; and (4) the use of Bloomberg L P, which provides financial data and analysis. Both houses agreed to $500,000 for increased research expenses, in lieu of the $1.0 million request. Conferees retained House language that in effect reopens the agency's involvement in assisting parliaments of emerging nations. Senate language had directed CRS to determine resources required to meet this role. Senate report language directs CRS to work with the Secretary of the Senate on the feasibility of studying Senate salaries. The nonpartisan GAO works for Congress by responding to requests for studies of federal government programs and expenditures. The agency also conducts audits and evaluations of executive branch programs at the request of the executive branch. Formerly the General Accounting Office, the agency was renamed the Government Accountability Office effective July 7, 2004. Conferees agreed to a direct appropriation of $482.40 million, the same level of funding approved by the House, and less than the $484.38 million passed by the Senate. The conference figure represents an increase of 3.3% over the FY2005 level. Both bills contained $7.2 million in offsetting collections from rents received for space in GAO buildings and reimbursements from financial audits of government corporations. Both house also funded a staff level of 3,215 FTEs. The agency's request contained (1) a direct appropriation of $486.4 million, which reflects an increase of $19.2 million (4.1%) from its FY2005 budget authority of $467.2 million, and (2) authority to use $7.2 million from offsetting collections derived from rent income and reimbursable audit work. GAO's total budget request, with offsetting collection authority included, was $493.6 million, an increase of $19.0 million from $474.6 million made available in FY2005. The additional money primarily was to pay for mandatory pay costs ($20.8 million), since GAO's salary and related costs are 80% of its budget. The remainder of the request included $1.4 million to meet price level increases; provided $899,000 for controllable costs (for example, recruiting and transit subsidy costs, among others); and allowed for an offset of -$4.1 million from non-recurring FY2005 costs. In response to a question on the agency's ability to meet expectations with increasing mandates and a flat staff level, the Comptroller General, David Walker, responded that the agency will continue its responsibility to committees, subcommittees, and leadership, while limiting its work in response to non-leadership requests. Walker also noted that GAO's funding requests for the current and three most recent years primarily assisted the agency in keeping up with inflation. In another response to Chairman Allard's expressed desire to apply performance standards to the legislative branch, Walker noted the agency voluntarily complies with the Government Performance and Results Act (GPRA), which applies to executive branch departments and agencies. As passed by the House, H.R. 2985 contains $117.1 million for the Government Printing Office, and as passed by the Senate, $126.9 million. The conference agreement contains $123.4 million, a 3.04% increase. The agency's FY2006 request contained $131.1 million, up 9.5% ($11.3 million) from FY2005. GPO's budget authority is contained in three accounts: (1) congressional printing and binding; (2) Office of Superintendent of Documents (salaries and expenses); and (3) the revolving fund. The conference-approved budget authorities and changes from the FY2005 funding levels are Congressional printing and binding —$88.1 million, the same as the current funding level and less than the $92.3 million request; Office of Superintendent of Documents (salaries and expenses) —$33.3 million, an increase of 5.2% and less than the request of $33.8 million; Revolving Fund—$2.0 million; funds were not made available to the fund for FY2005. The congressional printing and binding account pays for expenses of printing and binding required for congressional use, and for statutorily authorized printing, binding, and distribution of government publications for specified recipients at no charge. Included within these publications are the Congressional Record ; Congressional Directory ; Senate and House Journals; memorial addresses of Members; nominations; U.S. Code and supplements; serial sets; publications printed without a document or report number, for example laws and treaties; envelopes provided to Members of Congress for the mailing of documents; House and Senate business and committee calendars; bills, resolutions and amendments; committee reports and prints; hearings; and other documents. The Office of Superintendent of Documents account funds the mailing of government documents for Members of Congress and federal agencies, as statutorily authorized; the compilation of catalogs and indexes of government publications; and the cataloging, indexing, and distribution of government publications to the Federal Depository and International Exchange libraries, and other individuals and entities, as authorized by law. GPO'S revolving fund request of $5.0 million funds the agency's transition to a digital system by defining workforce needs, assessing current workforce capabilities, identifying the agency's needs, and establishing training programs to meet those needs. The House approved $1.2 million in funding for workforce retraining. The Senate funded the requested $5.0 million for workforce development. The Office of Compliance is an independent and nonpartisan agency within the legislative branch, established to administer and enforce the Congressional Accountability Act enacted in 1995 ( P.L. 104-1 , 109 Stat. 3). The act applies business and federal government employment and workplace safety laws to Congress and certain legislative branch entities. The FY2006 budget request for operations of the Office of Compliance was $2.64 million, a decrease of $221,000 (9%) from last year's appropriation of $2.42 million. Conferees agreed to $3.1 million, as contained in both the House and Senate versions of the bill. The center administers a program that supports democratic changes in other countries by giving their leaders opportunity to observe democracy and free enterprise in the United States. The first program was authorized by Congress in 1999 to support the relationship between Russia and United States. The program encouraged young federal and local Russian leaders to visit the United States and observe its government and society. A permanent center, named the Center for Russian Leadership Development, was established at the Library of Congress in 2000, and renamed the Open World Leadership Center in 2003, when the program was expanded to include eleven other countries and three Baltic republics. In 2004, Congress further extended the program's eligibility to other countries designated by the center's Board of Trustees, subject to congressional consideration. The center is housed in the Library and receives services from the Library through an inter-agency agreement. For its FY2006 operations budget, the center requested $14.0 million, a change of $608,000 (+4.6%) from $13.4 million made available for FY2005. Both the House and the Senate Committees on Appropriations approved the requested amount. The center was created by Congress in 1988 to encourage public service by congressional staff through training and development programs. Senate language providing $430,000 was agreed to by conferees. CRS Report RL32312, Appropriations for FY2005: Legislative Branch , by [author name scrubbed]. These sites contain information on the FY2004 and FY2005 legislative branch appropriations requests and legislation, and the appropriations process. House Committee on Appropriations http://appropriations.house.gov/ Senate Committee on Appropriations http://appropriations.senate.gov/ CRS Appropriations Products Guide http://www.crs.gov/products/appropriations/apppage.shtml Congressional Budget Office http://www.cbo.gov Government Accountability Office http://www.gao.gov Office of Management & Budget http://www.whitehouse.gov/omb/ | The President signed H.R. 2985, the FY2006 Legislative Branch Appropriations Act, into P.L. 109-55 on August 2, 2005 (119 Stat. 565). The act provides $3.804 billion in new budget authority, a 4.49% increase of $163.61 million over current budget authority. Going into conference, the House bill contained $2.87 billion, a 1.7% increase over the current budget, excluding funds for Senate items, which were determined by the Senate after House consideration of the bill. The Senate bill contained $3.83 billion, a 6.3% increase, including funds for House items. The level of funding is less than the outlay of $3.809 billion projected by the House Budget Committee. The difference is to be offset by the use of prior year funds made available primarily for projects under jurisdiction of the Architect of the Capitol. As enacted into law, H.R. 2985 contained new discretionary budget authority of $3.804 billion, exceeding the 302(b) allocation by $85 million. One of the more controversial issues, House language providing for continuity of representation in the House of Representatives pursuant to an emergency situation, was retained by conferees. The Senate bill did not contain the language. Actions on the FY2006 bill follow last year's approval by the Committees on Appropriations of a virtual funding freeze. Congress eventually agreed to a 1.2% increase, which fell below the 1.3% increase agreed to by both houses for discretionary funds. Among other issues that were under consideration during discussions on the FY2006 budget were requests by the chairman of the House and Senate Appropriations Committees for agencies to identify further their FY2006 objectives in an effort to reduce their requests to more closely mirror the President's call for a 2.1% on discretionary appropriations; funding for the U.S. Capitol Police budget (the House bill contained a 0.7% decrease; the Senate bill, a 9.6% increase; and the conference report, a 3.31% increase; funding for the Capitol Visitor Center (the House bill contained $36.9 million; the Senate bill, $44.2 million, with conferees agreeing to the Senate figure); language in the House bill terminating the Capitol Police mounted horse unit, which was retained in conference; the Senate bill did not contain the provision; language regarding management of the Capitol Police; language in both the House and Senate bill limiting the pay of a legislative branch employee to that received by a Member of Congress, which was dropped during conference; and, language in the Senate report encouraging the application of performance standards for the legislative branch similar to those now statutorily required by the executive branch. |
The House and the Senate approved H.Rept. 111-89 , the conference report to accompany S.Con.Res. 13 , the Concurrent Resolution on the Budget for Fiscal Year 2010, on April 29, 2009. The FY2010 budget resolution includes reconciliation instructions directing the Senate HELP Committee and the House Education and Labor Committee to report changes in laws within their jurisdictions to reduce the deficit by $1 billion for the period of FY2009 through FY2014. The instructions for the House specifically direct the Education and Labor Committee to report a bill that invests in education while reducing the deficit by $1 billion over the FY2009-FY2014 period. On July 21, 2009, the House Education and Labor Committee marked up H.R. 3221 , the Student Aid and Fiscal Responsibility Act of 2009; and on July 27, 2009, the committee reported H.Rept. 111-232 to accompany H.R. 3221 . On September 17, 2009, the House passed H.R. 3221 by a vote of 253 to 171. H.R. 3221 would amend the HEA by making changes to existing programs and by establishing several new programs and benefits. It would also establish several new non-HEA programs. Major proposals made in H.R. 3221 include the following. The authority to make loans under the FFEL program would be terminated after June 2010. CBO estimates that this would reduce mandatory spending by $41.8 billion over the FY2009-FY2014 period, and by $86.8 billion over the FY2009-FY2019 period. These savings would be large enough to achieve the spending reductions specified in S.Con.Res. 13 and to offset increases in mandatory spending that would result from other proposals in H.R. 3221 (described below). Beginning July 1, 2010, all student loans made under Title IV of the HEA would be made under the William D. Ford Federal Direct (DL) program. Contracts for the servicing of DL program loans would be awarded competitively, except in states served by not-for-profit servicers where contracts would be awarded to not-for-profit servicers that meet federal standards and agree to service loans at rates determined by the Secretary to be commercially reasonable. Beginning July 1, 2010, a new Federal Direct Perkins Loan would be offered under the DL program; and authority to make new loans under the current Federal Perkins Loan program would end. Loan authority totaling $6 billion would be annually allocated among institutions of higher education (IHEs) eligible to participate in the DL program. Beginning in FY2010, indefinite mandatory appropriations would be provided for the Federal Pell Grant program. Mandatory appropriations would supplement annual discretionary appropriations and would provide an increase above the annual appropriated Pell Grant maximum award. Beginning with award year (AY) 2011-2012, annual increases to the Pell Grant award amount would be indexed to the percent change in the Consumer Price Index for All Urban Consumers (CPI-U), plus one percentage point. Effective for AY2011-2012, the HEA, Title IV federal student aid need analysis methodology would be simplified and requirements for aid applicants to report certain asset-related financial information on the Free Application for Federal Student Aid (FAFSA) would be eliminated. Mandatory funding for HEA programs serving Historically Black Colleges and Universities (HBCUs) and other Minority-Serving Institutions would be provided for FY2010 through FY2019. Mandatory funding would be provided for programs in a new HEA College Access and Completion Innovation Fund (CACIF). CACIF programs would include the College Access Challenge Grant program, the State Innovation Completion Grants program, and the Innovation in College Access and Completion National Activities program. Mandatory funding would be provided to establish and fund three Modernization, Renovation, and Repair grant programs for school facilities. These would include a program for the modernization, renovation, and repair of elementary and secondary school facilities; a program of supplemental grants for Louisiana, Mississippi, and Alabama; and a program for community college modernization and construction. Mandatory funding would be provided to establish and fund an Early Learning Challenge Fund under which competitive grants would be awarded to states for the purpose of improving standards and the quality of state early childhood education programs. Mandatory funding would be provided to establish and fund the American Graduation Initiative grant program for the purpose of reforming community colleges, and to improve education and training for workforce development. The "Defund ACORN Act" would prohibit organizations that have run afoul of certain federal or state campaign finance, election, or voter registration laws from being awarded federal grants or contracts and from receiving federal funds. CBO estimates the termination of FFEL program lending would reduce mandatory spending by $41.8 billion over the FY2009-FY2014 period, and by $86.8 billion over the FY2009-FY2019 period. These savings would be large enough to achieve the $1 billion reduction in spending specified in S.Con.Res. 13 , and to offset increases in mandatory spending that would result from the other new or expanded education programs and benefits proposed under H.R. 3221 . Overall, CBO estimates that H.R. 3221 , as reported in H.Rept. 111-232 , would reduce mandatory spending by $13.3 billion over the FY2009-FY2014 period, and by $7.8 billion over the FY2009-FY2019 period. CBO also estimates that enactment of the proposals reported in H.R. 3221 , if fully funded, would increase discretionary spending by $3.6 billion over the FY2009-FY2014 period, and by $13.5 billion over the FY2009-FY2019 period. Most of these discretionary costs would be for the administrative costs of increased DL program lending and for growth in the discretionary costs of Pell Grant awards that would increase due to changes in need analysis procedures and eligibility criteria. Table 1 shows amounts of mandatory funding that would be authorized and provided for programs that would be amended or newly authorized under H.R. 3221 , as passed by the House. The remainder of this report provides brief descriptions of the programs that would be amended or established under H.R. 3221 . It begins with a review of changes that would be made to programs authorized under the HEA. This is followed by a review of new non-HEA programs that would be established and funded under H.R. 3221 . This report will be updated as warranted to track legislative developments. The Federal Pell Grant program, authorized by Title IV, Part A, Subpart 1 of the HEA, is the largest source of federal grant aid to low-income students for postsecondary education and is the foundation for all federal student aid awarded to undergraduate students. The Federal Pell Grant program is estimated to provide approximately $25 billion in aid to over seven million students for AY2009-2010. Pell Grants are need-based aid and eligibility is limited to undergraduate students. There is no absolute income threshold that determines who is eligible and who is ineligible for Pell Grants, although Pell Grant recipients primarily have low incomes. For the most recent award year for which complete data are available (AY2007-2008), 83% of Pell Grant recipients considered to be dependent upon their parents for financial support had total parental income below $40,000. Of Pell Grant recipients considered to be independent of their parents, 84% had total income below $30,000. The Federal Pell Grant program is currently funded with both discretionary and mandatory appropriations, although the program is primarily funded with annual discretionary appropriations. The maximum appropriated Pell Grant award amount is specified in annual appropriations measures. For AY2009-2010, the maximum appropriated Pell Grant award amount is $4,860. For AY2008-2009 through AY2012-2013, an automatic additional increase to the appropriated Pell Grant award amount is provided through mandatory appropriations. For AY2009-2010, the mandatory add-on is $490. In order to receive the additional mandatory increase, students must qualify for the minimum appropriated Pell Grant award, which, as defined for eligibility purposes, is 5% of the annual appropriated maximum Pell Grant award. For AY2009-2010, the total maximum Pell Grant award amount is $5,350 and the effective minimum award for a full-time student is $976. H.R. 3221 includes provisions that would change the method by which future additional mandatory Pell Grant award amounts are determined and increases direct spending by providing permanent mandatory budget authority, while continuing to preserve a larger role for annual discretionary appropriations in determining the base maximum Pell Grant award to which additional mandatory amounts are added each year. The CBO baseline for mandatory spending as it relates to the Pell Grant program includes approximately $30.3 billion in mandatory budget authority from FY2010 to FY2017, as provided in the CCRAA and ARRA, and an additional $9.8 billion in FY2018 and FY2019. According to the CBO, the provisions included in H.R. 3221 that would affect the future determination of additional mandatory Pell Grant award amounts are estimated to increase direct spending by $38.7 billion from FY2010 to FY2019. Provisions in H.R. 3221 that would affect the future funding and determination of additional mandatory Pell Grant awards include the following. H.R. 3221 would provide indefinite mandatory appropriations for the Pell Grant program beginning in FY2010. The Federal Pell Grant program would remain authorized through FY2017 under HEA, section 401(a)(1). Mandatory budget authority amounts currently specified for FY2010 through FY2017 would be eliminated. Beginning in FY2010, these permanent mandatory appropriations would supplement annual discretionary appropriations and would provide an additional amount to the annual appropriated Pell Grant maximum award each year beginning in AY2010-2011. Each fiscal year's mandatory appropriations level would be determined based on the total obligations required to provide the additional Pell Grant amount to all eligible students and will be available for use through the end of September of each succeeding year. For AY2010-2011, the additional mandatory amount would remain $690. Beginning in AY2011-2012, and for all subsequent years, a new statutorily defined formula would be established for the purposes of determining the additional mandatory Pell Grant award amount, as described below. For AY2011-2012 only, the formula would arrive at the additional mandatory Pell Grant award amount according to the four following steps: (1) determine the greater value between the AY2010-2011 total maximum award (i.e., the FY2010 discretionary maximum award amount, plus $690) and $5,550; (2) adjust the greater value by the percentage change in the Consumer Price Index for All Urban Consumers (CPI-U) as measured from December 2009 to December 2010, plus one additional percentage point; (3) subtract from this amount the greater of the previous year's discretionary appropriated maximum award amount, or $4,860; and (4) round the resulting amount to the nearest $5 increment. For AY2012-2013 and all subsequent award years, a new statutorily defined formula would be established for determining the additional mandatory Pell Grant award amount. The additional mandatory Pell Grant award amount would be determined according to the following three steps: (1) adjust the previous year's total maximum award (i.e., the discretionary maximum award amount, plus the mandatory additional amount) by the percentage change in the CPI-U as measured from the most recently completed calendar year before the start of the award year, plus one additional percentage point; (2) subtract from this amount the greater of the previous year's discretionary appropriated maximum award amount, or $4,860; and (3) round the resulting amount to the nearest $5 increment. Since the additional Pell Grant award amounts will be determined in the future primarily by two factors that are not known at the present time—the annual discretionary appropriated maximum award amount and the annual percentage change in the CPI-U—future total maximum award levels are not available at this time. For AY2012-2013 and all subsequent award years, a new rule would be established specifying that the additional mandatory Pell Grant award amount cannot be less than the mandatory award amount for the prior award year. H.R. 3221 also includes provisions that would change or clarify the award rules for determining eligibility for a Pell Grant award. These provisions include the following. Authorized maximum Pell Grant award amounts specified for AY2009-2010 through AY2014-2015 would be eliminated, as would the additional mandatory Pell Grant award amounts of $690 in AY2011-2012 and $1,090 in AY2012-2013. Beginning in AY2010-2011, total maximum Pell Grant award amounts would be determined according to the revised formula described above. Beginning in AY2010-2011, qualification for Pell Grant awards would be based on the total maximum Pell Grant award amount. Under current law, through AY2012-2013, in order to receive the additional mandatory increase students must qualify for the minimum appropriated Pell Grant award, which, as defined for eligibility purposes, is 5% of the annual appropriated maximum Pell Grant award. This rule would be eliminated under H.R. 3221 and the new minimum Pell Grant award would be based on 5% of the total maximum Pell Grant award. This new rule would lower the effective minimum award for all students, but expand the qualification parameters of the program, allowing more students to receive the new minimum Pell Grant award. The requirement for the Secretary of Education (the Secretary) to reduce or increase the additional mandatory Pell Grant amount in each award year if the budget authority provided for each year is insufficient or exceeds the amount necessary to fully fund the prescribed additional mandatory amount in each year would be eliminated. The elimination of this requirement would affect only AY2009-2010, since H.R. 3221 authorizes permanent indefinite mandatory appropriations beginning in FY2010. The eligibility requirements for awarding two Pell Grant awards in one award year—so-called "Year-round Pell Grants"—would be clarified. H.R. 3221 would provide that any Pell Grant recipient who is making satisfactory academic progress toward the acceleration of completing a degree or certificate program, whether on a full- or part-time basis and according to the standards set by the institution, is eligible for not more than two Pell Grants in a single award year. The Department of Education currently administers three major federal student loan programs that are authorized under Title IV of the HEA: the Federal Family Education Loan (FFEL) program, the William D. Ford Federal Direct Loan (DL) program, and the Federal Perkins Loan program. These programs are briefly described below. This is followed by descriptions of changes that would be made to the federal student loan programs under H.R. 3221 . Under the FFEL program, the capital for making loans is provided by private lenders, and the federal government guarantees lenders against losses due to borrower default. The federal government also provides private lenders a variety of subsidies designed to ensure that private capital will consistently be available to make FFEL program student loans. FFEL program loans are originated, held, and serviced by private lenders; and state and nonprofit guaranty agencies receive federal funds to administer the federal loan guarantee. Costs of the FFEL program are mostly mandatory. Approximately 4,500 IHEs currently participate in the FFEL program. ED estimates that 14.2 million new FFEL program loans (not including Consolidation Loans), averaging $4,510 and totaling $64 billion, will be made in FY2009. By the end of FY2009, ED estimates that there will be $471 billion in outstanding FFEL program loans. Under the DL program, the federal government essentially serves as the banker and makes loans to students and their families using federal capital (i.e., funds from the U.S. Treasury), and owns the loans. Schools may serve as direct loan originators or the loans may be originated by a Department of Education contractor. Loan servicing and collections are also performed by contractors. DL program subsidy costs are mostly mandatory, and administrative costs are mostly discretionary. Approximately 1,500 IHEs currently participate in the DL program. ED estimates that 4.5 million new DL program loans (not including Consolidation Loans), averaging $4,813 and totaling $21.8 billion, will be made in FY2009. By the end of FY2009, ED estimates that there will be $146 billion in outstanding DL program loans. While the FFEL and DL programs rely on different sources of capital and different administrative structures, they make available essentially the same set of loans: Subsidized Stafford Loans and Unsubsidized Stafford Loans for undergraduate and graduate students; PLUS Loans for graduate students and the parents of dependent undergraduate students; and Consolidation Loans through which borrowers may combine their loans into a single loan. The Federal Perkins Loan program is one of three campus-based student financial aid programs under which funds are awarded to IHEs for purposes of providing federal student aid to students who attend participating institutions. Under the Perkins Loan program, federal capital contributions are authorized to be awarded to IHEs to assist them in capitalizing revolving loan funds from which 5% interest rate loans may be made to students with exceptional financial need. Institutions capitalize their revolving loan funds with a combination of federal and institutional capital contributions. After making loans, institutions recapitalize their loan funds by depositing the principal and interest repaid by students who borrowed under the program, as well as any other charges or earnings associated with the operation of the program. More than 1,600 IHEs currently participate in the Federal Perkins Loan program. ED estimates that these institutions will make 495,000 new Perkins Loans, averaging $2,231 and totaling $1.1 billion, in FY2009. H.R. 3221 would make the following amendments to the FFEL program. H.R. 3221 would terminate the authority for new loans to be made or insured under the FFEL program after June 30, 2010. Beginning with AY2010-2011, all new Subsidized and Unsubsidized Stafford Loans, PLUS Loans, and Consolidation Loans would be made under the DL program. Holders of existing FFEL program loans would continue to be responsible for servicing the loans, and guaranty agencies would continue to administer the federal loan insurance. CBO projects that the termination of lending under the FFEL program and the shift to all federal student loans being made under the DL program would result in a reduction of $40.7 billion in mandatory spending over the period from FY2009 through FY2014, and $74.8 billion in mandatory spending over the period from FY2009 through FY2019. These savings in mandatory spending result in part due to the shifting of approximately $7.2 billion in administrative costs from mandatory spending under the FFEL program to discretionary spending under the DL program over the period from FY2009 through FY2019. H.R. 3221 would also change the index used in determining the SAP paid quarterly to lenders under the FFEL program from the bond equivalent rate of the 3-month commercial paper (CP) (financial) rate, to the bond equivalent rate of the 1-month London Inter Bank Offered Rate (LIBOR) for United States dollars in effect for the applicable quarters. This change would more closely align the index used in determining the subsidy rates for holders of FFEL program loans with the indices on which their short-term borrowing costs are often based. CBO projects a negligible impact on spending as a result of this change. The 1-month LIBOR-based SAP rate would apply to new loans made between the date of enactment and the termination of FFEL lending; and would apply, if a lender waives all rights to receive special allowance payments based on the 3-month CP rate, to all loans disbursed between January 1, 2000, and the date of enactment that are held or subsequently acquired by the holder. The 1-month LIBOR-based SAP rate would also apply as the substitute rate for the 3-month CP rate in the calculation of the participant yield paid to the Secretary on all FFEL program loans in which the Secretary has purchased a participation interest according to programs enacted under the Ensuring Continued Access to Student Loans Act (ECASLA). H.R. 3221 would amend the HEA to provide that, effective July 1, 2010, all new Subsidized and Unsubsidized Stafford Loans, Federal Direct Perkins Loans (described below), PLUS Loans, and Consolidation Loans would be made under the DL program. In addition, H.R. 3221 would make the following changes to the DL program. Under current law, Subsidized Stafford Loans to undergraduate borrowers have fixed interest rates, and the applicable fixed interest rate depends on the year in which the loan is first disbursed. Interest rates on Subsidized Stafford Loans were most recently amended under the CCRAA. Interest rates were reduced from 6.8% to 6.0% for loans made for AY2008-2009, and to 5.6% for loans made for AY2009-2010. Interest rates are scheduled to be reduced further to 4.5% for loans made for AY2010-2011, and to 3.4% for loans made for AY2011-2012. Interest rates on Subsidized Stafford Loans to undergraduate students are scheduled to revert back to 6.8% for loans made for AY2012-2013 and later years. H.R. 3221 would make Subsidized Stafford Loans to undergraduate students made for AY2012-2013 and later years (i.e., loans first disbursed on or after July 1, 2012) variable rate loans. The interest rate on these loans would adjust annually each July 1; and the interest rate for the next year would be equal to the bond equivalent rate of 91-day Treasury bills auctioned at the final auction prior to June 1, plus 2.5 percentage points, but not to exceed 6.8%. Under current law, origination, servicing, and collections on DL program loans are contracted out by ED according to procedures designed to ensure that these services are performed by qualified entities at competitive prices. ED recently awarded performance-based contracts to four entities to service loans in its portfolio of more than $550 billion in federal student loans, including those made under the Direct Loan program. H.R. 3221 would amend the procedures to be used by the Secretary in awarding contracts to entities to service loans made under the DL program. Set-asides for n ot-for-profit servicer s The proposed new contracting requirements would specify that in states in which at least one not-for-profit servicer has its primary place of business, the Secretary would be required to contract with that not-for-profit servicer (or servicers) to service the loans of students who borrow to attend IHEs located in those states. Each not-for-profit servicer awarded a servicing contract would be required to meet the Secretary's standards for servicing student loans and would be compensated at a rate determined by the Secretary to be commercially reasonable for that particular not-for-profit servicer to both service loans and provide additional services, such as default aversion services. In states with only one eligible not-for-profit servicer, that servicer would be entitled, on an annual basis, to the servicing rights of the lesser of (1) the loans of 100,000 borrowers, or (2) the loans of all borrowers attending IHEs in the state. In states with more than one eligible not-for-profit servicer, those servicers would be entitled, on an annual basis, to the servicing rights of the lesser of (1) the loans of 100,000 borrowers, or (2) an equal share of the loans of all borrowers attending IHEs in the state. Servicing in general; and job retention incentive payment For purposes of servicing loans made to borrowers attending IHEs in other states and foreign IHEs, the Secretary would be required to award multiple contracts through a competitive bidding process to eligible servicers, including not-for-profit servicers and their subsidiaries. The competitive bidding process would be required to take into account price, servicing capacity, and capability; and would be permitted to take into account the ability to provide default aversion activities, and outreach service programs that encourage college completion, the minimization of borrowing, and the delivery of financial literacy and counseling tools. H.R. 3221 would also require the Secretary to provide a job retention incentive payment to servicers that agree to give priority in hiring for positions created as a result of the award of a Direct Loan servicing contract to geographical locations in the United States at which the entity performed FFEL program loan origination or servicing activities prior to the date of enactment. The Secretary would also be required to consider the retention of highly qualified employees by the servicer in determining the allocation of the number of loans to be serviced. Additional Direct Loan p rogram c ontracts H.R. 3221 would authorize the Secretary to enter into contracts for certain services under the DL program with entities, such as guaranty agencies, that at the time of enactment had provided such service under the FFEL program. These services include delinquency prevention and default aversion services; default collection services; financial aid, financial literacy, career, and education counseling; training for guidance counselors and financial aid officers; and other outreach services. Currently, the only form of federal student aid available under HEA, Title IV to eligible students enrolled in foreign schools is loans made under the FFEL program. Effective July 1, 2010, and concurrent with the termination of lending under the FFEL program, H.R. 3221 would extend the availability of DL program loans to eligible students enrolled in foreign schools. H.R. 3221 amends the HEA to require the Secretary to provide technical assistance to IHEs that currently participate in or seek to participate in the Direct Loan program. This must include assistance in transitioning to and administering the DL program. H.R. 3221 would provide $50 million in mandatory funding for technical assistance for FY2010, and would authorize the appropriation of discretionary funding for FY2011 through FY2014. H.R. 3221 would also require the Secretary to conduct outreach activities to inform and educate students and their families about the transition to the Direct Loan program. H.R. 3221 would terminate the authority to make new Perkins Loans under Part E of the HEA effective June 30, 2010, and would establish Federal Direct Perkins Loans as a new type of need-based federal student loan to be made available to borrowers under the Direct Loan program. Interest rates and loan limits on new Federal Direct Perkins Loans would remain the same as for loans currently made under the Federal Perkins Loan program. All other terms and conditions for new Federal Direct Perkins Loan would be the same as for Unsubsidized Stafford Loans made under the DL program. Selected terms and conditions of current Perkins Loans and proposed Federal Direct Perkins Loans are presented in Table 2 , below. Beginning with AY2010-2011, the authority to make $6 billion in Federal Direct Perkins Loan aid would be allocated annually among IHEs that participate in the Direct Loan program and that enter into participation agreements with the Secretary to make Federal Direct Perkins Loans. Participation agreements would contain a requirement that IHEs pay matching funds on a quarterly basis, in an amount agreed to by the institution and the Secretary, to an escrow account for purposes of providing loan benefits to borrowers. Loan authority to make Federal Direct Perkins Loans would be allocated to IHEs according to a three-part formula. First, one half of loan authority would be allocated to IHEs according to the adjusted self-help need of all IHEs that participate in the DL program. Self-help need would be determined for each IHE based on the difference between the costs of attendance (COA) and the expected family contributions (EFC) of its students. Second, one quarter of loan authority would be allocated according to a low-tuition incentive amount, based on the relationship between the IHE's tuition and fees relative to the average tuition and fees for its sector. Third, one-quarter of loan authority would be allocated based on the number of degree recipients at the IHE who ever received a Pell Grant relative to the number of degree recipients at all participating IHEs who ever received a Pell Grant. However, notwithstanding these three criteria, each IHE that previously participated in the Federal Perkins Loan program would receive a minimum amount of Federal Direct Perkins Loan authority equal to the average amount of Perkins Loans it awarded to students for AY2003-2004 through AY2007-2008. For the past several years, no new federal capital contributions have been made to institutions under the Federal Perkins Loan program. However, in years when federal capital contributions were provided, as required under the current statutory allocation formula, most funds were allocated to IHEs on the basis of amounts received in prior years for "base guarantees," as opposed to being allocated according to "fair share" procedures based on aggregate student financial need. In allocating the loan authority to make new Federal Direct Perkins Loans, the procedures proposed in H.R. 3221 would place greater emphasis on the financial need of an institution's students, the institution's efforts at keeping tuition low or at providing need-based grant aid, and its success at graduating Pell Grant recipients, than the current procedures for allocating federal capital contributions, which largely rely on base guarantees. Nonetheless, IHEs that previously participated in the Federal Perkins Loan program would be entitled to new loan authority at least equal to the average annual amount of Perkins Loans they made over the most recent five years. Upon ceasing to participate in the Perkins Loan program or when authorization of the program expires, institutions are required to begin a distribution of assets from their revolving loan funds (i.e., institutions must repay the Secretary a portion of the balance of their loan funds proportional to the amount constituted by federal capital contributions). H.R. 3221 would amend the current Perkins Loan program to require a capital distribution of the balance of each participating institution's Perkins Loan fund beginning July 1, 2010. H.R. 3221 would also authorize institutions, beginning July 1, 2010, to assign all the loans they made under the Federal Perkins Loan program to the Secretary. Upon assignment, the Secretary would assume responsibility for servicing and collecting these Perkins Loans, and would refund to institutions an amount equal to the proportion of the loan amount that was made from institutional capital contributions to the revolving loan fund. H.R. 3221 would amend provisions in HEA, § 484B relating to the return of Title IV funds for students who withdraw from a postsecondary program and who are receiving Title IV federal student aid when their withdrawal is necessitated by service in the uniformed services. In such instances, the Secretary would be required to waive the amounts of federal student aid such students otherwise must return. The Secretary would also be required to cancel or assume the obligation to repay the outstanding balance and accrued interest on federal student loan amounts made under the FFEL, DL, and Federal Perkins Loan programs that were used to finance periods of enrollment for which the student did not receive academic credit as a result of withdrawing to serve in the uniformed services. This provision would be applicable for periods of service beginning after the date of enactment. A federal "need analysis" system underlies the annual allocation of billions of dollars in student financial aid supported by Title IV of the HEA. Annually, this system involves millions of current and potential students who apply for federal aid by providing detailed financial and other information on the Free Application for Federal Student Aid (FAFSA). FAFSA data are used in statutorily defined formulas to determine the amount of financial resources students and their families are expected to direct toward postsecondary education expenses—the expected family contribution. Financial need for need-based federal student aid programs is determined by the EFC and its relationship to students' cost of attendance. Relying on the calculation of need, financial aid administrators (FAAs) in postsecondary institutions package federal, state, and institutional aid for aid applicants. For many years, the Congress, policymakers, and student aid advocates have expressed interest in simplifying the process by which students apply for federal student aid. Such interest centers primarily on the belief that the complexity of the process poses a barrier to college access, particularly for low-income students. Most recently, the Higher Education and Opportunity Act (HEOA, P.L. 110-315 ) amended the HEA to authorize the EZ-FAFSA for students qualifying under either Simplified Needs Test or Automatic Zero EFC provisions, effectively reducing the number of questions on the FAFSA for these applicants. The HEOA also requires the Secretary to pursue a process of streamlining the FAFSA for reapplications and to ultimately reduce the number of data elements required from all applicants by a goal amount of 50%. Under the HEOA amendments, the Secretary is tasked with determining how Internal Revenue Service (IRS) data may be used to pre-populate the FAFSA in order to reduce income and asset questions on the form and is also given authority to obtain such data from the IRS. H.R. 3221 includes provisions that would simplify the need analysis methodology and remove the requirement for students to provide certain information on the FAFSA. These provisions would increase both direct spending for loan and grant aid and discretionary spending for grant aid by a combined estimated total of $7.1 billion from FY2011 to FY2019. Provisions that would result in new or enhanced grant aid or adjustments to need analysis calculations include the following. H.R. 3221 would amend HEA need analysis provisions to limit eligibility for most need-based federal student aid programs to students and families who meet a statutorily defined level of net assets. This provision would, effective July 1, 2011, limit eligibility for Pell Grants and Subsidized Stafford Loan assistance under Title IV to students and families with a combined total of net assets valued at $150,000 or less. For dependent students, the combined total would include the assets of both the parents and the student. For independent students, the combined total would include the assets of both the student and, if married, the student's spouse. For each subsequent year after AY2011-2012, the Secretary would be required to publish a revised net asset cap level, indexed to the change in the Consumer Price Index (CPI), and rounded to the nearest $5 increment, in the Federal Register before each award year. It's important to note that, in conjunction with establishing an asset cap for federal student aid programs, H.R. 3221 would also eliminate the requirement for students to report asset-related information by excluding the consideration of assets in the federal need analysis calculation (as discussed below). It is unclear at this time how asset-related information will be verified to determine eligibility for need-based federal student aid programs. Effective July 1, 2011, the consideration of assets would be eliminated for all students in the federal need analysis calculation when determining eligibility for the Federal Pell Grant Program or Federal Direct Stafford Loan Program. Students and parents would no longer be required to report asset-related financial information on the FAFSA when applying for aid. The removal of assets in the need analysis calculation could eliminate up to six questions from the current FAFSA and corresponding sections of lengthy instructions aimed at assisting applicants with generating asset-related entries. Effective July 1, 2011, the definition of untaxed income and benefits used in determining the EFC for need analysis would be revised. The definition of untaxed income would be reduced to three elements: (1) interest on tax-free bonds, (2) untaxed portions of pensions, and (3) payments or contributions to individual retirement accounts and Keogh accounts that are excluded from income for federal income tax purposes. The following elements would be eliminated from the definition of untaxed income and benefits, and students and parents would no longer be required to report this financial information on the FAFSA: (1) child support received; (2) workman's compensation; (3) veteran's benefits such as death pension, dependency, and indemnity compensation; (4) housing, food, and other allowances for military, clergy, and others; (5) cash support or any money paid on the student's behalf; and (6) any other untaxed income and benefits. The new definition would eliminate up to nine questions from the current FAFSA. In addition, the new definition of untaxed income and benefits would result in a lower EFC for many applicants, and consequently, lead to additional federal student aid. H.R. 3221 also includes a provision that clarifies current regulatory interpretation of the need analysis calculation. This provision, effective July 1, 2011, would clarify in need analysis that the definition of assets does not include an employee pension benefit plan as defined in section 3(2) of the Employee Retirement Income Security Act of 1974 (ERISA; 29 U.S.C. § 1002(2)). Effective July 1, 2011, periods of ineligibility for federal student aid for students convicted of a drug-related offense involving the possession of a controlled substance while enrolled in college and receiving federal student aid would be eliminated. Periods of ineligibility and terms for regaining eligibility would remain for students convicted of selling controlled substances under federal and state laws while receiving federal student aid. Revising this question on the FAFSA to address only those students who have been convicted of selling a controlled substance while receiving student aid would reduce the additional follow-up correspondence required by the federal government and aid applicants necessary for determining eligibility for some students. Effective AY2010-2011, individuals who were under 24 years of age, or were enrolled at an IHE, at the time their parent or guardian died in the line of duty while actively serving as a public safety officer would be assigned an automatic $0 expected family contribution (auto-zero EFC) for the entirety of the period they are eligible for a Pell Grant. FAAs would be allowed to adjust the EFC to zero for a qualifying student, although the Secretary would be given authority to establish an alternate method for determining eligibility. In addition, any educational assistance benefits received under the Public Safety Officer's Benefits Program would not be affected by any amount of Pell Grant aid received under this provision. The assignment of an auto-zero EFC for qualifying students could also increase their eligibility for other forms of federal student aid, as well as institutional and state student aid. H.R. 3221 would make changes to institutional eligibility requirements for IHEs to participate in Title IV programs. Several temporary changes relating to compliance with the 90/10 rule would become effective on the date of enactment, and would expire July 1, 2012. Proposed changes include the following. The period during which proprietary institutions may count toward the 10% requirement the proceeds of Unsubsidized Stafford Loans in excess of the loan limits that existed the day before the enactment of the ECASLA would be extended. The HEOA provided for a period from July 1, 2009, to July 1, 2011; whereas, H.R. 3221 would extend the period by one year to July 1, 2012. Funds received through the proposed new Federal Direct Perkins Loan program would be allowed to be counted toward the 10% requirement of non-Title IV funds for compliance with the 90/10 rule from July 1, 2010, to July 1, 2012. Proprietary institutions would be provided an additional year to comply with the requirements of the 90/10 rule before being placed on a provisional status for two years. Currently, proprietary institutions that violate the 90/10 rule in a given year are placed on provisional eligibility status. H.R. 3221 would allow proprietary institutions two consecutive years of noncompliance before being placed on provisional eligibility status. Proprietary institutions would be provided an additional year to comply with the requirements of the 90/10 rule—increasing from two consecutive years to three consecutive years—before losing Title IV eligibility for at least two years, dependent upon further requirements to regain eligibility. H.R. 3221 would establish a program, funded through discretionary appropriations, to award competitive grants to local educational agencies for the purpose of improving teacher excellence in public elementary and secondary schools. Funds provided through these grants would be used for the establishment, expansion, or improvement of professional development activities, mentoring and induction programs, or career ladders that allow teachers to take on new professional roles, such as career teachers, mentor teachers, and master teachers. H.R. 3221 would amend HEA, Title III, Part F to annually provide $255 million in mandatory funding for Historically Black Colleges and Universities (HBCUs) and other minority-serving institutions (MSIs) for FY2010 through FY2019. The authority to award grants under Part F would expire at the end of FY2019. Mandatory funding of $255 million for each of FY2008 and FY2009 was first provided for HBCUs and MSIs under the CCRAA in 2008. Allocation procedures and program requirements would remain the same except as described below. H.R. 3221 would annually provide $100 million in mandatory funding for Hispanic-Serving Institutions (HSIs) and the Yes Partnership Grants Program for FY2010 through FY2019. (In each of FY2008 and FY2009, HSIs were appropriated $100 million in mandatory funding under HEA, Title III-F.) Ninety percent of the funds would be allocated to HSIs, and 10% would be allocated to the Yes Partnership Grants Program. The list of authorized activities for HSIs would be expanded to include those listed under the Promoting Postbaccalaureate Opportunities for Hispanic Americans program, authorized under HEA, Title V-B. HSI applicants that proposed to increase science, technology, engineering, and mathematics (STEM) degree completion and develop two- to four-year articulation agreements would still be given priority in the selection process. The Yes Partnership Grants Program was enacted under the HEOA to encourage elementary and secondary minority and low-income students to pursue careers in STEM fields. The program provides matching, competitive grants to partnerships of at least one HSI or eligible IHE, at least one high-need LEA, and at least two other organizations. Funds have not yet been appropriated for the Yes Partnership Grants Program. ED would be instructed to add the mandatory allocation for predominantly Black institutions (PBIs), Asian American and Native American Pacific Islander-serving institutions (AANAPIs), and Native American-serving Nontribal institutions (NASNTIs) under HEA, Title III-F to any discretionary appropriation for each of the programs under HEA, Title III-A so as to administer for each type of MSI a single grant program. The PBI program supports the expansion of educational opportunity by providing matching formula grants to IHEs that meet the eligibility requirements, which include enrollment of at least 40% Black American students. The AANAPI and NASNTI programs support institutional capacity building by providing competitive grants to IHEs that meet the basic eligibility criteria under HEA, Title III, § 312(b). In addition to the basic eligibility requirement, AANAPI program recipients must serve an enrollment of at least 10% Asian Americans and Native American Pacific Islanders, while NASNTI program recipients must serve an enrollment of at least 10% Native American students and must not be Tribal Colleges or Universities (as defined in HEA, § 316). H.R. 3221 would amend Part E of Title VII of the HEA to establish the College Access and Completion Innovation Fund (CACIF).The fund would include the College Access Challenge Grant Program (CACG) that was enacted under the CCRAA in 2008, two other programs, and an evaluation. The purpose of the CACIF would be to promote success in postsecondary education, improve employment outcomes for individuals after the completion of a postsecondary program, and to assist states in developing longitudinal data systems, common metrics, and reporting systems for postsecondary education and associated post-completion employment outcomes. Private, nonprofit institutions of higher education could voluntarily participate in the programs. Their participation would not authorize state control over curriculum, program of instruction, administration, governance, personnel, articulation, the awarding of credit, graduation or degree requirements, or admissions; would not require participation in a longitudinal data system; and would not limit the application of the General Education Provisions Act (GEPA; Title 20, U.S.C., Chapter 31). For each of FY2010 through FY2014, $600 million in mandatory funding would be authorized and appropriated for the CACIF. The authority to award grants under Part F would expire at the end of FY2014. Of the funds made available each year, 25% would be provided for the CACG program, 50% would be provided for the State Innovation Completion Grant program, 23% would be provided for the Innovation in College Access and Completion National Activities program, and 2% would be provided for evaluation activities. The programs that would be authorized under the CACIF are briefly described below. The CACG program fosters partnerships between federal, state, and local governments and philanthropic organizations through matching formula grants that are intended to increase the number of low-income students who are prepared to enter and succeed in postsecondary education. H.R. 3221 would make no changes to the CACG program except to increase its funding above the FY2009 mandatory appropriation of $66 million, to $150 million for each of the fiscal years 2010 through 2014. H.R. 3221 would create a new program entitled State Innovation Completion Grants , which would provide matching competitive grants to states to increase postsecondary persistence and completion rates and to develop statewide, publicly available longitudinal data systems of postsecondary educational information and employment outcomes. The program would emphasize the provision of financial aid to students by giving priority to states that partner with nonprofit philanthropic organizations that provide financial aid and support services to students from underrepresented populations, student loan guaranty agencies, or subsidiaries of guaranty agencies. States would be required to provide matching funds equal to at least one-half of the federal funds received. At least one-third of the federal and matching funds would have to be expended on students enrolled in pre-baccalaureate programs of postsecondary education. States would also be required to submit an Access and Completion Plan stating their annual and long-term goals for increasing postsecondary persistence and completion rates, disaggregated by income, race, ethnicity, gender, disability, and age of students; goals for addressing labor market needs; and goals for improving coordination between public two- and four-year institutions. H.R. 3221 would create a new Innovation in College Access and Completion National Activities program, which would provide competitive grants to states, IHEs, TRIO grantees, student loan guaranty agencies, nonprofit subsidiaries of student loan guaranty agencies, nonprofit servicers, and consortia of the preceding entities. Grantees would be able to conduct programs that advance knowledge about, and the adoption of, policies and practices that increase the number of individuals with postsecondary degrees or certificates. Grantees would also be able to provide supplemental grant or loan aid to students. Priority would be given to applicants that serve students from groups underrepresented in postsecondary education, that are public IHEs which predominantly provide pre-baccalaureate degrees and certificates, that promote STEM degree or certificate completion, that promote postsecondary completion by veterans or dislocated workers, that promote financial literacy, that are philanthropic organizations that primarily provide financial aid and support services to students from underrepresented populations, or that are entities that encourage partnerships between IHEs with high degree-completion rates and those with low degree-completion rates. The minimum grant award would be $1 million. The Department of Education, Institute for Education Sciences (IES) would be required to complete an evaluation of the three aforementioned CACIF programs by January 30, 2016. H.R. 3221 would amend the Model Programs for Centers of Excellence for Veteran Student Success program authorized under the HEA, Title VIII, Part T, as added by the HEOA. The revised program would award three-year grants to IHEs to either develop model programs to support veteran student success in postsecondary education or to hire a Veterans' Resource Officer to increase the college completion rates for veteran students. The list of activities required of grantees who choose to develop model programs would not change. These activities include the establishment of a single point of contact for coordinating support services to veterans, the establishment of a veteran student support team, the designation of a coordinator for the model program, the monitoring of academic success rates of veterans, and the development of a plan to sustain the model program. The required activities of a Veterans' Resource Officer would include serving as a liaison between veteran students and staff and the U.S. Department of Veterans Affairs (VA), organizing activities and organizations for veterans, distributing information to veterans, and assisting in the training of VA certifying officials. No funds have been appropriated for the Model Programs for Centers of Excellence for Veteran Student Success program since its authorization as an HEA program. The program is authorized at such sums as may be necessary for FY2009 and each of the five succeeding fiscal years. H.R. 3221 would appropriate $10 million for FY2010 for the Cooperative Education Program authorized under the HEA, Title VIII, Part N, as added by the HEOA. The authority to award grants under Part N would expire at the end of FY2010. The program awards matching, competitive grants to IHEs or consortia of IHEs to develop work experiences integrated with the academic program. It also supports cooperative education demonstration projects, training centers, and research. No funds have been provided for the Cooperative Education program since its authorization as an HEA program. In addition to making changes to the Higher Education Act, H.R. 3221 would authorize and appropriate funding for three categories of programs. Title III of the SAFRA would establish and fund Modernization, Renovation, and Repair programs for elementary and secondary education, and higher education facilities. Title IV of the SAFRA would establish and provide funding for the Early Learning Challenge Fund, focusing on early childhood education. Title V of the SAFRA would establish and provide funding for the American Graduation Initiative, which would focus on improving community colleges. H.R. 3221 would authorize three new grant programs for the modernization, renovation, and repair of education facilities. Title III, Subtitle A of the bill would authorize two new elementary and secondary education school facilities grant programs: Grants for Modernization, Renovation, or Repair of School Facilities; and Supplemental Grants for Louisiana, Mississippi, and Alabama. The authority to award grants under this subtitle would expire at the end of FY2011. Title III, Subtitle B of the bill would authorize a new grant program of federal assistance for community college modernization and construction. H.R. 3221 would annually provide $2.020 billion for FY2010 and FY2011 for the Grants for Modernization, Renovation, or Repair program. The majority of funds would be distributed through formula grants to states made in proportion to the amount received by all local educational agencies (LEAs) in the state in the previous fiscal year under the Elementary and Secondary Education Act (ESEA), Title I-A Grants to LEAs program, relative to the total amount received by all LEAs in all states under the Title I-A program. After reserving up to 1% of their grants for administration, states, in turn, would award subgrants to LEAs in proportion to the amount received by each LEA in the previous fiscal year under the Title I-A program relative to the amount received by all LEAs in the state. H.R. 3221 would annually provide $30 million for FY2010 and FY2011 for Supplemental Grants for Louisiana, Mississippi, and Alabama. Supplemental Grants would be provided to LEAs in proportion to the amount of infrastructure damage inflicted upon LEA public school facilities by Hurricanes Katrina or Rita, relative to the overall damage done to public school facilities in all relevant LEAs combined. Supplemental Grant funds could be used for new construction as well as for modernization, renovation, or repair. A series of general provisions would apply to both elementary and secondary education grant programs. Examples of key provisions are included below. All iron, steel, and manufactured goods used by the LEAs under these grant programs must be manufactured in the United States. LEAs must adhere to the wage rates in the Davis-Bacon Act, as amended. LEAs must use, at a minimum, a specified percentage of funds for projects that meet specific green building/energy rating standards (50% for FY2010 and 75% for FY2011). The Secretaries of Education and the Secretary of Labor are required to collaborate to provide opportunities for participants of the Youth Build and Job Corps programs and community college students in green building/energy rating certificate/degree programs to work on projects funded under these two programs. H.R. 3221 would also establish a new higher education Federal Assistance for Community College Modernization and Construction program. This program would be a new formula grant program to states for the purpose of constructing, modernizing, renovating, and repairing (1) facilities at public or private, nonprofit two-year colleges and (2) facilities used by students seeking pre-baccalaureate degrees or certificates at public four-year IHEs that award a significant number of pre-baccalaureate degrees and certificates. For FY2010, $2.5 billion would be appropriated and would remain available until expended. The authority to award grants under this program would expire at the end of FY2010. The funds could be used to (1) reduce the financing costs of loans for construction, modernization, renovation, and repair; (2) provide matching funds for capital campaigns for construction, modernization, renovation, and repair; or (3) capitalize a revolving loan fund to finance construction, modernization, renovation, and repair of facilities at eligible institutions. Funds could only be used for facilities primarily used for instruction, student housing, or research, and 50% of the funds would have to meet specific green building/energy rating standards. Projects would be required to adhere to the wage rates in the Davis-Bacon Act, as amended. Institutions would be prohibited from concurrently receive funding for construction, modernization, renovation, or repair through this program and any other program funded under the Student Aid and Fiscal Responsibility Act of 2009. Funds would be allocated to states in proportion to the number of students in eligible institutions seeking a pre-baccalaureate degree or certificate in each state, relative to the number of students in eligible institutions seeking pre-baccalaureate degrees or certificates in all states. The following grant amount restrictions apply: a grant could not exceed 25% of the principal on loans whose financing costs would be reduced by the grant, nor could it exceed 25% of the private donations raised in a capital campaign for which grant funds would constitute matching funds. H.R. 3221 would authorize a new Early Learning Challenge Fund to be jointly administered by the Secretary of Education and the Secretary of Health and Human Services. This program would provide competitive grants to states to improve the standards and quality of state early learning programs serving children from birth to age five. One billion dollars in mandatory funding would be appropriated annually for this program for FY2010-FY2017. Grants would be distributed as Quality Pathways Grants and as Development Grants. Quality Pathway Grants would be provided to states that have demonstrated significant progress in early childhood education. These grants would be for up to five years and would be renewable. Development Grants would be for states not currently able to meet the criteria for Quality Pathway Grants. Grants would be for up to three-years and would be nonrenewable. States receiving grants would be required to submit an annual report to the Secretary, and would be required to meet maintenance of effort and matching requirements. The Secretary would be required to submit an annual report to the House Committee on Education and Labor, and the Senate Committee on Health, Education, Labor, and Pensions. From the total appropriated for this program, up to 2% would be reserved for program administration, and up to 3% for research and evaluation. From amounts remaining after these reservations, 0.25% would be reserved for competitive grants to Indian tribes. All remaining funds would be allocated as competitive grants to states as Quality Pathways Grants and Development Grants. For FY2010 through FY2012, no more than 65% of funds remaining after reservations could be used for Quality Pathways Grants. Beginning with FY2013, the percentage for Quality Pathways Grants would increase to no more than 85%. States would be required to prioritize the use of Quality Pathways Grants for improving the quality of early learning programs serving low-income children. Beginning with the second fiscal year of a Quality Pathways Grant, a state making sufficient progress (as determined by the Secretary) would be permitted to reserve up to 25% of their grant to expand access for low-income children to the highest quality early learning programs that offer full-day services. Not less than 65% of the grant would be used to implement at least two initiatives intended to improve the quality of early learning programs serving disadvantaged children. These initiatives may focus on improving the credentials of early learning providers tied to increased compensation; improving early learning program quality; providing financial incentives to undertake and sustain quality improvements; implementing classroom observation assessments and data driven decisions to improve instructional practice, or classroom environment, and promote school readiness; providing high-quality, comprehensive classroom-focused professional development, including professional development related to meeting the needs of diverse populations; integrating state early learning and development standards into instructional and programmatic practices in early learning programs; encouraging family involvement and enhancing parent knowledge of state early learning programs and ratings; building the capacity of early learning programs to facilitate screening, referral, and provision of comprehensive services; developmental delay, disability, and family support; and implementing other innovative programs approved in advance by the Secretary. The remainder of a state's grant could be used for one or more of the following activities: implementing or enhancing the state's data system, including interoperability across agencies serving children, including unique child and program identifiers; implementing or enhancing the state's oversight system, including implementation of a program rating system; and developing and implementing measures of school readiness of children. Development Grants would be awarded competitively to states that demonstrate a commitment to a system of early learning, but are not eligible, or are not awarded, a Quality Pathways Grant. States would use these grants to develop the components of an early learning system that would allow the state to become eligible for Quality Pathways Grants. Priority would be given to improving the quality of early learning programs serving low-income children. The Secretary of Education and the Secretary of Health and Human Services would jointly carry out the following activities: establishing a national commission to review and recommend benchmarks to improve state and federal early learning program quality; conducting a national evaluation of funded grants; supporting a research collaborative made up of appropriate federal agencies and other federal entities to support in-depth research into early learning that will facilitate improvements in early learning standards and licensing requirements; and disseminating relevant research, and information on best practices. Not later than 18 months after passage of this act the national commission shall evaluate barriers to increasing access to high quality early learning programs for low-income children. The national commission is to issue a report and disseminate its findings from the evaluation. H.R. 3221 would establish two major grant programs to provide funding for community colleges, states, and related consortia to reform the community college system to improve education and training for workforce development. The first program, Grants to Eligible Entities for Community College Reform, would annually provide $630 million in competitive grants for FY2010 through FY2013 to fund community college programs that improve completion rates and train workers for skilled occupations. The second program, Grants to Eligible States for Community College Programs, would annually provide $630 million in competitive grants for FY2014 through FY2019 to states to implement the reforms with demonstrated effectiveness from the first program of grants. In addition to the two major grant programs, $50 million would be provided annually for FY2010 through FY2019 to fund online education programs (Open Online Education); and $50 million would be provided annually for FY2010 through FY2013 to fund research, evaluation, and data system programs (Learning and Earning Research Center; and State Systems). The Secretary of Education would have responsibility for obligating and disbursing the funds for these grant programs but would be required to jointly administer these funds with the Secretary of Labor, based on an interagency agreement. H.R. 3221 would annually provide $630 million in mandatory funds for FY2010-FY2013 to fund Grants to Eligible Entities for Community College Reform. Under the program, grants would be awarded competitively, each at a minimum of $750,000 total and for a four-year period, to eligible entities to carry out "innovative programs" or programs with "demonstrated effectiveness" that lead to the completion of a postsecondary degree, certificate, or industry-recognized credential leading to a "skilled occupation" in a "high-demand industry." Entities eligible to receive grant funding would include community colleges or districts, area career and technical education schools, public four-year institutions offering two-year degrees, Tribal colleges and universities, public four-year institutions in partnership with any of the aforementioned entities, a state in partnership with any of the aforementioned entities, or a consortium of at least two of these entities. In addition, the Secretary of Education would have the discretion to allow as eligible entities private nonprofit two-year institutions of higher education in Puerto Rico, the District of Columbia, and the outlying areas. Grantees would be required to carry out at least two of the following 10 activities: implement programs to increase the attainment of bachelor's degrees by facilitating the transfer of academic credits between institutions of higher education; create programs with sector partnerships or employers to provide training for skilled occupations in high-demand industries; provide support services to students; enact programs to provide a sequence of training courses leading to attainment of industry-recognized credentials; strengthen linkages between secondary education and community colleges; implement policies to increase degree and certificate completion rates, particularly for groups underrepresented in higher education, veterans, or members of the National Guard or Reserves; improve the timeliness of the process to create degree and credential programs that are responsive to local, regional, and state workforce needs; provide information technology training for students and the public through expanded access to community college facilities; create or enhance programs that prepare students for skilled occupations in energy-related fields; and create or enhance programs that prepare students for occupations critical to serving veterans. The legislation would instruct the Secretary to give priority to applications from eligible entities that focus on collaboration with business or labor organizations; that serve low-income, nontraditional students, dislocated workers, or veterans or other low-income, nontraditional students who do not have a bachelor's degree; that are eligible for assistance under Title III or Title V of the HEA (i.e., HBCUs and other minority serving institutions); or that are community colleges located in areas with high unemployment rates. Grantees would be required to develop quantifiable benchmarks to measure progress on program effectiveness. In addition, community colleges receiving grants would be required, to the extent possible, to provide students with information on the transferability of credits from courses at the community college to four-year institutions in that grantee's state. Finally, the Secretary would be directed to allocate a maximum of 2% of the funds in this section to the Institute of Education Sciences (IES) to conduct program evaluations. H.R. 3221 would annually provide $630 million in mandatory funds for FY2014-FY2019 to fund Grants to Eligible States for Community College Programs. These grants would be awarded competitively, each for a six-year period, to eligible states to implement the "systematic reform" of community colleges by carrying out programs and policies that were shown to be effective in the evaluation of programs implemented under the Grants for Community College Reform (see previous section). Priority for grants under this section would be for states focusing on serving low-income, nontraditional students, dislocated workers, or students who are veterans and do not have a bachelor's degree. States receiving a grant under this section of H.R. 3221 would be required to allocate not less than 90% of the grant funding to community colleges within that state. Grantees would be required to develop quantifiable benchmarks to measure progress on program effectiveness. H.R. 3221 would annually provide $50 million in mandatory funds for FY2010-FY2019 for the Grants for the Open Online Education program. The Secretary of Education would be authorized to award competitive grants to or enter into contracts with institutions of higher education, philanthropic organizations, or other entities to develop, disseminate, and evaluate "freely-available high-quality" online education and training courses. H.R. 3221 also would annually provide $50 million in mandatory funds for FY2010-FY2013 for the Grants for the Learning and Earning Research Center and the State Systems programs. These grants would be awarded for two purposes. First, the IES Director would award a grant, for a maximum of four years, to an organization to evaluate the effectiveness of community colleges, to measure outcomes of community college students, and to assist states in sharing information and best practices. Second, grants under the State Systems section would be awarded to states or consortia of states to establish cooperative agreements with other states to develop and expand interoperable statewide longitudinal data systems, which would include building data systems and tracking outcome data from community colleges over time. In addition to the development of the longitudinal data systems, the State Systems grant would support a $1 million contract with the National Research Council for an evaluation and the development of a model that enables students to determine the transferability of credits between institutions of higher education. Title VI of H.R. 3221 would establish a series of prohibitions with regard to the awarding of federal grants, contracts, cooperative agreements, or any other form of federal funding to certain organizations if they have been indicted for a violation of federal or state campaign finance, election, or voter registration law; have had their charter terminated for failure to comply with federal or state lobbying disclosure requirements; or employ any individual who has been indicted for violation of certain federal or state election laws. Title V would apply these provisions specifically to the Association of Community Organizations for Reform Now (ACORN) and any ACORN-related affiliate. | The House and the Senate approved H.Rept. 111-89, the conference report to accompany S.Con.Res. 13, the Concurrent Resolution on the Budget for Fiscal Year 2010, on April 29, 2009. The FY2010 budget resolution includes reconciliation instructions directing the Senate Committee on Health, Education, Labor, and Pensions (HELP) and the House Committee on Education and Labor to report changes in laws within their jurisdictions to reduce the deficit by $1 billion for the period of fiscal year (FY) 2009 through FY2014. The reconciliation instructions for the House specifically direct the Committee on Education and Labor to report a bill that invests in education while reducing the deficit by $1 billion over the FY2009-FY2014 period. On July 21, 2009, the House Committee on Education and Labor marked up H.R. 3221, the Student Aid and Fiscal Responsibility Act of 2009 (H.Rept. 111-232). On September 17, 2009, the House voted 253 to 171 to pass H.R. 3221. H.R. 3221 would terminate authority under the Higher Education Act (HEA) of 1965, as amended, to make loans under the Federal Family Education Loan (FFEL) program after June 2010. The Congressional Budget Office (CBO) estimates that this would reduce mandatory or direct spending by $41.8 billion over the FY2009-FY2014 period, and by $86.8 billion over the FY2009-FY2019 period. These savings would be large enough to achieve the $1 billion reduction in spending specified in S.Con.Res. 13, while offsetting increases in mandatory spending that would result from the expansion of several existing HEA programs, and the establishment and funding of several proposed new programs. Overall, CBO estimates that H.R. 3221 (as reported in H.Rept. 111-232) would reduce mandatory spending by $13.3 billion over the FY2009-FY2014 period, and by $7.8 billion over the FY2009-FY2019 period. CBO also estimates that enactment of the proposals made in H.R. 3221, if fully funded, would increase discretionary spending by $3.6 billion over the FY2009-FY2014 period, and by $13.5 billion over the FY2009-FY2019 period. In addition to terminating the authority to make loans under the FFEL program, H.R. 3221 would fund expansions of several existing HEA programs and benefits, including the Federal Pell Grant program, the William D. Ford Federal Direct Loan (DL) program, programs serving Historically Black Colleges and Universities (HBCUs) and other Minority-Serving Institutions, and the College Access Challenge Grant program, and would alter procedures for determining the eligibility of students for need-based federal student aid. H.R. 3221 also would establish several new programs under the HEA, including a new Federal Direct Perkins Loan offered through the DL program to replace the current Federal Perkins Loan program, and a College Access and Completion Innovation Fund. Several major non-HEA programs would also be established and funded by H.R. 3221. These include a series of Modernization, Renovation, and Repair grant programs for school facilities, an Early Learning Challenge Fund to support early childhood education, and an American Graduation Initiative to support community colleges. This report reviews and briefly describes the proposals contained in H.R. 3221 to amend programs authorized under HEA and to establish and fund additional new education programs. It will be updated as warranted to track legislative developments. |
Congress has enacted legislation and appropriated funds for homeland security assistance programs since 1996, a policy initiated in large measure by the bombings of the World Trade Center on February 26, 1993, and the Alfred P. Murrah building in Oklahoma City on April 19, 1995. Following the September 11, 2001, terrorist attacks, Congress further increased its attention on homeland security assistance programs by, among other things, establishing the Department of Homeland Security (DHS). This report focuses on the department's homeland security assistance programs, but not the department as a whole. The number and purpose of programs, their administration, and funding have evolved over the past 12 years. These assistance programs are intended to enhance and maintain state, local, and non-federal government entities' homeland security and emergency management capabilities. Since FY2003, DHS has administered these assistance programs through four different offices or agencies within the department due to both congressional and departmental actions. With the increase of terrorist threats and attacks against the United States following the end of the Cold War and the termination of old civil defense programs, a number of policy questions have arisen regarding homeland security assistance programs. The majority of these questions have not been completely addressed, even though Congress has debated and enacted legislation that provides homeland security assistance to states and localities since 1997. Some officials such as Members of Congress, former President Bush's administration personnel, and President Barack Obama have questioned (1) the purpose and number of assistance programs; (2) the use of preparedness funding; (3) the determination of eligibility; (4) the funding amounts for the assistance programs; (5) the programs' funding distribution methodology, and (6) the use of grant funding for sustainment and maintenance costs associated with previous fiscal year homeland security projects. These policy questions may continue to be important during the second session of the 111 th Congress as Members continues to appropriate funding and conduct oversight of these assistance programs. Specifically, the House Homeland Security Committee stated that oversight of DHS grants is one of its priorities for 111 th Congress. Discussion of these potential issues may enable Congress and the federal government to anticipate possible homeland security crises and establish policies that are not strictly reactionary. This report provides a brief summary of the development of the federal government's role in providing homeland security assistance, a summary of assistance programs DHS presently provides to states and localities, and a discussion of the policy issues identified above. The federal government began providing counter-terrorism assistance to states and localities following the bombings of the World Trade Center in 1993 and the Alfred P. Murrah federal building in 1995. This assistance was separate from any federal disaster assistance these cities may have received due to these terrorist attacks. Federal homeland security assistance evolved and expanded after the terrorist attacks on September 11 th , 2001, and the establishment of DHS in 2002 with P.L. 107-296 , "Homeland Security Act of 2002." A brief discussion on this evolution and expansion follows. In 1996, Congress enacted The Defense Against Weapons of Mass Destruction Act (also known as the Nunn-Lugar-Domenici Act). This law, among other things, established the Nunn-Lugar-Domenici Program (NLD) that provided financial assistance to over 150 major U.S. cities. This assistance, with the Oklahoma City bombing being the primary catalyst, was focused on helping first responders prepare for, prevent, and respond to terrorist attacks involving weapons of mass destruction. Two years later, the Department of Justice (DOJ) established the Office for Domestic Preparedness (ODP) to administer assistance programs that enhanced state and local emergency response capabilities, including terrorist attack response. At first, NLD provided assistance to 120 cities; it was later expanded to include 157 cities and counties. At the end of 1998, 40 of the original 120 cities had received funding and training. In addition to training, approximately $300,000 was provided by DOD to each city for personal protection, decontamination, and detection equipment. Following the transfer of NLD to DOJ, all cities completed the training initiated by DOD, and DOJ based the training and exercises on state assessments. The program ended in 2001 upon completion of the training. ODP was transferred to DHS with enactment of the Homeland Security Act of 2002. Initially, ODP and its terrorism preparedness programs were administered by the Border and Transportation Security Directorate, and all-hazard preparedness programs were in the Federal Emergency Management Agency (FEMA). ODP and all assistance programs were transferred to the Office of the Secretary in 2004 due to state and local criticism of DHS not having a "one-stop-shop" for grant programs assistance. After investigations into the problematic response to Hurricane Katrina, the programs were transferred to the National Preparedness Directorate. Currently all programs and activities are administered by the Grants Program Directorate (GPD), within FEMA. GPD is now the primary DHS and FEMA entity responsible for managing the majority of DHS assistance to states and localities. Since the establishment of DHS, the department has not only been responsible for preparing for and responding to terrorist attacks, it is also the lead agency for preparing for, responding to, and recovering from any accidental man-made or natural disasters. The most recent legislative action affecting DHS grants was P.L. 110-53 , Implementing Recommendations of the 9/11 Commission Act of 2007 , which authorized a number of the DHS grants and mandated some of their allocation methodologies. This legislation was a result of numerous years of debate on how DHS should allocate homeland security assistance funding to states, the District of Columbia (DC), and U.S. insular areas. In FY2003, DHS administered eight assistance programs, and expanded the total to 15 programs in FY2010. In the FY2011 budget request, the Administration requests funding for only eight programs. The following section summarizes 14 of the 15 programs and activities that are currently administered by DHS. The department has yet to issue information or guidance on the Center for Counterterrorism and Cyber Crime Program so there is no summary of this program. This report uses DHS documents, and congressional reports to summarize the programs. This report is not intended to provide in-depth information on these grants. For detailed information on individual grant programs, see the cited sources. DHS does not identify grant programs as either terrorism preparedness or all-hazards preparedness. As a result, CRS has based its characterization of programs falling primarily into one category or another on an examination of DHS grant guidance documents. The criteria for placing a grant program in either the terrorism preparedness or all-hazards preparedness categories is based on a review of the program's eligible activities or the DHS's stated goal for the program. Other analysts might categorize the programs differently. Seven of the 15 programs administered by GPD could arguably be categorized as terrorism preparedness. These programs specifically address terrorism preparedness activities, terrorist incident response, or focus on law enforcement activities. The State Homeland Security Grant Program (SHSGP) provides states, tribal governments, DC, and U.S. insular areas assistance in preparing for terrorist attacks. Grant recipients must have a DHS approved homeland security strategy to be eligible for SHSGP funding. The program is intended to implement state homeland security strategies and initiatives outlined in State Preparedness Reports. The program's eligible activities include the purchase of specialized equipment, training, and exercises. It also provides funds for the protection of critical infrastructure of national importance. All states, DC, and Puerto Rico are guaranteed a minimum allocation of 0.36% of total appropriations for SHSGP and Urban Area Security Initiative (UASI). U.S. insular areas are guaranteed a minimum allocation of 0.08% of total appropriations for SHSGP and UASI. However, prior to the distribution of minimum allocations, DHS conducts a risk assessment to determine grant recipient allocations and then ensures that the allocation amount meets or exceeds the guaranteed amount in statute. UASI is a discretionary grant program that provides funding to metropolitan areas (including counties and mutual aid partners). Designated urban areas may use UASI funds to purchase specialized homeland security equipment, plan and execute exercises, pay first responder overtime costs associated with heightened alert threat levels, and train first responders. Additionally, funds from this program can be used for port and mass transit security, radiological defense systems, pilot projects, and technical assistance. DHS conducts vulnerability and threat assessments that consider the location of critical infrastructure and the population density of all major metropolitan areas. Based on these assessments, and at the DHS Secretary's discretion, selected metropolitan areas are grouped into two categories, Tier I and Tier II. The seven highest risk urban areas are designated as Tier I and receive a larger portion of funding; the remaining areas designated as Tier II receive less funding. All funding allocations are based on risk analysis and anticipated effectiveness of funding. The Transportation Security Grant Program (TSGP) provides funding to high-threat and high-risk urban areas to enhance their security for bus, rail, and ferry systems. States are eligible to apply for funding, and grant awards must be obligated to the state's appropriate transit systems. DHS determines eligible transit agencies by using a comprehensive risk assessment. The risk assessment methodology is linked to the methodology that DHS uses for other state and local grant programs. UASI eligibility determines TSGP eligibility. This grant program includes funding for the Freight Rail Security Grant Program (FRSGP), and the Intercity Passenger Rail Program (IPR). The Port Security Grant Program (PSGP) provides funding for the protection of ports and port infrastructure from terrorism. It is intended to enhance risk management capabilities, maritime domain awareness, training and exercises, and counter-terrorism capabilities. Eligible applicants include owners and operators of federally regulated terminals, facilities, or U.S. inspected passenger vessels; port authorities or state and local agencies that provide security to federally regulated port facilities; and any group (such as port and terminal associations) that provides security for federally regulated ports, terminals, U.S. passenger vessels, or ferries. DHS conducts risk and vulnerability assessments to determine what ports are eligible to apply for funding. Based on these risk and vulnerability assessments, ports are categorized into Tier I, Tier II, Tier III, or "All Other Port Areas." Tier I and Tier II ports are provided a designated amount of funding; identified Tier III ports and "All Other Port Areas" apply and compete for remaining funding. The Intercity Bus Security Grant Program (IBSGP) funds security activities for intercity bus systems. Some of the eligible activities include planning, security enhancements, and vehicle and driver protection. Eligible applicants include private operators of over-the-road (mainly interstate) bus companies servicing UASI jurisdictions. DHS groups bus companies into tiers. Tier I comprises companies with 250 or more buses that provide the highest volume of services to high-risk urban areas. All other applicants are placed in Tier II. Bus companies apply and compete for funding within their tier. The Buffer Zone Protection Program (BZPP) provides funding and assistance to build security and risk management capabilities of critical infrastructure, such as chemical facilities, financial institutions, power utility facilities, dams, and stadiums. Eligible applicants include states with a pre-designated BZPP site. DHS determines all BZPP sites prior to the annual allocation of program funding based on a risk assessment of each BZPP site. The Driver's License Security Grant Program (DLSGP) provides funding to prevent terrorism, reduce fraud and improve the reliability and accuracy of personal identification documents that states and territories issue. DLSGP is intended to address a key recommendation of the 9/11 Commission to improve the integrity and security of state-issued driver's licenses (DL) and identification cards (ID). Eight of the 15 programs administered by GPD could be categorized as all-hazards preparedness. Specifically, these programs are focused on preparing for any emergency, regardless of cause. One program, the Regional Catastrophic Preparedness Grant Program, could also be categorized as terrorism preparedness since grant recipients are identified through DHS's UASI program risk assessment process. However, the program guidance does not specifically identify terrorism incidents as the only type of preparation eligible for funding. The Metropolitan Medical Response System (MMRS) facilitates the coordination of law enforcement agencies, firefighters, emergency medical services, hospital, public health, and other personnel's all-hazard response capabilities. Funding and federal assistance is provided to 124 highly populated jurisdictions and MMRS authorizes planning, training, exercises, and the acquisition of pharmaceuticals and personal protective equipment. FEMA states that the increased capability to respond to a WMD mass casualty event increases the capability to respond to other causes of mass casualty events, such as epidemic disease outbreaks and natural disasters. The DHS Secretary determines the 124 jurisdictions based on population and divides the annual MMRS appropriation evenly among the jurisdictions. The Assistance to Firefighters Program (FIRE) awards one-year grants directly to fire departments to enhance their abilities to respond to fires and fire-related hazards. FIRE seeks to support fire departments that lack tools and resources necessary to protect the health and safety of the public and firefighting personnel. FIRE provides funds to support firefighter safety, fire prevention, emergency medical services, and firefighting vehicle acquisition. Individual (professional and volunteer) fire departments are eligible to apply for grants under this program. There is no set formula for the distribution of FIRE grants; fire departments and nonaffiliated emergency medical service entities throughout the nation apply, and award decisions are made through a multi-level review process that includes evaluation by a peer review panel. Award decisions are based primarily on the merits of the application and the needs of the community the fire department serves. Every year, a criteria development panel composed of fire service representatives makes recommendations to DHS regarding funding priorities and criteria for awarding grants. The Regional Catastrophic Preparedness Grant Program (RCPGP) provides funding to enhance catastrophic incident preparedness in designated high-risk, high-threat urban areas which also receive UASI funding. The program supports coordination of regional all-hazard planning for catastrophic events, including the development of integrated planning communities, plans, protocols and procedures to manage a catastrophic event. The DHS Secretary determines what high-risk, high-consequence urban areas will receive funding based on UASI allocations. In FY2010, 11 urban areas have been designated to receive funding. The funds are allocated based on the assessed risk of a catastrophic incident occurring in the region, as well as the anticipated effectiveness of the funding. The Citizen Corps Program (CCP) was established to coordinate volunteer organizations with the mission to make local communities safe and prepared to respond to emergency situations. CCP includes Community Emergency Response Teams (CERT), Enhanced Neighborhood Watch, Volunteers in Police Service, and Medical Reserve Service. States, DC, and Puerto Rico are guaranteed a minimum of 0.75% of total appropriations for CCP, and the U.S. insular areas are guaranteed a minimum of 0.25%. The remainder of CCP appropriations are distributed based on a recipient's percentage of the national population. The Emergency Management Performance Grant Program (EMPG) is designed to assist the development, maintenance, and improvement of state and local emergency management capabilities. It provides support to state and local governments to achieve measurable results in key emergency management functional areas. EMPG funding can be used for activities such as personnel costs, travel, training, supplies, and other routine expenditures for emergency management activities. EMPG funds are allocated in the same manner as CCP. States, DC, and Puerto Rico are guaranteed a minimum of 0.75% of total appropriations for EMPG and the U.S. insular areas are guaranteed a minimum of 0.25%. The remainder of EMPG appropriations are distributed based on a recipients percentage of the national population. The Public Safety Interoperable Communications Grant Program (PSIC) provides assistance, planning, training, exercise, and equipment funding to states and localities to improve interoperable communications, including communications for responding to natural disasters, acts of terrorism and other man-made emergencies. All proposed activities must be integral to interoperable communications and aligned with the goals, objectives, and initiatives identified in the recipient's Communication Interoperability Plan. DHS allocates funding based on risk and guarantees each state, DC, and Puerto Rico a minimum of 0.50% of total appropriations; each U.S. insular area is guaranteed a minimum of 0.08% of total appropriations. The Emergency Operations Center Grant Program (EOC) provides funding and assistance to states and localities for developing and enhancing their emergency operations centers and improving their unified command capabilities. Funding may be used for equipping, upgrading, and constructing EOCs. Annually, EOC sites are designated in statute with a specified appropriation. The Grant Programs Directorate (GPD), within FEMA, conducts research and development through its Equipment Acquisition and Support Program within SHSGP. The Equipment Acquisition and Support Program provides assistance to federal, state, and local entities on equipment related issues such as testing, standards, and the identification of new equipment needs. Technical assistance is generally targeted to state and local agencies to enhance their ability to develop, plan, and implement programs for terrorism and disaster preparedness. Additionally, GDP provides specific assistance in such areas as the development of response plans, exercise scenarios, conduct of risk and vulnerability assessments, and the development of homeland security strategies. Specifically, GPD administers and funds seven activity and assistance programs that include: National Domestic Preparedness Consortium; Counterterrorism and Cyber Security Training; Center for Domestic Preparedness and Noble Training Center; National Exercise Program; Technical Assistance Programs; Evaluation and Assessment Program; and Rural Domestic Preparedness Consortium. The following table provides legal citations to the authorization statutes for the grant programs summarized in this report. Where noted, public law is provided when there is no authorization language but appropriations language is available. More than eight years after the terrorist attacks on September 11, 2001, and seven years since the establishment of DHS, debate continues on policy questions related to homeland security assistance for states and localities. Some of these questions arguably have been addressed in legislation, such as the statute that modified the distribution of funding to states and localities ( P.L. 110-53 ). Additionally, congressional committees have conducted hearings related to state and local homeland security assistance and preparedness. Some may contend there is a need for the 111 th Congress to conduct further oversight hearings (which the House Homeland Security stated it intends to do) and legislate on policy issues related to DHS assistance to states and localities. These potential issues include (1) the purpose and number of assistance programs; (2) the use of preparedness funding; (3) the determination of eligible recipients of assistance; (4) the funding for the assistance programs; and (5) the programs' distribution methodology. The following analysis of these policy issues provides background for this policy discussion. Some may argue the purpose and number of DHS programs have not been sufficiently addressed. Specifically, should DHS provide more all-hazards assistance versus terrorism focused assistance? Do the number of programs result in coordination challenges and deficient preparedness at the state and local level? Would program consolidation improve domestic security? An all-hazards assistance program allows recipients to obligate and fund activities to prepare for, respond to, and recover from almost any emergency regardless of type or reason, which includes man-made (accidental or intentional) and natural disasters. EMPG is an example of an all-hazards assistance program. The National Governors Association (NGA), in a policy position paper, states that an all-hazards approach to preparedness should be preserved. Terrorism preparedness focused programs allows recipients to obligate and fund activities to prepare for, respond to, and recover from terrorist incidents. SHSGP is an example of a terrorism preparedness focused program. The majority of disasters and emergencies that have occurred since September 11, 2001, have been natural disasters such as Hurricanes Katrina and Gustav. However, the majority of homeland security assistance funding to states and localities has been appropriated to programs dedicated to preparing for and responding to terrorist attacks. A DHS fact sheet regarding Homeland Security Presidential Directive 8 states that federal preparedness assistance is intended primarily to support State and local efforts to build capacity to address major (or catastrophic) events, especially terrorism. In FY2010, Congress appropriated approximately $4.16 billion for state and local programs, and of this amount $2.55 billion (60%) is targeted for terrorism focused programs. Following Hurricane Katrina, a congressional committee reported that some state officials "voiced a concern that in the post-9/11 environment undue emphasis is placed on terrorism-based hazards." However, DHS (FEMA specifically) does provide natural disaster assistance that is separate from the programs summarized in this report, such as FEMA's Pre-Disaster Mitigation Grant Program, and the acquisition of flooded property. In July 2005, the Government Accountability Office (GAO) stated that emergency response capabilities for terrorism, and man-made and natural disasters, are similar for response and recovery activities, but differ for preparedness. The similarity is associated with first responder actions following a disaster that are focused on immediately saving lives and mitigating the effects of the disaster. Preparing for a hurricane, or any natural disaster, by comparison is markedly different than preparing for a terrorist attack. Preparing for or preventing a terrorist attack includes such activities as installing security barriers and conducting counter-intelligence, whereas preparing for a natural disaster involves a different set of functions such as planning for evacuations or stockpiling equipment, food, and water. GAO stated that legislation and presidential directives related to emergencies and disasters following the September 2001, terrorist attacks emphasize terrorism preparedness. In the FY2009 homeland security assistance guidance to states and localities, DHS listed terrorism preparedness as the priority in distributing funding. DHS used terrorism risk as the primary factor in its FY2009 state and local assessments and listed terrorism preparedness as one of the programs' "core missions." Another aspect of this issue that the 111 th Congress may wish to address is the number of state and local assistance programs DHS administers. In FY2002, and prior to the establishment of DHS, federal assistance programs for states and localities numbered eight. In FY2010 the programs numbered 15. Total funding for all homeland security assistance programs has averaged $3.8 billion each year for the past seven years. The funding was lowest in FY2002 when Congress appropriated $1.43 billion for eight programs. The largest funding amount was in FY2009 when 17 programs shared $4.92 billion. For the present fiscal year (FY2010), Congress appropriated $4.16 billion for 15 assistance programs (see Table 2 for funding by year per program). This increase in the number of grant programs from FY2002 might be the result of Congress and the administration targeting funds in anticipation of future homeland security threats to specific facilities, locations, entities, and jurisdictions. In September 2003, the Government Accountability Office (GAO) stated that DHS's grant system was fragmented, and therefore complicated coordination and integration of services and planning at state and local levels. This fragmentation may be seen in the development of targeted infrastructure security grant programs, such as bus and trucking security programs in FY2004; a grouping of transit security programs in FY2005; the Buffer Zone Protection in FY2006; and the Public Safety Interoperable Communications Grant Program in FY2008. One can assume this expansion of terrorism preparedness programs reflects the federal government's terrorism preparedness priority, whereas states and localities may place a priority on natural and accidental man-made disasters. Additionally, the DHS Inspector General, in a 2010 report, determined that FEMA grants to states and localities are redundant and inefficiently coordinated. This expansion of programs, largely at the discretion of the administration, may be the result of DHS intending to focus homeland security efforts and funding on specific national homeland security needs. However, the majority of programs that have been added are terrorism preparedness programs and, as noted earlier in this report, states and localities have criticized DHS's terrorism preparedness focus. It should also be noted that DHS and the administration did not request the development of all these new grant programs, such as the bus security program. Congress appropriated funding, for the first time, in FY2005 for the bus security program even though the Administration had not requested an appropriation for this program. Additionally, Administration officials have requested the consolidation of grant programs, such as in FY2007 when the Administration requested an appropriation for a Targeted Infrastructure Protection Program (TIPP). TIPP was to be a consolidation of six infrastructure security grant programs; however, Congress did not appropriate the infrastructure security programs through TIPP. Congress might wish to continue providing a share of funding to the present number of terrorism preparedness programs. Specific and targeted programs, such as the Buffer Zone Protection Program, could provide a funding source for a specific homeland security need. However, this would not address the criticism of some state and local officials who believe more funding should be provided for all-hazard emergencies and disasters, that the programs are fragmented, and federal, state, and local disaster response is uncoordinated. Congress might also consider increasing funding to all-hazards programs, such as the Emergency Management Performance Grant program and the Metropolitan Medical Response System. This could be achieved by increasing overall funding to state and local programs or decreasing the funding for terrorism preparedness programs. This option would address state and local criticism; however, if terrorism preparedness program funding were decreased states and localities may not be able to meet their terrorism preparedness needs. Should Congress determine there is a need to address the types and number of grants DHS provides to states and localities, it could consider allowing terrorism preparedness programs such as the State Homeland Security Grant Program and the Urban Area Security Initiative, to be used for all-hazards preparedness, response, and recovery. Presently, these programs require states and localities to focus their funding on terrorism preparedness. This use of terrorism preparedness programs to address all-hazards might result in states and localities having more flexibility in prioritizing their homeland security needs, whether they are targeted to natural disasters or terrorism needs. Finally, Congress may wish to establish one or more block grant programs to reduce the number of programs administered by GPD. This option might include the development of both an all-hazards and a terrorism preparedness block grant program. This option could encourage grant recipients to further prioritize their homeland security needs and apply federal funding to both all-hazards and terrorism priorities. Additionally, this would increase greater flexibility in use of grant funding. This might address the issue of grant coordination and allow recipients to focus funding on specific needs instead of targeted programs established by Congress and the Administration. However, DHS would need to ensure its distribution methodology included aspects of all the disparate grant programs currently administered by GPD. Another issue Congress may wish to address is how effectively DHS's assistance to states and localities is being spent. One way to review the use of program funding is to evaluate state and local jurisdictions' use of DHS's assistance. However, DHS has yet to complete an evaluation of how states and localities have spent past homeland security program allocations. It can be argued that prior to establishing preparedness benchmarks for future program funding allocations, DHS, or another federal entity, would need to complete an evaluation of present homeland security funding and its uses to determine a baseline for any future evaluation of states and localities meeting federal preparedness benchmarks. When DHS announces annual state and locality homeland security grant allocations, grant recipients submit implementation plans that identify how these allocations are to be obligated. However, the question remains whether or not the grant funding has been used in an effective way to enhance the nation's homeland security. DHS Secretary Janet Napolitano directed FEMA to provide reports on national planning and state and local integration; however, the directives do not address state and local use of grant funding. In early 2009, GPD conducted an evaluation called Cost-to-Capability (C2C). This evaluation was intended to measure a grant recipient's ability to prevent and respond to various types of disasters. C2C uses DHS's National Planning Scenarios to organize the evaluation. The intent of this evaluation was to enable GPD to effectively administer DHS grant programs and help states and localities use their grant allocations. Prior to GPD beginning the C2C, state and local capability assessments were self-assessments. GAO, in a congressionally mandated report, stated that the input data for C2C was to be based on capability self-assessments from state preparedness plans, estimates of baseline capabilities, and other factors. However, GAO stated that the validity of the input data was uncertain since the data was based on state and local self-assessments. Additionally, GAO criticized the C2C as a limited national capability assessment tool because of the limited analytical skill levels, due to the level of training and experience of analysts, across state and local users of C2C. Also, in a summary of testimony from March 2008, GAO concluded that even though DHS has taken some steps in establishing goals, gathering information, and measuring progress, the monitoring of homeland security grant spending did not provide a method to measure the achievement of desired program outcomes. In a prepared hearing statement before a subcommittee of the House Homeland Security Committee, FEMA's National Preparedness Deputy Administrator Timothy Manning stated that C2C data provided FEMA with limited information on federal, state, and local investment in preparedness activities. In 2008, the Office of Management and Budget (OMB) conducted a Program Assessment Rating Tool (PART) for some of DHS's grants to states and localities. OMB assessed the program effectiveness of the State Homeland Security Grant Program, the Urban Area Security Initiative, and the Emergency Management Performance Grant Program. Overall, OMB rated the programs as adequate. However, the programs were rated as "small extent" for the question: "Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?" The PART analysis and GAO's research might lead an observer to assume that GPD's grant programs are not enhancing state and locality homeland security capabilities. But one could argue that even though these assessments have not shown that GPD's grant programs can achieve certain benchmarks, states and localities have increased, at a minimum, the amount and types of homeland security equipment, planning, and training needed in case of a natural disaster or terrorist attack. Arguably, states, localities, and the nation as a whole are better prepared than on September 11, 2001. However, critics have seen the PART as overly political and a tool to shift power from Congress to the President, as well as failing to provide for adequate stakeholder consultation and public participation. Some observers have commented that PART has provided a needed stimulus to agency program evaluation efforts, but they do not agree on whether the PART tool validly assesses program effectiveness. In January 2009, DHS's Office of Inspector General (OIG) released an annual report on state and urban area management of homeland security grant programs. Individual audit reports for states and urban areas resulted in identified areas for improvement that included questioned costs, monitoring and oversight, measurable program goals and objectives, and needs assessment. The report, however, did not address overall issues for DHS, states, or urban areas. Instead it only identified areas for improvement for individual states and urban areas. Additionally, in March 2009, DHS OIG reported that FEMA does not consistently and comprehensively execute its two oversight activities, which are financial and program monitoring. In March 2010, DHS OIG identified legislative "barriers" to FEMA grant coordination. These "barriers" included: multiple grant programs have similar legislated goals; grant objectives are disparate due to legislation; and congressional earmarks for specific grants. If Congress determines that the present C2C process is not adequate, it could require DHS to refine the C2C assessment with a reduction in weight given to state and local self-assessments. This might result in a baseline capability assessment, which DHS could use to determine annual preparedness benchmarks associated with homeland security grant funding. One could argue that these benchmarks would need to be established for individual grant recipients (state or local) instead of serving as national benchmarks. Each state does not possess the same homeland security capabilities; thus, benchmarks would need to reflect each state's need for capability enhancement. Finally, if Congress finds the C2C inadequate in evaluating grant funding use, it could mandate that DHS develop an assessment tool other than C2C to measure the nation's preparedness. This new assessment tool could rely less on state and locality self-assessments, and more on DHS developing and implementing a new assessment tool that might require DHS to collaborate with individual grant recipients. This might result in an assessment tool that more accurately reflects individual state and locality preparedness baselines. However, this may extend the time that a national preparedness baseline is established and further lengthen the time until preparedness benchmarks can be established. One possible preparedness assessment tool could incorporate a risk assessment of all states, DC, and U.S. insular areas that also assess vulnerability (since C2C does not directly measure vulnerability). This risk assessment would, arguably, need to not only assess terrorism risk, but natural and accidental man-made disaster risk. In conjunction with the risk assessments, the preparedness assessment tool could also measure each grant recipient's ability to meet the Target Capabilities List (TCL). Such an assessment tool that incorporates risk and an evaluation of the TCL is not the only option, just one that Congress might wish to consider if it determines the C2C inadequately measures state and local preparedness. Another policy issue associated with homeland grant programs is the question of who or what entities and jurisdictions are eligible to receive federal homeland security assistance. There are two specific questions: (1) are the appropriate eligible recipients identified for each grant program, and (2) does the DHS use an appropriate grant recipient determination process? There are 11 grant programs in FY2010 that specifically identify recipients, and this results in 11 different groups of eligible grant recipients and numerous grant recipient determination processes, as shown below. Of these grants, seven explicitly use risk assessment as a determination of recipient eligibility, and some sort of risk assessment may be used to determine recipients for other programs such as the Metropolitan Medical Response System. What cannot be determined is if DHS uses the same risk assessment process for each individual grant program. This may cause confusion or duplication of effort if a jurisdiction is eligible to apply for numerous grants. This multitude of grants with different eligible recipients may also lead to confusion in grant funding opportunities or redundancy in funding. It would appear that each program is narrowly defined and involves DHS using different methods for identifying grant recipients. Some jurisdictions with genuine homeland security needs may not be eligible for funding because different methods are used to identify grant recipients through various risk assessments that, according to critics, do not adequately assess risk, vulnerability, and consequences. Because of this, Congress might wish to address the issue of how DHS determines grant recipients. Also, Congress might wish to require DHS to use one risk assessment process for identifying grant recipients, or at a minimum, require DHS to refine the process to ensure grant recipients are not requesting funding for a single homeland security need through multiple grant programs. Congress may also decide to specifically identify (by type or name) grant recipients through legislation, or at least mandate that DHS report on the process to make it more transparent. Presently, the determination of grant recipients is arguably to be labor intensive and confusing. Annual federal support, through the appropriation process, for these homeland security programs is another issue Congress may want to examine considering the present economic situation and the limited financial resources available to the federal government. Specifically, is there a need for continuity of federal support for these programs, or should Congress reduce or eliminate funding? In the past eight years, Congress has appropriated a total of $34 billion for state and local homeland security assistance with an average annual appropriation of $3.8 billion. In FY2009 Congress appropriated a high total of funding of $4.9 billion, and the lowest appropriated amount was $1.43 billion in FY2002. Congress, in the FY2010 DHS appropriations, provided $757 million less for these programs than was appropriated in FY2009; however, some programs received increased funding in FY2010. These data are presented in Table 4 . Some might argue that since over $34 billion has been appropriated and allocated for state and local homeland security, jurisdictions should have met their homeland security needs. This point of view would lead one to assume that Congress should reduce funding to a level that ensures states and localities are able to maintain their homeland security capabilities, but doesn't fund new homeland security projects. However, if DHS is unable to report on the extent of state and local homeland security capabilities (as discussed earlier in the report), reducing funding amounts prior to confirming state and local capabilities may result in unmet homeland security needs. Additionally, some may argue that states and localities should assume more responsibility in funding their homeland security projects and the federal government should reduce overall funding. This, however, may be difficult due to the present state and local financial situations. Another argument for maintaining present funding levels is the ever changing terrorism threat and the constant threat of natural and accidental man-made disasters. As one homeland security threat (natural or man-made) is identified and met, other threats develop and require new homeland security capabilities or processes. Some may even argue that funding amounts should be increased due to what appears to be an increase in natural disasters and their costs. Another issue that may be explored concerns how grant program funding is distributed to states and localities. Specifically, Congress may want to continue to address the funding distribution methodologies to ensure state and local homeland security. This issue has garnered Congress's attention the most over the past seven years, with the issue addressed in P.L. 110-53 in January 2007. Specifically P.L. 110-53 required that SHSGP and UASI allocations to be based on 100% risk; however, SHSGP recipients were guaranteed a minimum amount annually through 2012. This funding debate has been primarily focused on SHSGP and UASI; the majority of GPD programs have not been discussed during this debate. This guaranteed minimum allocation for SHSGP, and the continued use of population as a key factor for other grant program distribution methodologies (such as for grant programs like EMPG and CCP) have been the focus of many critics. One of these critics was the National Commission on Terrorist Attacks Upon the United States (9/11 Commission), which recommended that all homeland security assistance be allocated based only on risk. Since P.L. 110-53 required DHS to guarantee a minimum amount of SHSGP funding to states, it could be argued that the law did not meet the 9/11 Commission recommendation. Others might contend that the statue is consistent with the 9/11 Commission's recommendation because of the 100% risk allocation of SHSGP and UASI. While the 9/11 Commission criticized the allocation of federal homeland security assistance and recommended that the distribution not "remain a program for general revenue sharing," commissioners acknowledged that "every state and city needs to have some minimum infrastructure for emergency response." The 9/11 Commission also recommended that state and local homeland security assistance should "supplement state and local resources based on the risks or vulnerabilities that merit additional support." In a policy document published prior to his inauguration, President Obama stated, in what appears to be in agreement with the 9/11 Commission, that homeland security assistance should be based solely on risk. Due to this criticism, Congress may wish to consider further refining how DHS allocates homeland security funding to jurisdictions. Instead of guaranteed minimums, Congress could require that DHS allocate funding based on risk. This option, however, might result in some jurisdictions receiving no or limited allocations. Arguably, a risk assessment process used to allocate homeland security assistance would determine that every state and locality has some risk, whether terrorism or natural disaster related, and needs some amount of funding. This, however, would require DHS to evaluate state and local capabilities, vulnerability, and risk in a manner that accurately reflects the nation's current homeland security environment. As the 111 th Congress begins its second session, Members may wish to consider the policy issues identified in this report or other related issues. The potential issues included in this report are (1) the purpose and number of assistance programs; (2) evaluation of grant funding use; (3) determination of eligible grant recipients; (4) funding amounts; and (5) funding distribution methodologies. All of these policy issues identify a potential need for Congress to continue its debate and consider legislation related to federal homeland security assistance for states and localities and the nation's overall emergency preparedness. Additionally, if homeland security continues to be of national interest, how homeland security assistance is funded, administered, and allocated will be of importance to the 111 th Congress. Since Congress will continue to conduct oversight and legislate on homeland security assistance to states and localities, as the House Homeland Security Committee has stated it intends to do, Members may elect to consider options that anticipate, as well as react to, future catastrophes. The potential issues identified in this report are not presumed to be the only issues, however, these issues may be of enough significance to merit Congress's attention. | In light of lessons learned from the September 2001 terrorist attacks and other catastrophes such as Hurricanes Katrina and Gustav, the second session of the 111th Congress is expected to consider questions and issues associated with federal homeland security assistance. Federal homeland security assistance, for the purpose of this report, is defined as U.S. Department of Homeland Security programs that provide funding, training, or technical assistance to states, localities, tribes, and other entities to prepare for, respond to, and recover from man-made and natural disasters. Since the nation is still threatened by terrorist attacks and natural disasters, the 111th Congress may wish to consider questions and challenges about whether, or how, federal homeland security assistance policy should be revisited. Policy solutions could affect, and be constrained by, existing law and regulations, and constitutional considerations. Since FY2002, Congress has appropriated over $34 billion for homeland security assistance to states, specified urban areas and critical infrastructures (such as ports and rail systems), the District of Columbia, and U.S. insular areas. Originally, in FY2002, there were eight programs; in FY2010 there are 15 programs. This expansion and scope of homeland security assistance programs are the result of congressional and executive branch actions. The Grant Programs Directorate, within the Federal Emergency Management Agency, administers these programs for the Department of Homeland Security. Each assistance program has either an all-hazards purpose or a terrorism preparedness purpose. However, in FY2010, 60% of funding has been appropriated for terrorism preparedness programs, a decision that has been criticized by some grant recipients, Members of Congress, and others. Congress appropriated $757 million less for state and local programs than was appropriated in FY2009; however, some programs received increased funding in FY2010, such as the Urban Area Security Initiative. This reduction is primarily the result of Congress not funding the Commercial Equipment Direct Assistance Program, and the Trucking Security Grant program. According to news reports, a Department of Homeland Security official announced that the overall FY2011 budget request for the department will decline from previous years' levels, and in the FY2011 budget request, the Administration requested approximately $4 billion. The impact of a reduction on grants assistance may be an issue. This report summarizes these programs, and identifies and analyzes potential issues for the 111th Congress. These issues include (1) the purpose and number of assistance programs; (2) the evaluation of the use of grant funding; (3) the determination of eligible grant recipients; (4) the programs' funding amounts; and (5) the programs' funding distribution methodologies. Some of these issues have been debated and legislation passed since FY2002. This report will be updated when congressional or executive branch actions warrant. |
The Temporary Assistance for Needy Families (TANF) block grant provides states, territories, and Indian tribes with federal grants for benefits and services intended to ameliorate the effects, and address the root causes, of child poverty. TANF funds can be used in any manner a state can reasonably calculate helps it achieve the goals of (1) providing assistance to needy families so that children may be cared for in their own homes or in the homes of relatives; (2) ending the dependence of needy parents on government benefits through work, job preparation, and marriage; (3) preventing and reducing the incidence of out-of-wedlock births; and (4) encouraging the formation and maintenance of two-parent families. Thus, TANF truly is a broad-based block grant with broad discretion for the states to spend funds to meet federal goals. TANF was created in the 1996 welfare reform law and is typically thought of as the federal program that helps states fund their cash assistance programs for needy families with children. Moreover, TANF is also most associated with the 1996 welfare reform policies imposing work requirements and time limits on families receiving assistance. Most of TANF's federal rules and requirements relate to families receiving assistance. TANF's performance is measured on state welfare-to-work efforts, with states assessed based on numerical work participation standards. However, basic assistance—what many call "cash welfare"—accounted for only 27.6% of all TANF funding in FY2013. Additionally, many of the families that received TANF cash assistance in FY2013 represented family types that were not the focus of debate in 1996, and are not subject to TANF work requirements and time limits. These are families with children cared for by adults who are not themselves recipients of TANF: disabled parents receiving Supplemental Security Income (SSI); immigrant parents who are ineligible for TANF assistance but have citizen children who are eligible; and nonparent relative caregivers, such as grandparents, aunts, and uncles. In FY2013, 38.1% of families receiving TANF were composed of children in families cared for by adults who themselves were not recipients of TANF or did not come under TANF work rules. This report examines the TANF cash assistance caseload, focusing on how the composition and characteristics of families receiving assistance have changed over time. It first provides a brief history of cash assistance for needy families with children, discussing how policy became focused on moving the predominately single parents who headed these families from welfare to work. It then traces the changes in the caseload composition since the 1996 welfare reform law, from a caseload dominated by unemployed single parents to a diverse caseload that had different routes to the benefit rolls as well as different circumstances on the rolls. It provides detail on caseload characteristics in FY2013, using data that states are required to report to the federal government. The report is intended to complement tabulations of these data already released by the Department of Health and Human Services (HHS). This report does not describe TANF rules or provide current statistics on the TANF caseload or expenditures. For an overview of TANF, see CRS In Focus IF10036, The Temporary Assistance for Needy Families (TANF) Block Grant , by [author name scrubbed]. It also does not describe individuals and families who receive TANF benefits and services other than cash assistance. Federal law does not require states to report on their numbers or characteristics. The modern form of assistance for needy families with children has its origins in the early-1900s "mothers' pension programs," established by state and local governments. These programs provided economic aid to needy families headed by a mother so that children could be cared for in homes rather than in institutions. Federal involvement in funding these programs dates back to the Great Depression, and the creation of the Aid to Dependent Children (ADC) program as part of the Social Security Act of 1935. ADC provided grants to states to help them aid families with "dependent children," who were deprived of the economic support of one parent because of his death, absence, or incapacitation. The legislative history of the 1935 act explicitly stated that the purpose of ADC payments was to permit mothers to stay at home, rather than work: The very phrases "mothers' aid" and "mothers' pensions" place an emphasis equivalent to misconstruction of the intention of these laws. These are not primarily aids to mothers but defense measures for children. They are designed to release from the wage-earning role the person whose natural function is to give her children the physical and affectionate guardianship necessary not alone to keep them from falling into social misfortune, but more affirmatively to rear them into citizens capable of contributing to society. Over time, a combination of changes in social policy and changes in economic and social circumstances made cash assistance to needy families (often called "welfare") among the most controversial of federal programs. The Social Security Act was amended to provide social insurance protection for families headed by widows (survivors' benefits, added in 1939) and those with disabled members (disability benefits, added in 1956). This left families headed by a single mother with the father alive, but absent, as the primary group aided by ADC, later renamed Aid to Families with Dependent Children (AFDC). The cash assistance caseload also became increasingly nonwhite. States were first given the option to aid two-parent families beginning in 1961, but were not required to extend such aid until the enactment of the Family Support Act in 1988. Even with the extension of aid to two-parent families, this group never became a large part of the caseload, and most adult TANF cash assistance recipients continue to be single mothers. The issue of whether lone mothers should work was also much debated. The intent of ADC to allow single mothers to stay home and raise their children was often met with resistance at the state and local level. It was also contrary to the reality that low-income women, particularly women of color, were sometimes expected to, and often did, work. Further, the increase in women's labor force participation in the second half of the 20 th century—particularly among married white women—eroded support for payments that permitted mothers to remain at home and out of the workforce. Beginning in 1967, federal policy changes were made to encourage, and then require, work among AFDC mothers. In 1974, children surpassed the elderly as the age group with the highest poverty rate. Poverty rates for children in families headed by a single mother were particularly high—and over time an increasing share of children were being raised in such families. In the 1980s, there was increasing attention to "welfare dependency." Research at that time showed that while many mothers were on cash assistance for a short period of time, a substantial minority of mothers remained on the rolls for long periods of time. Additionally, experimentation on "welfare-to-work" initiatives found that requiring participation in work or job preparation activities could effectively move single mothers off the benefit rolls and into jobs. "Welfare reform," aiming to replace AFDC with new programs and policies for needy families with children, was debated over a period of four decades (the 1960s through the 1990s). These debates culminated in a number of changes in providing aid to low-income families with children in the mid-1990s, creating a system of expanded aid to working families (e.g., increases in the Earned Income Tax Credit and funding for child care subsidies) and the creation of TANF, which established time limits and revamped work requirements for the cash assistance programs for needy families with children. Most TANF policy today reflects the history of cash aid to needy families with children headed by a single mother and the policy debates of the 1980s and early- to-mid 1990s. Some things remain the same from that period—children remain the age group most likely to be poor, and children living with single mothers have very high poverty rates. However, some things are very different from the period when TANF was created, including the size and composition of the cash assistance caseload. Figure 1 shows the trend in the average monthly number of families receiving cash assistance from TANF and its predecessor program (AFDC, ADC) from 1959 through 2013. The figure shows two distinct periods of rapid caseload growth. The first occurred from the mid-1960s to the mid-1970s. The second followed a period of relative stability in the caseload (around 3.5 million families) and occurred from 1989 to 1994. Following 1994, the caseload declined. It declined rapidly in the late 1990s, with continuing declines, albeit at a slower rate, from 2001 to 2008. The caseload increased again from 2008 through 2010 coincident with the economic slump associated with the 2007-2009 recession. That latest period of caseload increase was far less rapid and much smaller than the two earlier periods of caseload growth. The increases in the cash assistance caseload from 1989 to 1994, and its decline thereafter, were also associated with changes in the character of the caseload. Table 1 provides an overview of the characteristics of the family cash assistance caseload for selected years: FY1988, FY1994, FY2001, FY2006, and FY2013. The most dramatic change in caseload characteristics is the growth in the share of families with no adult recipients. In FY2013, 38.1% of TANF assistance families had no adult recipient; in contrast, in FY1988 only 9.8% of all cash assistance families had no adult recipient. These are families with ineligible adults (sometimes parents, sometimes other relatives) but whose children are eligible and receive benefits. Some other notable characteristics of the caseload include the following: Most families receiving assistance are small . The average number of recipients in a family stood at 2.5 recipients per family in FY2013. In that year, just over half (51.0%) of all families had only one child. The vast majority of adult recipients are women . In FY2013, 85.7% of adult recipients were women. As discussed, family cash assistance has historically been provided to families with children headed by a single mother. The FY2013 percentage is lower than in previous years examined in the table. Men slowly increased as a share of the caseload over time, but still remain a relatively small share of the total adult caseload. The families tend to have young children. In FY2013, 56.6% of all families had a child under the age of six, with 12.0% of all families having an infant. The majority of the caseload is racial or ethnic minorities. This was the case for all years shown in the table. Examining the racial/ethnic makeup of children, Hispanic children became the largest group of recipient children by FY2013. In FY2013, the share of child recipients who were Hispanic was 36.3%, compared with 29.9% who were African American, and 25.8% who were non-Hispanic white. The share of the child caseload that is Hispanic has grown over time. This reflects their growth as a share of all children in the general population and of all poor children. The incidence of TANF cash assistance receipt among Hispanic children and poor Hispanic children—like that of children in other racial and ethnic groups—has actually declined over time (see Table A-3 ). The increase in the share of TANF families with no adult recipient over the FY1988 to FY2013 period represents a major change in the character of the caseload. This section focuses on that change, classifying TANF families by the circumstances of the adults in the household. The classification in this report divides the TANF assistance caseload into six categories. There are two main categories of families where there is an adult recipient or an adult who is considered "work-eligible" and hence represent the traditional concerns of cash assistance policies: Families with TANF adult(s), not employed. This group dominated the cash assistance caseload in FY1988, but by FY2013 represented less than half of all cash assistance families. Families with TANF adult(s), employed. These are families with adult recipients or work-eligible parents, and at least one of these adults is employed. However, their employment is at low enough wages, or has been of short enough duration, that their family remains eligible for TANF cash assistance. The remaining four categories shown in the figure are considered "child-only" families. In these families, the adults caring for the children are not considered TANF cash assistance recipients themselves, but they receive benefits on behalf of the children. There are three main categories of "child-only" families: Parent is a Supplemental Security Income ( SSI ) recipient . These families are usually headed by a parent or couple who receives Supplemental Security Income. In general, they receive SSI on the basis of disability, meeting the federal law's criterion of being "unable to perform substantial gainful activity in the economy." SSI is paid only to individuals and couples and there is no federal funding for extra benefits if they have children. Therefore, states use TANF funds to provide benefits for children of SSI parents. Parent is an ineligible noncitizen . Federal law makes certain noncitizens ineligible for federally funded benefits. States have the option to use state funds to aid federally ineligible noncitizens who are lawfully present in the United States. Unauthorized immigrants are not eligible for either federally or state-funded TANF aid. However, there is a class of families known as "mixed status" families, with parents who are immigrants and children who are citizens because they were born in the United States. In these families, the children may be eligible for TANF regardless of the immigration status of their parents. Child (or child ren) in the care of a nonparent, caretaker relative . The first statutory goal of TANF is to provide assistance to needy families so that children can be cared for in their own homes or in the homes of relatives. If a nonparent relative cares for a child for whom they are not legally responsible financially, they can receive financial assistance from the state on behalf of the child. Some of these children are living with nonparent relatives because they have been removed from the home of their parents due to abuse or neglect. However, some are in these homes for other reasons. The additional "child-only" category comprises families where the parent is in the home but for reasons other than those listed above is not a recipient or work-eligible adult or the family lives in a state that fails to provide information on non-recipient adults in the household. Figure 2 shows the change in both the size and composition of the cash assistance caseload. As noted previously, from FY1988 to FY1994 the number of families receiving assistance increased from 3.7 million to 5.0 million per month, a 35% increase. In terms of numbers, the majority of that caseload growth was attributable to families with an adult recipient. However, also important in this period was the emergence of the "child-only" categories. In FY1988, the "child-only" categories represented about 10% of the overall caseload, a share that grew to 17% in FY1994. From FY1994 to FY2001, the cash welfare caseload declined rapidly, from 5.0 million families to 2.2 million families per month, a 56% decline. Over this period of time, the TANF caseload's character changed dramatically. The number of families with an adult recipient and no employment fell from a monthly average of close to 3.8 million to less than 1 million (992,000). This represented a 74% decline in this population, substantially greater than the overall caseload decline. It was this group that was most closely identified with welfare dependency during the welfare reform debates of the 1980s and 1990s. In contrast, the total number of families in the child-only category declined by a comparatively small amount, from 869,000 per month in FY1994 to 789,000 in FY2001, a decline of 9%. Thus, "child-only" families—a population not discussed much during the welfare reform debates of the 1980s and 1990s—became a greater share of the overall caseload. The FY2001 to FY2013 period also saw some declines in the overall caseload and continued changes in its composition, but the changes were far less dramatic than in the late 1990s. In FY2013, the TANF cash assistance caseload was very diverse. Families with an adult recipient or work-eligible individual who was unemployed—the group that welfare-to-work policies have traditionally focused on—represented less than half of the caseload (44.7%). Another 17.3% of the caseload reflected families with employed adult recipients or work-eligible parents. The figure shows the three main groups of "child-only" families. (The groups of "child-only" families are shaded in blue.) The largest of the "child-only" categories represents children with nonparent relative caretakers (13.4%). The other two major categories of "child-only" families are where the parent is an ineligible noncitizen (11.2% of the total caseload) and child-only families where the parent is an SSI recipient (8.9% of the total caseload). The composition of the TANF cash assistance caseload by family categories varies substantially by state. The variation reflects differences among states in both their demographic characteristics and policies. For TANF families by category and state in FY2013, see Table A-2 . The different categories of TANF families reflect different circumstances that either led or contributed to their remaining on the assistance rolls. Additionally, differences in the typical characteristics across the family categories highlight the diversity of the cash assistance caseload. This section will focus on the five major categories of TANF families: (1) families with an adult recipient who is not employed; (2) families with an adult recipient, employed; (3) "child-only" families with an SSI parent; (4) "child-only" families with a nonparent, relative caretaker; and (5) "child-only families" with an ineligible immigrant parent. The data for the "child-only/other" category are missing important information for identifying these families' characteristics, and thus are not included in this section's analysis. TANF families tend to be small, with the most typical family having only one child. However, there are some differences in family size among the different categories of families. Table 2 shows TANF families by number of children and family size. Families with an employed adult tend to be slightly larger than those with adult(s) who are not employed. This is because TANF cash assistance eligibility thresholds and benefit amounts are higher for larger families; thus, larger families with earnings are more likely than smaller families with earnings to retain eligibility for TANF assistance. TANF families with ineligible noncitizen parents are also somewhat larger than the average TANF family. In FY2013, 20.7% of families with an ineligible noncitizen parent reported earnings. (This percentage is not shown on the table.) Though the noncitizen parent is not in the assistance unit receiving benefits, the parent's earnings are typically deemed available to the family and count in determining both eligibility and benefits. Like other families with earnings, larger families with earnings are more likely to retain eligibility for benefits than are smaller families. Two-thirds of TANF child-only families with caretaker relatives were reported as single child cases in FY2013. The majority of TANF families have young children. However, the age of the youngest child in the family also varies by family category. Table 3 shows TANF families by family category and age of the youngest child. Families with an adult who is not employed are the focus of TANF welfare-to-work policies. These families often have pre-school children. In FY2013, two-thirds of TANF families with an adult who was not employed had a pre-school child (under the age of 6). Some of these families can be exempted from TANF work requirements. For example, TANF law allows single parents with a child under the age of 1 to be exempted from work and disregarded from the TANF work participation standards. In FY2013, close to one-fifth (18.2%) of TANF families with an adult who was not employed had an infant (under the age of 1). In contrast, "child-only" families headed by an SSI parent or a nonparent relative tended to have older children. In FY2013, 30.5% of TANF child-only families headed by an SSI parent had a teenager as their youngest child. In FY2013, 28.9% of families with children cared for by a nonparent relative had a teen as their youngest child. The majority of the TANF cash assistance caseload is composed of racial and ethnic minorities. Among child recipients, the largest group is Hispanic children—36.3% of all child recipients in FY2013. There are differences in the racial/ethnic make-up of child recipients by family category. Table 4 shows children receiving TANF cash assistance, by the category of their family and their race/ethnicity. African American children represent the largest group of children in two family categories that include TANF adults, as well as in child-only families with SSI parents. Hispanic children make up most of children with ineligible noncitizen parents. The table also shows that the largest group of children in child-only families cared for by nonparent relatives is non-Hispanic white. Historically, children in families receiving cash assistance that are cared for by nonparent relatives have been more likely to be African American than other racial/ethnic groups. As late as FY2001, African American children accounted for a majority (52.6%) of all children in TANF child-only families cared for by a nonparent relative. However, throughout the 2000s, the share of TANF children in such families who were African American declined. This reflected a decline in the number of African American children who were cared for by nonparent relatives in the overall population. TANF was created in the 1996 welfare reform law ( P.L. 104-193 ), the culmination of decades of debate over the roles of low-income, single mothers in the home and in the workforce. The policies created within TANF reflect a primary outcome of that debate: that is, the expectation that single mothers should work to support their families, with TANF being at most temporary assistance rather than a long-term support they would depend on for themselves and their children. In 2016, the TANF law turns 20 years old, with most policies the same as when the block grant was created. However, much has changed since 1996. States have used TANF as a broad-based block grant to fund a wide range of benefits and services addressing conditions and causes of economic and social disadvantage of children, in addition to providing cash assistance or traditional "welfare." Additionally, both the size and the composition of the TANF cash assistance caseload have changed markedly since welfare reform legislation was debated in the mid-1990s. The caseload is much smaller—1.7 million families in FY2013 versus 5.0 million families in FY1994. The type of family receiving assistance that was the focus of the welfare reform debates—families with an unemployed adult recipient, which accounted for three out of four families pre-reform—now accounts for less than half of all families on the rolls. Therefore, the majority of the caseload today represents families with characteristics that are different from those who are the focus of current TANF welfare-to-work policies. TANF cash assistance families with an adult reported as working represented 17.3% of the cash assistance caseload in FY2013—more than double the 7.5% share in FY1994. These often are families either in transition from welfare to work or are families with very low earnings. They also sometimes represent families in "earnings supplement" programs, which provide a TANF benefit (sometimes a small TANF benefit) to working parents who left traditional TANF cash assistance when they worked and/or received food assistance from the Supplemental Nutrition Assistance Program (SNAP). There was some attention to transitional benefits during the welfare reform debates. A series of welfare reform experiments showed that, without earnings supplements through continued assistance for working families, welfare-to-work initiatives tended to increase work and decrease receipt of welfare, but not increase family income. The experiments that showed increased family income were those that provided continued welfare assistance to families with earnings. TANF's work participation standards give states credit for providing cash assistance to families with earnings, so that states have the incentive to provide at least some earnings supplements to families who find work while on the rolls. The welfare reform experiments discussed above were conducted in the late 1980s and early 1990s. Since then, there have been expansions of earnings supplements and aid to working families through refundable tax credits (the Earned Income Tax Credit and the Additional Child Tax Credit), subsidized child care, and expanded health insurance coverage. However, little attention has been paid to how cash assistance to working families fits together with other earnings supplements, such as the EITC, to achieve TANF goals. Many of the "child-only" TANF assistance families are affected not only by TANF policy, but other social policies as well. The child welfare system (child protective services, foster care, guardianship) could be involved with some of the children who are in the care of nonparent relatives because of, or risk of, abuse or neglect. Families with ineligible noncitizen parents are affected by immigration policies. Families with disabled parents who receive Supplemental Security Income (SSI) are affected by disability determination and redetermination policies. Congress has focused on relative caregiving through child welfare legislation, specifically creating a program to help states reimburse kin who take legal guardianship of children who would otherwise be eligible for federal foster care assistance under Title IV-E of the Social Security Act. Congress has shown interest in promoting coordination between TANF and other federal and state programs serving TANF families, including the "non-traditional" families. This has especially been true in terms of coordinating information between TANF and child welfare programs. P.L. 112-96 requires the Department of Health and Human Services (HHS) to develop standards of data reporting to facilitate the sharing of information between TANF and other programs. Earlier legislation ( P.L. 112-34 ) added similar language to facilitate data sharing between child welfare and other programs. In addition, a May 2013 Government Accountability Office (GAO) report said Congress could opt to require states to include in TANF state plans how they will coordinate services between TANF and child welfare programs. Questions remain about whether and what policies within TANF should apply to "child-only" families. A 2012 report on "child-only" families from Chapin Hall at the University of Chicago, funded by HHS, raised concerns about each major group: whether TANF assistance to relative caregivers might be an inadequate replacement for foster care, and whether low rates of TANF receipt among potentially eligible families headed by SSI parents or ineligible immigrant parents might not be assuring a minimal standard of living for children in these families. The report did recommend that "explicit attention" be given to each component of the TANF caseload, including separate attention to each of the three major groups of "child-only" families. The May 2013 GAO report said a potential option to better understand TANF's role in helping its "child-only" families would be to require states to provide additional information to the federal government about the status and needs of "child-only" families. This information could be provided, for example, in TANF state plans. Congress could also establish—or require states to establish—goals and performance measures related to the well-being of children in "child-only" families. Congress could also require that annual reporting by states to HHS include a statement about how the goals related to "child-only" families are being met, and report on such performance measures that relate to these goals. | The Temporary Assistance for Needy Families (TANF) block grant provides states, territories, and Indian tribes with federal grants for benefits and services intended to ameliorate the effects, and address the root causes, of child poverty. It was created in the 1996 welfare reform law, and is most associated with policies such as time limits and work requirements that sought to address concerns about "welfare dependency" of single mothers who received cash assistance. This report examines the characteristics of the TANF cash assistance caseload in FY2013, and compares it with selected post-welfare reform years (FY2001 and FY2006) and pre-welfare reform years (FY1988 and FY1994). The size of the caseload first increased, from 3.7 million families per month in FY1988 to 5.0 million families per month in FY1994, and then declined to 2.2 million families in FY2001 and 1.7 million families in FY2013. Over this period, some of the characteristics of the TANF cash assistance caseload have remained fairly stable, and other characteristics have changed. Most cash assistance families are small; 51.0% of all TANF cash assistance families in FY2013 had one child. Cash assistance families also frequently have young children; 56.6% in FY2013 had a pre-school-aged child. The majority of the cash assistance caseload has also been composed of racial and ethnic minorities. By FY2013, the largest racial/ethnic group of TANF cash assistance children was Hispanic. In that year, of all TANF assistance child recipients, 36.3% were Hispanic, 29.9% were African American, and 25.8% were non-Hispanic white. The growth in Hispanic children as a percent of all TANF assistance children is due entirely to their population growth—not an increase in the rate at which Hispanic children receive TANF. Additionally, the majority of adult recipients today, as in the past, are women—specifically, single mothers. However, the share of the caseload comprised of families with an adult recipient has declined substantially in the post-welfare reform period. In FY2013, 38.1% of all families receiving TANF cash assistance represented "child-only" families, in which benefits are paid on behalf of the child in the family but the adult caretaker is ineligible for TANF. The three main components of the "child-only" caseload are (1) families with a disabled parent receiving federal Supplemental Security Income (SSI); (2) families with an ineligible, immigrant parent but with eligible citizen children; and (3) families with children being cared for by a nonparent relative, such as a grandparent, aunt, or uncle. Each of the three categories of families differs in their characteristics from TANF cash assistance families with an adult recipient; there are also differences in characteristics among families in the three major "child-only" categories. TANF policies generally date back to the 1996 welfare law and the welfare reform debates of the 1980s and 1990s, and do not necessarily address the current composition of the cash assistance caseload. The major performance measure used to evaluate TANF is the work participation rate, a measure not relevant to TANF "child-only" families. Many of TANF's child-only families are affected by social policies other than TANF (i.e., federal disability, immigration, and child protection policies). However, these families are also affected by TANF, and there are currently no federal rules for assessing how TANF funds are used to improve their well-being. Options that have been raised include requiring states to provide more information to the federal government and public on benefits and services afforded to "child-only" families. Congress could also either establish performance goals and measures, or, alternatively, require states to establish such goals and measures for "child-only" families. |
RS21664 -- The WTO Cancún Ministerial November 6, 2003 The new round of trade negotiations, the Doha Development Agenda (DDA), was launched at the 4th WTO Ministerial at Doha, Qatar in November 2001. It isknown as the Doha Development Agenda because of its emphasis on integrating developing countries into theworld trading system. Many developingcountries believed they have received little or no benefit from those trade negotiations over the years. The workprogram for DDA folded in continuing talks(the built-in agenda) on agriculture and services. Other negotiations were launched on the reduction or eliminationof non-agricultural (industrial) tariffs,clarification and improvement of disciplines for existing WTO agreements on antidumping and subsidies, and topicsrelating to special and differential (S&D)treatment for developing countries and assistance to developing countries with the implementation of existing WTOcommitments. Trade ministers at Dohaagreed to continue discussions on whether to launch negotiations "by explicit consensus" on the "Singapore issues"at the 5th Ministerial at Cancún. The DohaMinisterial declaration also directed negotiators to resolve a dispute related to the ability of least developed countriesto access generic medicines for HIV/AIDSand other epidemics. Trade ministers at Doha directed that the negotiations conclude not later than January 1, 2005with a mid-term review at the 5thMinisterial. Negotiations proceeded at a slow pace. Several deadlines for agreement on negotiating modalities (i.e., methodologies by which negotiations are conducted)were missed in the agriculture and industrial market access talks. Without agreement, negotiators looked towardthe Cancún Ministerial to resolve themodalities. In the weeks before Cancún, negotiating documents to achieve this resolution were criticizedby all sides, and expectations of the Ministerial werereduced to achieving an agreement on the framework for the modalities to be used in future negotiations. Access to Medicines. Negotiators did resolve the access to medicines dispute just prior to the beginning ofthe Ministerial. On August 30, 2003, the Trade Related Aspects of Intellectual Property Rights (TRIPS) Councilagreed on a mechanism to allow poordeveloping countries to issue a compulsory license to a third-country producer to manufacture generic drugs tocombat HIV/AIDS, malaria, tuberculosis, andother epidemics. While the agreement contained several restrictions to protect the patent rights of pharmaceuticalmanufacturers, the agreement was designedin part to reaffirm the importance of developing country issues to the WTO in time for Cancún. (1) At the Cancún Ministerial, negotiators became embroiled in disputes over agriculture and the Singapore issues. The negotiations were characterized by theemergence of the G-20+, an informal group of developing countries (2) which demanded substantial concessions from developed countries in the agriculturenegotiations. Some developing countries also refused to countenance the beginning of negotiations over theSingapore issues, which had been championed bythe European Union (EU). In the end, the Singapore issues broke up the talks before agriculture issues were evenformally discussed. Reaction. Subsequent to the collapse of the talks, U.S. and EU negotiators criticized both the substance andtactics of the G-20+ group. A U.S. negotiator claimed that developing country rhetoric was more suited to the UnitedNations, while others claimed that theG-20+ lacked a negotiating strategy other than making demands on developed countries. However, one G-20+ trademinister has suggested that the position ofthe G-20+ merely represented the paramount interest of its members in breaking down the agricultural barriers andsubsidies in the United States and the EU. U.S. reaction to the collapse of the talks has been to give increased emphasis to the negotiation of bilateral and regional free trade agreements (FTA). U.S. TradeRepresentative Robert Zoellick said that the United States would negotiate with what he called "can-do" countriesrather than "won't-do" countries. (3) Therewere also calls by some Members of Congress to oppose bilateral or regional negotiations with countries of theG-20+, leading some G-20+ participantsnegotiating FTAs with the United States, including Guatemala, Costa Rica, Peru, Colombia, and Thailand, todissociate themselves from their G-20+activities. (4) The European Union has undertaken a review of its policy towards the WTO and multilateral trade negotiations. One issue that may be discussed in this reviewis the future emphasis that the EU places on the Singapore issues. While EU negotiators agreed to drop demandsthat negotiations proceed on all but the tradefacilitation issue at Cancún, the lack of agreement on that agenda may result in renewed EU insistence onthe full Singapore agenda. The EU may also decide toplay the regional card by placing renewed emphasis on ongoing negotiations with Mercosur or with former coloniesin the African, Caribbean and PacificGroup. EU officials have also made public statements on the need to reform various aspects of the WTO'sdecision-making process. (5) Some participants from G-20+ countries returned from Cancún claiming the outcome was a victory for developing countries. To them, the lack of agreementwas evidence that they had successfully defended their national interests in demanding changes in the agriculturalpolicies of developed countries. However,many of these countries have subsequently expressed an interest in returning to WTO negotiations. Some G-20+members, possibly under pressure from theUnited States, have announced that they will no longer attend G-20+ meetings. These defections have called intoquestion the future of this group as anegotiating entity, as well as underlying differences between the trade policies of some of its members, most notablyBrazil and India. The Derbez Draft. During the course of the Cancún Ministerial, a draft declaration (6) was written by theMinisterial Chairman, Luis Ernesto Derbez, the Mexican Foreign Minister. Crafted as a framework for futurenegotiations to which all parties could agree, itwas criticized by most parties and was not adopted at the Ministerial. The Derbez text principally modified theagricultural language of a draft negotiating textcirculated, and widely criticized, prior to the negotiations. It did call for the start of negotiations on two of theSingapore issues, trade facilitation andgovernment procurement, while relegating the issues of investment and competition policy to further "clarification." In the aftermath of the Conference,however, the Derbez text has reemerged as a possible negotiation vehicle to restart the negotiations. It has beenendorsed by leaders of the Asia-PacificEconomic Cooperation (APEC) nations, including the United States, Canada and Japan. Brazil has also indicatedthat it could work from the text, although itdisagrees with certain language in the draft. The European Union has not taken a formal position on the Derbezdraft, although EU Trade Representative PascalLamy wondered in a recent speech in London, "what magic dust has been shaken over a text so roundly rejected inSeptember, to find it so roundly endorsed inNovember." (7) Only India has rejected the textoutright as a basis for negotiation. (8) While the Derbez draft provides the advantage of a ready-made template to restart the negotiations, this approach also has potential shortcomings. As acompromise text that essentially revised a previous compromise text, the language is highly general, and in manyrespects represents a lowest commondenominator of agreement. Many of the previous disagreements could reemerge if negotiations commence basedon this text. The Derbez text also reflects thejoint negotiating positions worked out between the United States and the EU in agriculture and industrial marketaccess. Post-Cancún, some U.S. commentatorshave suggested that these positions do not serve U.S. interests, and that the United States would be better servedby reverting to its previous, more ambitious,negotiating proposals. Agriculture. (9) Agriculture negotiations are part of the ongoing negotiations, a built-in agenda of talks thatwere incorporated into the launch of the Doha round. The negotiations involve the "three pillars" of agriculturesupport: market access (tariffs), exportsubsidies, and production subsidies. The emphasis of the U.S. negotiating position has been market access. Theinitial U.S. agriculture proposal includedsignificant tariff reduction based on a non-linear formula that would cap individual tariff lines at 25%. The proposalalso called for a complete elimination ofexport subsidies and a harmonization of trade-distorting domestic support to 5% of a country's total agriculturalproduct. The initial European Union proposal adopted a linear formula approach to tariff reductions and subsidies used in the Uruguay Round. The linear approachwould reduce tariffs and subsidies by a fixed percentage cut, thus leaving the relative subsidy and tariff ratesunchanged between trading partners. The EU alsosought to trade concessions on export subsidies, which it heavily utilizes, for concessions on export credit and foodaid programs, which are utilized by theUnited States. In June 2003, the EU announced a series of reforms to its Common Agricultural Policy (CAP)including the partial decoupling of mostproduction from subsidies by 2007. However, the EU did not revise its agriculture offer based on these reforms. In August 2003, the United States and the EU adopted a joint negotiating framework to spur negotiations in the lead-up to the Cancún Ministerial. Thecompromise text blended various aspects of the U.S. and EU proposals. It provides for a combination of harmonizedand linear tariff reduction formulas. Trade-distorting domestic support would be reduced by a percentage formula, and production-limited support wouldbe allowed up to 5% of the value of the country's total agricultural production. Export subsidies would be phased out for products of interest to developingcountries, and WTO disciplines would bedeveloped for state trading enterprises, export credits, and food aid programs. special and differential treatment(S&D) was recognized for developingcountries, but not necessarily for developing countries that are net food exporters. Some observers have criticizedthe United States for moving away from itsinitial trade liberalizing stance to compromise with the EU, claiming that the initial U.S. position had been morecompatible with certain developing countryproposals. (10) However, others contend that acoherent U.S.-EU position would help facilitate negotiations. In response to the U.S. - EU proposal, the G-20+ group advocated a proposal to cut U.S. and EU domestic subsidies more drastically than the U.S.-EU proposal,to eliminate export subsidies, and to provide S&D treatment for all developing countries in terms of tariffreduction and other market access. In addition, agroup of four African nations, Benin, Burkina Faso, Chad, and Mali proposed the elimination of trade-distortingdomestic support and export subsidies forcotton coupled with a transitional compensation mechanism for cotton exporters affected by the subsidies. Inresponse, the United States proposed a WTOsectoral initiative to examine trade distortions for cotton, man-made fibers, and textile and apparel with multilateralassistance to help these countries diversifytheir economies away from cotton. African countries refused to negotiate on this basis. The Derbez draft tried to reconcile these different positions by advocating deeper cuts in trade-distorting domestic subsidies, bringing under reviewnon-trade-distorting subsidies, and by negotiating a date for the elimination of export subsidies, positions that reflectprevious developing country negotiatingpositions. It followed the U.S.-EU tariff formula, which blended harmonized and linear tariffs, but alloweddeveloping countries to identify items for minimaltariff cuts. It also largely adopted the U.S. position paper on the cotton issue. Singapore Issues. The Singapore issues refer to four issues (investment, competition policy, tradefacilitation, and government procurement) that were offered for the negotiating agenda of the WTO by theEuropean Union at the 1st Ministerial, held inSingapore in 1996. The 2001 Doha Ministerial declaration called for a decision on negotiating the issues "by explicitconsensus" at the 5th Ministerial. The 5thMinisterial at Cancún did not provide explicit consensus to negotiate these items. According to reports, itwas an impasse over these issues that finally causedthe talks to collapse. The European Union, along with Japan, South Korea, and Taiwan, have been the principal proponents of the Singapore issues. Tactically, it is generallyaccepted that for them, negotiation of the Singapore issues would be a quid pro quo for substantive negotiation ontheir agriculture policies. The United Stateshas been ambivalent about the Singapore issues, recently supporting the inclusion of government procurement andtrade facilitation primarily to move thenegotiations along. Generally, the developing countries have been opposed to the negotiation of the Singapore issuesfor two reasons. First, they foresee theimplementation of multilateral rules on these issues as an infringement of their sovereignty. Second, manydeveloping countries claim not to have theinstitutional capacity or resources to undertake the negotiation of additional issues, whatever the merits. TheDerbez text proposed the inclusion of tradefacilitation and government procurement. In the final outcome, the EU was willing to drop all the issues save tradefacilitation, the consideration of which wasthen vetoed by Botswana backed by several other African states. Before the talks broke, however, South Koreaindicated that it would accept nothing less thannegotiations on all four issues. Industrial Market Access. The United States has favored an aggressive tariff-cutting negotiating strategy inthe industrial market access talks. In December 2002, the United States proposed the complete elimination of tariffsby 2015. This proposal would haveeliminated "nuisance" tariffs (tariffs below 5%) and certain industrial sector tariffs by 2010, and would haveremoved remaining tariffs in 5 equal increments by2015. The initial EU tariff reduction proposal relied on a "compression formula," one in which all tariffs arecompressed in four bands with the highest bandbeing 15%. Like the U.S. position, this proposal applied to all countries and did not contain S&D language. The United States generally has been opposed toweakening the concept of tariff reciprocity, maintaining that it is in the developing countries' own interest to lowertariffs, not least to promote trade betweendeveloping countries. A paper jointly proposed by the United States, Canada, and the European Union proposeda harmonization (i.e. non-linear) formula fortariff reduction. This joint paper did contain S&D language for developing countries in the form of creditsawarded for further liberalization activity. (11) Industrial market access did not receive the attention paid to agriculture or Singapore issues. Because there was no agreement on modalities prior to theMinisterial, the Derbez text only reaffirmed the use of an unspecified non-linear formula applied line-by-line thatprovides flexibilities for developingcountries. The text also supported the concept of sectoral tariff elimination as a complementary modality for tariffreduction on goods of particular exportinterest to developing countries, but it advanced no concrete proposal. Next Steps. Following the collapse of the Cancún talks, all negotiating group meetings were cancelled. TheWTO General Council chairman Perez del Castillo has entered into discussion with national trade ministers andtheir Geneva representatives to try to establisha consensus on the way forward in the negotiations. To date, the United States and the EU have declined to takea leadership role in these discussions. TheGeneral Council, the WTO's highest decision-making body, is scheduled to meet on December 15, 2003, to assessany progress resulting from these discussionand recommend further steps. | The Cancún Ministerial Conference of the World Trade Organization(WTO)broke up without reaching agreementon the course of future multilateral trade negotiations. Negotiations on the Doha Development Agenda haveproceeded at a slow pace since the launch of thenew round in November 2001. The immediate cause of the collapse of talks was disagreement over launchingnegotiations on the Singapore issues, butagriculture and industrial market access issues were also sources of contention. Reaction from the United States hasbeen to focus on regional and bilateraltalks, while the European Union has undertaken a policy review of its position towards the WTO. The talks werecharacterized by the emergence of the G-20+group of developing nations that sought deep cuts in developed country agricultural subsidies. This report will notbe updated. |
There have been sharp debates over the past three decades in Congress and differencesbetween the executive and legislative branches on the appropriate level of funding for U.S. foreignpolicy programs. These debates are continuing in 2006 as Congress reviews the President's FY2007budget proposal. The past 30 years have witnessed wide swings in the amounts of resources the United Stateshas committed to advancing foreign policy and national security interests, reflecting changes inglobal challenges faced by the United States. Efforts to promote peace in the Middle East, toconfront Soviet influence, especially in the developing world, to support new democracies in thepost-Cold War era, to fight poverty and disease affecting poor nations, to combat global terrorism,and to stabilize fragile or failed states have had a substantial impact on levels of foreign policyresources. International affairs funding decisions, however, are influenced not only by overseasrequirements, but also by the overall U.S. budget environment and constraints that exist particularlyduring periods of deficits or when unforseen events demand reallocation of spending priorities. Congress and the executive branch have reduced foreign policy resources -- occasionally to a greaterextent than other sectors of the budget -- when fiscal austerity or domestic requirements weredeemed to be of greater importance. Likewise, during times of international crisis and especiallysince the terrorist attacks of September 11, 2001, international affairs spending has been one of themost rapidly increasing areas of the U.S. budget. Foreign policy spending supports a variety of U.S. government programs and activities,including foreign economic and military assistance, contributions to international organizations andmultilateral financial institutions, diplomatic operations, public diplomacy, counter-terrorism andnarcotics initiatives, and export promotion. This report serves as a resource for the annual congressional debate on foreign policyspending, providing context and a trend analysis of the past 30 years. It considers the full scope ofthe International Affairs Budget, or Budget Function 150, as foreign policy spending is designatedwithin the context of the Congressional Budget Resolution. It also illustrates spending trends of themajor components that make up Budget Function 150. Other relevant "snapshots" of internationalspending are also examined, including how foreign aid resources have been allocated across severalsub-categories and trends that are especially applicable to current funding priorities such asconfronting global health problems and increasing aid to Africa. Unless otherwise noted, dollar figures are expressed as discretionary budget authority,representing the amount of funds Congress maintains direct control over through enactment ofannual appropriation bills. Data trends begin with FY1977 due to the consistency and availabilityof figures. While some data on Federal spending regarding outlays and mandatory programs areavailable prior to FY1977, OMB publishes discretionary budget authority figures only beginningwith FY1976. Because FY1976 was a 15 month "transition" year in which the beginning date of thefiscal year changed from July 1 to October 1, this analysis starts with FY1977 so that each yearcovers the same period of time. In addition, beginning in FY1996 the data include foreign policy resources available for theState Department derived from fees collected through the Machine Readable Visa, Enhanced BorderSecurity/Visa Fraud, Expedited Passport, Commercial Service, Visa Fingerprint, Affidavit ofSupport, Diversity Lottery, Defense Trade Control, and International and Educational Exchangeprograms. Excluded are amounts for mandatory Foreign Service retirement programs, as well asresource flows of the Foreign Military Sales Trust Fund and other mandatory accounts that are notregulated through the appropriations process. Data also exclude funding for International MonetaryFund quota increases and for other IMF facilities, amounts that Congress has approved on fiveoccasions in the past 30 years. (1) Each figure illustrates major events influencing sharp changes in foreign policy spendinglevels and identifies a few key budget trends over the past three decades. The discussion alsoreferences a baseline representing the 30-year annual average of spending that can be compared withactual amounts for any specific year, thereby providing a degree of context for assessing the currentbudget request. For the most part and unless otherwise noted, data are expressed in constant FY2006dollars taking into account the effects of inflation over time. Tables attached to the report as anappendix provide specific numbers used in the analysis, expressed in both current and constantterms. Much of the data are drawn from the Office of Management and Budget's (OMB) annualHistorical Tables volume that accompanies each new budget request made by the Administration. Other sources, where appropriate, include the Department of State, the U.S. Agency for InternationalDevelopment (USAID), the Congressional Budget Office (CBO), and House and SenateAppropriations Committees. Constant dollar calculations are made by CRS. Following enactment of the Budget Enforcement Act of 1990, the United States beganapplying in FY1992 different procedures for appropriating funds for credit programs. Prior toFY1992, Congress would appropriate the full value of direct loans issued by the U.S. government. For commercial loans guaranteed by the United States, Congress placed annual limitations on thetotal amount of these guarantees, but was not required to appropriate any funds. Under the terms of"credit reform," Congress began in FY1992 to appropriate the subsidy value of both direct loansissued and loan guarantees backed by the government. In simple terms, the subsidy value, asdetermined by OMB, is an amount that represents the risk to the U.S. government in issuing orbacking the loan, plus the extent to which, if any, the loan carries a concessional interest rate belowmarket value. Accordingly, there are inherent problems with comparing trends before and afterFY1992 for any element of discretionary spending that includes credit programs. Several credit programs operate within Budget Function 150: direct loans under ForeignMilitary Financing (FMF) and (prior to FY1999) P.L. 480 food programs; loan guarantees issued byUSAID; and direct loans and loan guarantees managed by the Export-Import Bank and the OverseasPrivate Investment Corporation. Two examples illustrate the mixed impact on appropriationrequirements of the "credit reform" policy changes that took effect for FY1992. In FY1997,Congress enacted a $60 million subsidy appropriation for FMF direct loans , an amount that allowedthe Defense Department to issue military aid loans with a total face value of $540 million. Prior toFY1992, Congress would have had to appropriate the full $540 million instead of the $60 millionsubsidy that backed the loans. On the other hand, in the case of a loan guarantee , Congressapproved in FY1997 a $3.5 million subsidy appropriation permitting USAID's Urban andEnvironmental Credit program to guarantee $29.4 million in loans. These represent loans issued bycommercial lenders for which the United States government guarantees repayment. Before FY1992,no appropriation would have been required. Thus, Congress appropriated in FY1997 $63.5 millionin support of these two programs, whereas budget rules that existed prior to the 1992 credit reformwould have required an appropriation of $540 million to implement these same two activities. Because OMB has not adjusted its figures for pre-FY1992 credit programs, comparisonsbetween the two time periods cannot be totally precise. Nevertheless, an assessment of fundingtrends before and after FY1992 is still useful in identifying an illustrative pattern of spendingdecisions. While the application of post-credit reform procedures, on balance, probably tends tooverstate somewhat the degree of reductions in Function 150 spending during the mid-1990s, theextent of this overstatement does not appear to be sufficient to override the general conclusion thatcuts in the international affairs budget were substantial during that period. Comparison of theincreases in FY1999- FY2006 for Function 150 resources with pre-1992 levels face the samemethodological problems. For selected sub-categories of the international affairs budget, however,where no credit programs exist, such as for State Department and public diplomacy programs, thecredit reform changes have no effect on measuring and comparing discretionary spending. International Affairs discretionary budget authority, measured in real terms, has experiencedseveral cycles over the past three decades. There were periods of rapid growth followed immediatelyby sharp declines during the mid-1980s. After several years in the late 1980s and early 1990s ofrelative stable budget levels, amounts fell -- at first gradually, and then sharply -- through FY1997. The foreign policy budget rose slightly in FY1998 but significantly in FY1999 and FY2000compared to amounts during the mid-1990s. Growth in the Function 150 budget continuedfollowing the terrorist attacks of September 11, 2001, reaching by FY2004 the highest level offoreign affairs spending in three decades. The early-to-mid 1980s were marked by a steady increase in foreign policy spending, largelythe result of rising amounts of security aid allocated for strategic purposes in Central America,Pakistan, and "military base rights countries" such as the Philippines. At the same time that growthin security aid peaked in FY1985, Congress approved two major supplementals: a $2.25 billioneconomic aid package for Israel, Egypt, and Jordan, and about $1 billion in famine relief for Africa. All of these factors combined to set foreign affairs discretionary budget authority at $38.96 billion,in FY2006 dollars, a level about 5% higher than the FY2006 amount. Absent the unique combination of these international demands that spiked aid spending inFY1985, and with intensifying pressure in Washington to reduce the federal deficit, Function 150discretionary spending, like other federal spending, fell abruptly in FY1986, and declined further inthe next two years to a point more than 25% less than where the foreign policy budget had stood justthree years earlier. The following period -- FY1988 through FY1993 -- marked a relatively stable level offoreign affairs budget authority, ranging in most years roughly between $28 and $29 billion annually,as calculated in FY2006 dollars. To a considerable extent, this steady period can be attributed toannually negotiated budget agreements between the Administration and Congress for majordiscretionary spending categories, one of which was international affairs. A small, temporaryupsurge occurred in FY1990/1991, primarily the result of a supplemental appropriation for aid toPanama and Nicaragua, additional costs associated with the Persian Gulf War, includingsupplemental assistance for Israel and Turkey, and added expenses for U.S. agencies operating inthe Gulf region. Although the foreign affairs budget had been on a long downward trend since FY1985, thedrop in FY1994 was the first significant annual decrease in real terms since FY1988. The 3.8% realcut for FY1994 was followed by two years of increasingly larger reductions for foreign policyprograms. FY1995 discretionary budget authority dropped 5.5% below FY1994, followed by an11.3% cut in FY1996. Reductions continued for FY1997, although at a more modest 1.3% level. This downward cycle reversed in FY1998, with international affairs budget authority risingby 4% in real terms over FY1997, followed by a far more significant rise -- 21.4% -- in foreignpolicy spending for FY1999. In addition to approving modest increases for programs throughout theFunction 150 account, Congress further agreed to nearly $1 billion for U.S. arrearage payments tovarious international organizations and multilateral development banks, about $1.5 billion forsecurity upgrades at American embassies and missions around the world following the embassybombings in Kenya and Tanzania, and large supplementals for Central American victims ofHurricane Mitch ($1 billion) and for Kosovo humanitarian aid relief ($1.1 billion). A similarly largesupplemental in FY2000 supporting a $1.8 billion one-time aid package in support of the WyeRiver/Middle East peace accord and about $1 billion for a Colombian counternarcotics program, plusrising budgets for a number of regular and continuing foreign affairs programs in FY2001 keptforeign policy spending at around $27.4 billion during the FY1999-2001 period, one-quarter higherthan the low point of FY1997. The most defining change in U.S. foreign policy spending, however, came following theSeptember 11, 2001, terrorist attacks in the United States. Since 9/11 American foreign aid anddiplomatic efforts have taken on a more strategic sense of importance and have been cast frequentlyin terms of contributing to the global war on terrorism, including assistance to about 30 "front-line"states in the terrorism war -- countries that cooperate with the United States in the war on terrorismor face terrorist threats themselves. (2) Through a series of emergency supplemental appropriations, byFY2003 Congress had boosted the international affairs budget following the 9/11 attacks to $37.4billion, in real terms. At roughly the same time that fighting terrorism became the leading concern of U.S. foreignpolicy, the Bush Administration announced other significant initiatives that have added to a growingforeign affairs budget. The Millennium Challenge Account (MCA) is a new aid delivery concept,authorized by Congress and established in early 2004, that is intended to concentrate significantlyhigher amounts of U.S. resources in a few low- and lower-middle income countries that havedemonstrated a strong commitment to political, economic, and social reforms. MCA funding hadbeen expected to grow to $5 billion annually by FY2006, although actual appropriations -- $1.77billion in FY2006 -- have been far more modest. Addressing global health problems has further become a core U.S. aid objective in recentyears. Congress created a separate appropriation account for Child Survival and Health activitiesin the mid-1990s and increased funding for international HIV/AIDS and other infectious diseaseprograms. President Bush's announcement at his 2003 State of the Union message of a five-year,$15 billion effort to combat AIDS, malaria, and tuberculosis (Presidential Emergency Plan for AIDSRelief -- PEPFAR) has added greater emphasis to this primary foreign assistance objective andcontributed to higher international affairs spending. Resources committed to fighting terrorism and rebuilding Afghanistan and Iraq, plus thelaunch of the MCA and PEPFAR initiatives pushed U.S. foreign policy spending in FY2004 to $53.8billion, in real terms, the highest level in over three decades. Even excluding the $18.45 billion forIraq reconstruction from the total, FY2004 remains one of the largest international affairs budgetsduring this period. Without the significant Iraq reconstruction appropriation of FY2004, the FY2005foreign affairs budget dropped back to $36.8 billion, although it represented an 11% increase forinternational activities other than Iraq. Another large emergency supplemental for FY2005 dealingwith other foreign crises -- tsunami disaster relief, a Palestinian aid package, conflict in the Darfurregion of Sudan, and accelerated Afghan reconstruction efforts -- pushed Budget Function 150 toits highest level (excluding Iraq) since FY1985. As overall budget pressures increased in the 109th Congress and the unanticipated emergencyto address the victims and destruction of Hurricane Katrina, for the first time during the BushAdministration, Congress reduced -- by $2.1 billion or 6.4% -- the President's regular foreign policyrequest. Subsequently, however, Congress approved emergency supplemental spending of $4.25billion for Iraq, Afghanistan, and various humanitarian crises around the world. At $36.96 billion,the international affairs budget for FY2006 is one of the highest in three decades and is 21% higherthan the annual average over the past 30 years. Figure 1. International Affairs Spending KEY TRENDS The $36.96 billion FY2006 foreign policy budget is the largest for all but four years during the past threedecades. Spending in FY2006 is 21% higher than the $30.48 billion annual average level since 1977. International affairs spending for FY2006 is nearly two-thirds higher than in FY1997, when the budget reached its lowest point in30 years. The five foreign policy budgets since 9/11 represent the largest sum total of any period since 1977. FY2004, which includes $18.4 billion for Iraq reconstruction, was by far the largest budget in 30 years. Due to embassy security and Central American disaster aid supplementals, spending surged by 21% in FY1999 from the previousyear, the largest increase in a decade. Foreign policy resources declined steadily for six years following the end of the Cold War. Budget reduction pressures pushed foreign policy and most Federal resources down sharply during the late1980s. Large Middle East and Africa aid supplementals, coupled with continued growth of security assistance, pushed the FY1985 foreignpolicy budget to the highest level, except for FY2004, over the 30 year period. Spending grew during the early 1980s largely due to increasing security aid for Central America and countries that granted the U.S.military base access. Another way of analyzing trends in international affairs resources is to drawrelationships between foreign policy spending and overall funding for total federaldiscretionary programs. This is relevant especially for the present debate overbudgetary priority-setting decisions since it is within the roughly $840 billionnon-emergency discretionary budget for FY2006 that international affairsrequirements must compete. One of the most striking differences between measuring the internationalaffairs budget as a percent of total federal discretionary spending (shown in Figure2) or as the level of total dollars appropriated (Figure 1) is the trend for each inrecent years. Although the amount of spending for international activities has grownsignificantly since September 11, compared to changes in the overall size of thefederal budget, the share allocated for foreign policy programs has declined (with theexception of FY2004 and the $18.45 billion supplemental for Iraq). The estimatedlevel for FY2006 is 3.41%, the lowest level for any year in the last three decades andabout one-eighth less than the 3.96% annual average since FY1977. If, however, the"surge" in spending for Iraq in FY2004 is folded into the entire post-9/11 period, theannual average of the past four years equals the historic 3.96% average for theinternational affairs account. This recent trend, which is somewhat counter-intuitive, results from evenlarger increases in U.S. government spending in non-international sectors, especiallyfor defense, homeland security, and domestic disaster relief. Defense spending,which accounted for roughly half the discretionary budget authority prior to 9/11,grew to more than 54% by FY2004. What the United States now defines as"homeland security" spending, a category that did not exist prior to 9/11, has risenby about one-third. A series of emergency supplementals -- totaling about $82.1billion -- for relief of Hurricane Katrina victims pushed shares for other budgetactivities, including Function 150, down for FY2005 and FY2006. For the period prior to the terrorist attacks of September 11, the patterns inFigures 1 and 2 for foreign policy spending are similar, although the degree of sharpgrowth and decline are muted somewhat when measuring discretionary BA as a %of total budget authority. One of the most notable trends is the substantial continuityin the amount of the budget authority devoted to international affairs during an eightyear period, FY1988 to FY1995. Although dollar amounts for foreign affairs mayhave risen somewhat in FY1991 due to the Gulf War, and fallen through the nextfour years, Function 150's proportion of total discretionary budget authority deviatedonly slightly from a sustained level of 4% annually. In short, even though the foreignpolicy budget fell steadily in the early- to mid-1990s, it declined at roughly the samepace as the total for all other programs funded through discretionary spending. Butin FY1996, this 4% share that had been sustained for eight years ended, and Function150's proportion fell to 3.63%. In FY1997 and FY1998 it fell further to about 3.6%of discretionary BA. Thus, at a time when Congress and the President had reducedtotal discretionary budget authority, resources for foreign policy programs declinedfaster than other federal programs. Figure 2. International Affairs Budget as a % of Total U.S. BudgetAuthority KEY TRENDS The FY2006 foreign policy budget's share of total Federal discretionary budget authority is 3.41%, substantially smaller than the30 year annual average of 3.96%. Including the Iraq reconstruction supplemental, the FY2004 5.54% share of total spending was the largest for Budget Function 150in three decades. Despite the significant increases in foreign policy resources since September 11, except for FY2004, the share of Function 150 oftotal U.S. discretionary spending has declined. This is largely due to a more rapid rise in defense and homeland security appropriations, and, in FY2005and FY2006, relief for victims of Hurricane Katrina. With the exception of the years following two large "spikes" associated with the Camp David/Middle East peace accord (FY1979)and Iraq reconstruction (FY2004), the single-year cut for foreign policy spending of 11.3% in FY1996 was the largest in three decades and nearly six timeslarger than cuts for the rest of the budget. The largest single element of the foreign policy budget supports a broad rangeof development, humanitarian, security/economic, and military assistance programs. In most years, foreign aid makes up about two-thirds of Budget Function 150. (3) With such a large portion of the international affairs budget supportingforeign assistance, the patterns and trends for foreign aid are quite similar to theentire Function 150. Following the September 11 terrorist attacks, reconstructioninitiatives in Afghanistan and Iraq, plus more general assistance to countriessupporting U.S. efforts in the global war on terror, have pushed foreign aid spendinglevels up significantly. During this same period, President Bush launched two majoraid initiatives: the President's Emergency Plan for AIDS Relief (PEPFAR), a fiveyear, $15 billion activity; and the Millennium Challenge Account, anticipated togrow to a $5 billion annual program concentrating on countries that have performedwell on governance, economic, and social measures. Combined with responses tounanticipated international emergencies in recent years, including the Indian Oceantsunami and conflict in the Darfur region of Sudan, the foreign aid budget has grown from $18.4 billion just prior to 9/11 to $25.2 in FY2006 (constant dollars), more thana one-third increase in only four years. FY2004 was the largest year, post-9/11, at$43.3 billion, although this included an unusually large $18.45 billion supplementalfor Iraq. Prior to 9/11, foreign aid spending had already been growing since FY1997when funding hit its lowest point over the past 30 years. While resources forcontinuing foreign aid programs rose modestly during the period, levels were pushedhigher -- nearly 21% between FY1997 and FY2001 -- by a series of new initiativesand humanitarian crises. Considerable amounts were programmed for the WyeRiver/ Middle East peace effort; the United States cleared most of its accumulatedarrears owed to the U.N. and World Bank; the Clinton Administration joined otherdonors in expanding debt relief for the world's poorest nations; and the BushAdministration launched a major counter-narcotics effort in Colombia -- that laterevolved into a program for the entire region -- the Andean Counterdrug Initiative(ACI). The United States also responded to several humanitarian emergencies,including those for the victims of Hurricane Mitch in Central America and theviolence in Kosovo. The low point in foreign aid spending -- FY1997 -- came following a steadydecline over a decade-long period that began with passage in 1985 of theGramm-Rudman-Hollings deficit reduction act. The foreign aid budget fell by nearly24% (real terms) between FY1985 and FY1986, and continued to decline insubsequent years as Congress and the President worked towards reducingdiscretionary spending. With the fall of the Berlin Wall, the collapse of the SovietUnion, and the end of the Cold War, much of the rationale used for supporting U.S.foreign assistance during the previous four decades disappeared. With the exceptionof FY1991 when Congress approved additional resources for countries affected bythe Persian Gulf War, the foreign aid budget continued its steady decline throughFY1997. By that point, foreign assistance resources, in real terms, stood 54% belowlevels of a decade earlier. The first term of the Reagan Administration saw a steady, large increase inforeign aid spending culminating in FY1985 when resources reached $33 billion, thethird highest single year level in the past three decades. Growth occurred not becauseof policy consensus over the importance of foreign assistance, but rather because ofsignificant policy differences between the executive and legislative branches. Earlyin the Reagan Administration, officials attempted to reduce multilateral developmentcontributions, while at the same time increasing strategic types of foreign assistance. Congress blocked efforts to cut multilateral and other economic aid, but alsoapproved much of the funds sought by the executive for security assistance programsin Central America and aid to countries that provided U.S. access to military bases. The peak year of FY1985 included a large supplemental package for Israel, Egypt,and Jordan, payment of arrears owed to the World Bank, and humanitarian relief forvictims of a severe famine in Africa. Figure 3. Foreign Aid Discretionary Budget Authority KEY TRENDS Foreign aid spending -- the combined resources for development, humanitarian, security/ economic, and military assistance -- hasgrown significantly since 9/11, augmented by the launch of two major aid initiatives for HIV/AIDS and the Millennium ChallengeAccount. The $25.2 billion total for FY2006 is about 9% higher than the $23.1 billion annual average since FY1977. FY2004, including Iraq reconstruction, was the highest foreign aid budget in 30 years. Foreign aid spending declined substantially following the collapse of the Soviet Union and the end of the Cold War. BetweenFY1990 and FY1997, funding for foreign assistance fell by 31%, to a 30-year low of $15.2 billion. During the first term of the Reagan Administration, foreign aid grew at a steady pace. Larger contributions to the World Bank,increased assistance to Central America and countries providing the U.S. with military base access, famine relief in Africa, and an economic stabilizationpackage for Israel culminated in FY1985 with the third largest foreign aid budget in 30 years. The following year, Congress enacted the Gramm-Rudman-Hollings deficit reduction act and foreign assistance, like most otherfederal spending programs, fell sharply. The one-year costs of security assistance in support of the Camp David Accord pushed foreign aid in FY1979 to the highest point,other than FY2004. As noted above, foreign assistance includes a wide-breadth of programmatictools utilized in support of various, and in some cases, divergent U.S. foreign policyobjectives. Spending patterns for different components of foreign aid have variedconsiderably over the past three decades, as illustrated in the charts that follow. Although there is no precise definition of major bilateral foreign aidcategories, this discussion divides programs into four clusters: 1) "core" developmentassistance that generally employs long-term poverty reduction and economic growthstrategies; 2) humanitarian relief activities that aim to save lives and provide basicservices immediately following a natural or man-made disaster, or support the needsof refugee populations over an extended length of time; 3) political/securityeconomic aid, intended to help bolster the economies of countries of special strategicinterest to the United States or nations undergoing transitions to democratic andmarket economic systems, such as the states of the former Soviet Union; and 4)military assistance that helps American friends and allies strengthen their defensecapabilities. The growth in spending since FY2000 on "core" bilateral developmentassistance programs represents perhaps the most dramatic increase of any componentof the international affairs budget. (4) The $6.9 billion total for FY2006 is the largest in30 years and more than three times larger, in real terms, than the $2.13 billion budgetfor FY2000. Current spending is also well more than double the annual averagefunding level over the past three decades. The most important components of for this sizable increase have been thelaunching of two new bilateral development aid initiatives by the BushAdministration. The Millennium Challenge Account (MCA), promising toeventually total $5 billion annually, and the President's Emergency Plan for AIDSRelief (PEPFAR), adding $10 billion in new assistance over five years, each beganin FY2004 and has grown in subsequent years. Annual increases over the previousyear level of spending on bilateral development aid have risen, in real terms by 44%in FY2004, 21% in FY2005, and 13.5% in FY2006. While the MCA and PEPFAR contributed significantly to "core" bilateraldevelopment assistance spending, funds were rising prior to FY2004. Congressbegan increasing the President's request for both the Development Assistance Fundand the Child Survival and Health account in FY2001, adding resources for suchprograms supporting basic education, HIV/AIDS, malaria, and tuberculosis. Following the September 11, 2001 terrorist attacks, the Administration addedDevelopment, along with Defense and Diplomacy, as the three pillars of U.S.national security, which also assigned greater importance to bilateral developmentassistance and its role in the global war on terrorism. Annual increases over theprevious year, FY2001-FY2003, totaled 19%, 9%, and 24%, respectively. Prior to the most recent surge in bilateral development aid spending, levelsfor much of the period beginning in FY1977 remained relatively stable. In realterms, development assistance resources experienced small increases in the late1970s when the Carter Administration made Africa an aid priority and during theearly 1980s when all components of U.S. foreign aid rose during the first term of theReagan Administration. After falling to $2.6 billion in FY1986, development aidbudgets remained steady, growing somewhat to $3 billion by FY1991as Congresssought to double U.S. development assistance to Africa over a period of years. Withthe end of the Cold War and shifting congressional budget priorities in themid-1990s, however, development aid, like most other categories of Americanforeign aid, declined sharply, dropping to $2.03 billion (FY2006 dollars) by FY1997,the lowest point during the past 30 years. Figure 4. "Core" Bilateral Development Assistance Spending KEY TRENDS "Core" bilateral development assistance funding accounts -- currently consisting of the Development Assistance Fund, ChildSurvival/Health, Global AIDS Initiative, and the Millennium Challenge Account -- have increased by more than 3 times sinceFY2000. The FY2006 level of $6.9 billion is the largest during the past 30 years, and is well more than twice the size of the annual averageover this three decade period. Development aid spending fell sharply following the end of the Cold War, reaching a 30-year low point in FY1997 at $2.03billion. For a 13 year period beginning in FY1977, development assistance resources remained relatively stable, ranging in several of theseyears between $2.7 billion and $2.8 billion. The United States, consistently a large contributor to international disasterand humanitarian relief operations, has spent unprecedented amounts on globalhumanitarian emergencies in recent years. The confluence of several naturaldisasters -- Hurricane Mitch which struck Central America in late 1998, drought inEthiopia and elsewhere in Africa since 2002, the Indian Ocean tsunami which struckin December 2004, and the October 2005 earthquake in Pakistan -- plus continuingconflicts around the world -- Kosovo (1999), Liberia (until 2003), Afghanistan(2002), pre-Iraq war (2003), Haiti (2004), and Darfur (since 2003) combined to pushforeign aid spending on humanitarian crises to their highest levels in threedecades. (6) The $3.83 billion humanitarian aid budget for FY2003 was the largest since FY1977,and slightly higher than the $3.73 billion funding level for FY2005. Resources forFY2006 ($3 billion) are lower than the recent peak years, although they remain oneof the largest totals over the past 30 years. In only two years prior to FY1999 have humanitarian aid funding levels comeclose to recent totals. For FY1980-FY1981, large supplementals for Indochina andSoviet/East European refugee resettlements brought amounts to around $2.8 billion. In FY1985 humanitarian relief spending exceeded $2.75 billion, largely due to asubstantial U.S. response to a major famine in Africa. Assistance to populationsaffected by the Gulf War in 1991 and to victims of conflict in Bosnia, Haiti, andRwanda in 1994 represented other "surge" years for humanitarian aid budgets. Figure 5. Humanitarian Assistance Spending KEY TRENDS Due to the unforeseen and unpredictable nature of events requiring humanitarian relief, spending patternshave been highly erratic over the past 30 years. In general, however, resources committed for food, disaster, and refugee support have been growing for thepast two decades. Amounts have been especially large in several years since FY1999. FY2006 appropriations for humanitarian aid programs, at $3 billion, fall below recent years -- FY1999,FY2003, and FY2005. For the entire 30-year period, FY2006 spending on humanitarian relief operations is nearly 30% higher thanthe $2.32 billion annual average, but only slightly larger than the annual average since FY1999. The United States utilizes several types of economic assistance in pursuit ofstrategic objectives that do not have as their primary goal long-term economicgrowth, poverty reduction, or humanitarian relief. These latter purposes may be ofsecondary importance in providing strategic assistance, but nevertheless, the ways inwhich either type of aid is delivered may be the same. In general, the specificrationale of why the assistance is provided determines whether it falls into primarilydevelopment/humanitarian aid accounts or into another set ofpolitical/security-related assistance programs. The primary channel for transferring political/security economic assistanceis through the Economic Support Fund (ESF), an account previously referred to asSecurity Supporting Assistance and Defense Support. ESF resources have been usedin support of Middle East peace efforts since Camp David in FY1979, for helping theU.S. gain access to military bases in the Philippines and elsewhere during the 1980s,for backing Central American governments during conflicts in the mid-1980s,assisting Panama and Nicaragua stabilize following government changes in 1990, andmost recently, supporting a group of about 30 nations regarded as the "front-line"states in the Global War on Terror (GWOT). Other types of political/securityeconomic programs include those authorized in the early 1990s for helping thecountries of Eastern Europe and the former Soviet Union transition to democratic andmarket economic states. Counter-narcotics efforts, which became a major initiativein Colombia and elsewhere in the Andean region, non-proliferation programs, andanti-terrorism activities are other types of political/security economic assistance. Thelarge amount of reconstruction assistance provided to Iraq in FY2003, FY2004, andFY2006 also falls within this category. Budget "spikes" for political/security economic assistance tend to occurfollowing major new international events, including peace agreements and thetermination of hostilities in conflict-stricken areas, several of which are noted aboveand illustrated in Figure 6 below. Continuing, year-to-year political/securityeconomic aid, on the other hand, has remained more steady than other types of U.S.foreign aid, ranging in "non-peak" years between $4 billion and $6 billion, in realterms. The current (FY2006) $6.9 billion political/security assistance budget is notlarge compared with levels approved in FY2003 and FY2004, but is the sixth highestamount during the past 30 years. FY2006 levels are 4.5% larger than the 30-yearannual average, although if Iraq reconstruction funds are excluded, FY2006 is nearly10% below the three decade annual average. Figure 6. Political/Security Economic Aid Spending KEY TRENDS Political/security-related economic programs generally focus on countries or initiatives of strategic importance to the United States,and funding levels tend to "spike" due to new circumstances, including peace agreements or post-conflict aid. FY2006 spending on political/security economic aid, at $6.9 billion, is lower than FY2003 and FY2004, but 4.5% larger than the30-year annual average. Peak years for political/security economic aid spending coincide with specific events: Iraq reconstruction (FY2004 and FY2006);pre-Iraq war aid for "front-line" states in the Global War on Terror (FY2003); the Wye River/Middle East Peace Accord (FY2000); large supplementalfor Russia and other states of the former Soviet Union (FY1993); government changes in Panama and Nicaragua (FY1990); a large supplemental for Israel,Egypt, and Jordan (FY1985); and the Camp David Peace Accord (FY1979). Other than these peak years, political/security economic aid resources have remained relatively stable at between $4 billion and $6billion per year. Through its military assistance programs, the United States provides friendsand allies with defense equipment and training, as well as contributing to non-U.N.peacekeeping operations. Although low by historical trends, military aid budgetsduring the post-September 11 period have been higher than at any time since the endof the Cold War. Nevertheless, amounts for FY2006 -- $4.9 billion -- are nearly 30%less than the annual average since FY1977. Military assistance spending in FY2005 and FY2006 would have beensignificantly higher if not for an Administration decision, backed by Congress, tofund with Defense Department resources $11 billion in programs to train and equipAfghan and Iraqi security forces. In the previous three fiscal years, such activitieshad been financed through the Foreign Military Financing (FMF) program and theIraq Relief and Reconstruction Fund (IRRF), both of which fall within theinternational affairs budget function. Although this represents a substantial shiftfrom traditional State Department policy and budgetary authority over militaryassistance, the Administration says that it intends to continue this financing structurein future years. Levels of military assistance declined steadily in the period following the endof the Cold War as the United States ended most defense support to countries otherthan Israel, Egypt, and a few East European/former Soviet states. This reduction,however, had actually begun in FY1987 when countries such as Spain and SouthKorea "graduated" as military aid recipients. The early part of the 1980s witnessed a steady increase in military assistancewhich became a primary tool for advancing the "Reagan Doctrine" policy ofsupporting anti-communist insurgents around the world. This included a sharp risein military support to El Salvador and Honduras in Central America, to thePhilippines and other nations providing the United States access to overseas militarybases, and to Pakistan, a front-line state on the border with Soviet-occupiedAfghanistan. Since the signing of the Camp David Peace Accord in 1978, promotingMiddle East peace has been a cornerstone of U.S. military assistance. In FY1979,military aid reached its 30 year peak of $15.2 billion (in real terms), largely becauseof a substantial military support package offered to Israel and Egypt as part of thenegotiations. From that point, these two countries have accounted for roughlytwo-thirds of total U.S. military assistance. Figure 7. Military Aid Spending KEY TRENDS Even more so than political/security-related economic assistance,military aid focuses on countries and international initiatives of strategic importance to theUnited States. The military aid budget for FY2006, at $4.9 billion, is the sixth lowestspending level in the past three decades. It falls nearly 30% below the annual average for thisperiod. A significant factor as to why military assistance has not been higherin the post-9/11 period, and especially for FY2005 and FY2006, is the Administration'sdecision to shift funds to train and equip security forces in Iraq and Afghanistan from theinternational affairs budget to the defense budget. In these two years, Congress appropriated$11 billion for such purposes managed by the Defense Department, which in previous yearshad been funded under State Department accounts. Military assistance spending in FY2003 and FY2004 was the highestsince the end of the Cold War. During the first term of the Reagan Administration military aidresources more than doubled with significant increases for friends in Central America,countries that provided military base access to the United States, Israel and Egypt, Greeceand Turkey, Pakistan, and other strategic partners under the "ReaganDoctrine." FY1979, the year following the signing of the Camp David PeaceAccord, represented the highest level of military aid funding during the past 30years. Over the past three decades, countries in sub-Saharan Africa have received$72.2 billion (constant FY2006 dollars) in economic and military assistance from theUnited States. While aid to the continent is sizable, Africa has never been theprimary target of American resources, especially compared with the Middle Eastthroughout the entire period and Asia and Latin America during the 1980s. In 2005,however, considerable international attention focused on African development issues,leading to appeals to sharply increase assistance for poverty reduction, post-conflictstabilization, health needs, and other challenges facing the continent. At the G-8 Summit in July 2005, the Bush Administration announced apledge to double U.S. bilateral assistance to Africa from $4.3 billion in 2004 to $8.6billion by 2010. (9) If achieved, this would accelerate what has alreadybeen an increasing emphasis and priority of American foreign aid resources to theregion in recent years. Already, U.S. assistance to Africa has more than doubledsince FY2001, rising from $2.4 billion to $5.9 billion in FY2006, and more thantripled since a $1.6 billion total in FY1997. The sizable increase in U.S. assistance to Africa since the late 1990s has beenthe result of three factors. First, sub-Saharan Africa has been a principal beneficiaryof several new American foreign aid initiatives in recent years. A series of relativelymodest, but targeted aid activities launched during the Bush Administration haveincluded the Africa Education Initiative ($200 million over five years, beginning inFY2001 (10) ), the Congo Basin Forest Partnership ($53million, FY2002-FY2005), the Initiative to End Hunger in Africa (2002), Trade forAfrican Development and Enterprise Initiative (2001), Women's Justice andEmpowerment in Africa, among others. Selected African nations will also benefitfrom the Millennium Challenge Account (MCA) which began operations in FY2004. Madagascar, Benin, and Cape Verde are among the eight countries selected thus farto receive multi-year grants in recognition of sound economic and governanceperformance. A $1.2 billion, five-year anti-malaria program, launched in FY2006,is also expected to provide substantial amounts of additional assistance to the regionthrough FY2010. The President's Emergency Plan for AIDS Relief (PEPFAR), however, hasbeen the most expansive of the Bush Administration foreign aid policies benefittingAfrica. Begun in FY2004, much of the five-year, $15 billion program will assist 15"focus" countries that face the most serious threats from HIV/AIDS. Twelve of thefocus nations are in sub-Saharan Africa, receiving over $2.2 billion in the first threeyears of the initiative for the prevention and treatment of the AIDS pandemic. Likethe MCA and malaria programs, PEPFAR resources are expected to rise in the nearterm, providing additional amounts of aid to the region. A second factor in the growing volume of U.S. assistance to Africa has beenthe response to a number of humanitarian crises, including food shortages in Ethiopiaand elsewhere, and conflict in Liberia and Sudan. Food aid to countries in Africagrew from an average of about $400 million annually in the late 1990s throughFY2002 to an annual average of about $1.1 billion, FY2003-FY2005. A third reason for the rising level of assistance to Africa in recent years hasbeen the growing size of contributions to various peacekeeping operations in theregion. Funding for activities in Sierra Leone, the Democratic Republic of Congo,Liberia, Sudan/Darfur, and Cote d'Ivoire, and efforts to better train and equippeacekeeping forces of the African Union have been especially large. U.S. costs insupport of these missions have averaged about $835 million annually beginning inFY2002, or about five times the annual average of the four previous years. U.S. assistance to Africa fell sharply in the mid-1990s following the end ofsupport for a U.N. peacekeeping operation in Somalia, cuts in bilateral developmentassistance, and a temporary suspension of contributions to the African DevelopmentBank and African Development Fund due to concerns over management issues at theinstitutions. The $1.6 billion total U.S. aid package to Africa in each of FY1996 andFY1997 was the lowest amount in real terms since FY1979. During the 1980s, U.S. assistance to sub-Saharan Africa peaked in FY1985at $2.9 billion, largely due to a sizable food assistance supplemental responding toa major famine in the region, plus higher levels of security-related economicassistance (ESF) being programmed in African countries. Assistance, however, fellsharply the next two years as ESF transfers declined or were re-directed to other,more strategic areas of the world. Reflecting concern over the transfer of economicaid from Africa to other regions, in FY1988 Congress created a separateappropriation account for the region -- the Development Fund for Africa (DFA) -- sothat aid levels for Africa would be more clearly designated in spending bills. DFAresources grew from about $500 million to nearly $800 million by FY1993, beforebeginning to slide downward the next several years. Congress ended the separateDFA appropriation account in FY1996. Figure 8. Africa Assistance KEY TRENDS The Bush Administration announced in July 2005 that the United States would double bilateral aid to Africa, increasing it from $4.3 billion in FY2004 to $8.6 billion by FY2010. The $5.9 billion in U.S. aid to Africa estimated for FY2006 is the largest level in three decades and totals nearly three times the $2.2billion annual average since FY1977. Humanitarian crises in Ethiopia, Liberia, Sudan, and elsewhere, large contributions to U.N. peacekeeping operations in Sierra Leone,Democratic Republic of Congo, Liberia, and Sudan/Darfur, and the launch of the President's Emergency Plan for AIDS Relief (PEPFAR) resulted insignificant increases in U.S. assistance to Africa since FY2002. Reductions in development and food aid, coupled with a suspension of contributions to the African Development Bank and Fund(AfDB) pushed U.S. assistance to Africa in FY1996/97 to a near three-decade low. Following a two-year sharp reduction in U.S. aid to Africa in the mid-1980s, Congress created in FY1988 a separate appropriationaccount -- the Development Fund for Africa -- to bring more clarity to funding decisions for the region. Increasing demands for food due to famine conditions in Africa, plus the growing use of the security-related Economic Support Fund(ESF) pushed U.S. aid higher during the early 1980s. Besides foreign aid, the other major component of the international affairsbudget supports diplomacy and American engagement in the internationalcommunity. Roughly one-third of the Function 150 budget targets salaries andexpenses of the U.S. diplomatic corps; the construction, maintenance, and securityof American embassies around the world; educational and cultural exchanges,international broadcasting, and other aspects of public diplomacy; the costs of U.S.membership in the United Nations and other international organizations; andassessed contributions to U.N. peacekeeping operations. (11) In additionto appropriated funds, this category also includes beginning in FY1996 fees that theState Department collects for visa processing and other services. Over time, thesehave become a source of sizable amounts of resources for the Department, growingto an estimated level of nearly $1.2 billion in FY2006. Over the past three decades, the funding level for the State Department andpublic diplomacy has reflected generally an upward trend. Although there have beena few brief periods of declining resources, appropriations continually climbed to theirhighest level in FY2006 of $12.2 billion. Even without the $1.3 billionsupplemental for U.S. embassy operations in Bagdad, FY2006 represents the secondlargest spending amount -- behind FY2005 -- for the State Department and publicdiplomacy in 30 years. The FY2006 total is more than 75% higher than the thirtyyear annual average of $6.9 billion. From the outset of the George W. Bush Administration, then-Secretary ofState Colin Powell argued strongly within the executive branch and before Congressthat State Department resource needs had been neglected during the previous decadeand that significant increases were needed to improve technology and staffingchallenges. The Bush Administration's first budget saw a jump from $8.7 billion inFY2001 to $9.9 billion for FY2002 in State Department and public diplomacyspending. By FY2004, the $10.3 billion (excluding Iraq) was 18% higher, in realterms, than at the beginning of the Bush Administration. Many of the spikes in funding for the State Department and public diplomacyover the past 30 years have been related to overseas security issues. Since theVietnam War, American embassies have increasingly been the targets of hostileaction. Terrorist attacks grew in number in the 1970s, the decade ending with thetaking of American hostages in Tehran in 1979. Similarly, in the early 1980s, theState Department recognized a greater need to tighten security after the 1983bombing of the U.S. Marine barracks in Beirut, Lebanon, and the bombing of theembassy annex in Beirut in 1984. In 1985, a report by the Advisory Panel onOverseas Security, headed by Admiral Bobby Inman, set new standards for securitymeasures at U.S. facilities around the world. In 1986 Congress provided an embassysupplemental appropriation to meet those standards, and State Department/publicdiplomacy resources grew to $6.7 billion, in real terms. Again in August 1998,another major attack occurred on U.S. embassies in Kenya and Tanzania. Later thatyear, Congress passed an emergency supplemental that sharply increased total StateDepartment spending to $8.94 billion. The Clinton Administration generally believed in a multilateral approach tohandling international problems and sought an expansion of U.N. involvement ininternational peacekeeping. In 1994, the Administration requested supplementalfunding for U.N. peacekeeping to provide more help with Cyprus and Africanregional efforts, as well as Angola, Iraq, Yugoslavia, Somalia, Haiti, andMozambique. Congress appropriated $670 million for the peacekeepingsupplemental in 1994, more than doubling the international peacekeeping accountthat year. Overall this raised the State Department and public diplomacy budget to$7.9 billion (FY2006 dollars). During this same period in the 1990s, both Congress and the Administrationstruggled to reduce the federal deficit. Some Members contended that, with the endof the Cold War, a peace dividend could be derived, and believed that foreign policyagency funding could be trimmed to help meet growing budget pressures. Reorganization of the international broadcasting entities, beginning in 1994, and laterthe consolidation of the foreign policy agencies into the Department of State inFY1999, reflected the mood in Congress to streamline these foreign policy agencies,thereby realizing some degree of budgetary savings. Reductions in broadcasting andeducational and cultural exchange programs were especially large during themid-1990s when funding for these programs fell by more than 30%, bringing the $6.3billion State Department/public diplomacy budget in FY1996 to a six-year low. Figure 9. State Department & Public Diplomacy Spending KEY TRENDS Funding for State Department personnel, embassy security, public diplomacy, and dues for international organizations has increasedsteadily over the past three decades, peaking in FY2006 at $12.2 billion (constant dollars), including costs for a U.S. embassy operations inIraq. Emphasis on State Department staffing and technology upgrades during the early Bush Administration pushed spending upwardfrom $7.8 billion in FY2000 to $9.5 billion by FY2003. The bombings of U.S. embassies in Kenya and Tanzania (1998) and the Inman Report on embassy security standards (1985) ledto sizable supplemental spending. During the mid-1990 decline in overall U.S. foreign policy spending, resources for international exchange programs and broadcastingfell by over 30%. Significant contributions to UN peacekeeping operations, including Somalia, pushed funding for State Department and publicdiplomacy to $7.9 billion in FY1994, the highest level in 18 years. Table 1. International Affairs Discretionary BudgetAuthority ($s - billions) Sources: OMB, House and Senate Appropriations Committees, and CRScalculations. FY2006 includes supplemental appropriations and 1% rescission ofregular appropriations. Table 2. International Affairs Budget As a % ofTotal Discretionary Budget Authority Sources: Office of Management and Budget, Congressional Budget Office, and CRScalculations. Table 3. Foreign Assistance Discretionary BudgetAuthority ($s - billions) Sources: OMB, House and Senate Appropriations Committees, and CRScalculations. FY2006 includes supplemental appropriations and 1% rescission ofregular appropriations. Table 4. "Core" Bilateral DevelopmentAssistance Discretionary Budget Authority ($s - billions) Sources: Department of State, USAID, House and Senate AppropriationsCommittees, and CRS calculations. FY2006 includes supplemental appropriationsand 1% rescission of regular appropriations. Table 5. Humanitarian Assistance DiscretionaryBudget Authority ($s - billions) Sources: Department of State, USAID, House and Senate AppropriationsCommittees, and CRS calculations. FY2006 includes supplemental appropriationsand 1% rescission of regular appropriations. Table 6. Political/Security Economic AidDiscretionary Budget Authority ($s - billions) Sources: Department of State, House and Senate Appropriations Committees, andCRS calculations. FY2006 includes supplemental appropriations and 1% rescissionof regular appropriations. Table 7. Military Assistance ProgramSize ($s - billions) Sources: Department of State, House and Senate Appropriations Committees, andCRS calculations. FY2006 includes supplemental appropriations and 1% rescissionof regular appropriations. Table 8. Africa Assistance ($s - billions) Sources: Department of State, USAID, House and Senate AppropriationsCommittees, and CRS calculations. FY2006 includes supplemental appropriationsand 1% rescission of regular appropriations. Table 9. State Department and Public DiplomacyBudget Authority and Fee Collections ($s - billions) Sources: Department of State, House and Senate Appropriations Committees, andCRS calculations. FY2006 includes supplemental appropriations and 1% rescissionof regular appropriations. Beginning in FY1996, figures also include fees collectedby the State Department for Visa processing and other services. | There have been sharp debates over the past three decades concerning the appropriate levelof funding for U.S. foreign policy programs, and it is likely that these debates will continue asCongress reviews the President's FY2007 budget proposal. The past 30 years have witnessed wideswings in the amounts of U.S. resources committed to advancing foreign policy and national securityinterests, reflecting changes in global challenges faced by the United States. Efforts to promotepeace in the Middle East, to confront Soviet influence, to support new democracies in the post-ColdWar era, to fight poverty and disease affecting poor nations, to combat global terrorism, and tostabilize fragile or failed states have had a substantial impact on levels of foreign policy resources. Key highlights of international affairs spending trends include: After a substantial decline during the mid-1990s, total foreign policy spendinghas grown significantly since the terrorist attacks of September 11, 2001. Not only has the UnitedStates allocated large amounts of resources for fighting the global war on terror, the BushAdministration has launched two major new foreign aid initiatives -- the Millennium ChallengeAccount and the President's Emergency Plan for AIDS Relief (PEPFAR). The $53.8 billion(constant FY2006 dollars) budget for FY2004, which included Iraq reconstruction funds, representedby far the highest level of spending during the past three decades. Although the amount of spending for international activities has grownsignificantly since September 11, compared to changes in the overall size of the federal budget, theshare allocated for foreign policy programs has declined (with the exception of FY2004) due toincreases in defense, homeland security, and, in FY2005 and FY2006, Hurricane Katrinarelief. "Core" bilateral development assistance funding accounts -- those focusing onlong-term poverty reduction and economic growth -- have more than tripled sinceFY2000. The $5.9 billion in U.S. aid to Africa estimated for FY2006 is the largest levelin three decades and totals over two and a half times the $2.2 billion annual average since FY1977. President Bush pledged to double U.S. assistance to Africa between 2004 and2010. Funding for State Department personnel, embassy security, public diplomacy,and dues for international organizations has increased steadily over the past three decades, peakingin FY2006 at $12.2 billion (constant dollars), including operational costs inIraq. This report will be updated as new data become available. |
Since the terrorist attacks on September 11, 2001, the Islamic schools known as madrasa s have been of increasing interest to analysts and to officials involved in formulating U.S. foreign policy toward the Middle East, Central Asia, and Southeast Asia. Madrasas drew added attention when it became known that several Taliban leaders and Al Qaeda members had developed radical political views at madrasas in Pakistan, some of which allegedly were built and partially financed by donors in the Persian Gulf states. These revelations have led to accusations that madrasas promote Islamic extremism and militancy, and are a recruiting ground for terrorism. Others maintain that most of these religious schools have been blamed unfairly for fostering anti-U.S. sentiments and argue that madrasas play an important role in countries where millions of Muslims live in poverty and state educational infrastructure is in decay. The Arabic word madrasa (plural: madaris ) generally has two meanings: (1) in its more common literal and colloquial usage, it simply means "school"; (2) in its secondary meaning, a madrasa is an educational institution offering instruction in Islamic subjects including, but not limited to, the Quran, the sayings ( hadith ) of the Prophet Muhammad, jurisprudence ( fiqh ), and law. Historically, madrasas were distinguished as institutions of higher studies and existed in contrast to more rudimentary schools called kuttab that taught only the Quran. Recently, "madrasa" has been used as a catchall by many Western observers to denote any school—primary, secondary, or advanced—that promotes an Islamic-based curriculum. In many countries, including Egypt and Lebanon, madrasa refers to any educational institution (state-sponsored, private, secular, or religious). In Pakistan and Bangladesh, madrasa commonly refers to Islamic religious schools. This can be a significant semantic marker, because an analysis of "madrasa reform" could have different implications within various cultural, political, and geographic contexts. Unless otherwise noted in this paper, the term madrasa refers to Islamic religious schools at the primary and secondary levels. As an institution of learning, the madrasa is centuries old. One of the first established madrasas, called the Nizamiyah , was built in Baghdad during the eleventh century A.D. Offering food, lodging, and a free education, madrasas spread rapidly throughout the Muslim world, and although their curricula varied from place to place, it was always religious in character because these schools ultimately were intended to prepare future Islamic religious scholars ( ulama ) for their work. In emphasizing classical traditions in Arabic linguistics, teachers lectured and students learned through rote memorization. During the nineteenth and early twentieth centuries, in the era of Western colonial rule, secular institutions came to supersede religious schools in importance throughout the Islamic world. However, madrasas were revitalized in the 1970s with the rising interest in religious studies and Islamist politics in countries such as Iran and Pakistan. In the 1980s, madrasas in Afghanistan and Pakistan were allegedly boosted by an increase in financial support from the United States, European governments, Saudi Arabia, and other Persian Gulf states all of whom reportedly viewed these schools as recruiting grounds for anti-Soviet mujahedin fighters. In the early 1990s, the Taliban movement was formed by Afghan Islamic clerics and students ( talib means "student" in Arabic), many of whom were former mujahedin who had studied and trained in madrasas and who advocated a strict form of Islam similar to the Wahhabism practiced in Saudi Arabia and other Gulf countries. Madrasas, in most Muslim countries today, exist as part of a broader educational infrastructure. The private educational sector provides what is considered to be a quality Western-style education for those students who can afford high tuition costs. Because of their relatively lower costs, many people turn to state schools, where they exist. However, in recent years and in more impoverished nations, the rising costs and shortages of public educational institutions have encouraged parents to send their children to madrasas. Supporters of a state educational system have argued that the improvement of existing schools or the building of new ones could offer a viable alternative to religious-based madrasas. Others maintain that reforms should be institutionalized primarily within Islamic madrasas in order to ensure a well-rounded curriculum at these popular institutions. The U.S. Agency for International Development's (USAID) 2003 strategy paper Strengthening Education in the Muslim World advocates both of these viewpoints. Although some madrasas teach secular subjects, in general madrasas offer a religious-based curriculum, focusing on the Quran and Islamic texts. Beyond instruction in basic religious tenets, some argue that a small group of radicalized madrasas, specifically located near the Afghanistan-Pakistan border, promote a militant form of Islam and teach their Muslim students to fight nonbelievers and stand against what they see as the moral depravity of the West. Other observers suggest that these schools are wholly unconcerned with religious scholarship and focused solely on teaching violence. The 2003 USAID strategy paper described links between madrasas and extremist Islamic groups as "rare but worrisome," but also added that "access to quality education alone cannot dissuade all vulnerable youth from joining terrorist groups." Other concerns surround more moderate ("quietist") schools, in which students may be instructed to reject "immoral" and "materialistic" Western culture. The static curricula and dated pedagogical techniques, such as rote memorization, used in many quietist schools may also produce individuals who are neither skilled nor prepared for the modern workforce. Defenders of the madrasa system view its traditional pedagogical approach as a way to preserve an authentic Islamic heritage. Because most madrasa graduates have access only to a limited type of education, they commonly are employed in the religious sector as prayer leaders and Islamic scholars. Authorities in various countries are considering proposals for introducing improved science and math content into madrasas' curricula, while preserving the religious character of madrasa education. Madrasas offer a free education, room, and board to their students, and thus they appeal to impoverished families and individuals. On the whole, these religious schools are supported by private donations from Muslim believers through a process of alms-giving known in Arabic as zakat . The practice of zakat—one of the five pillars of the Islamic faith—prescribes that a fixed proportion of one's income be given to specified charitable causes, and traditionally a portion of zakat has endowed religious education. Almost all madrasas are intended for educating boys, although there are a small number of madrasas for girls. In recent years, worldwide attention has focused on the dissemination of donations to Islamic charities and the export of conservative religious educational curricula by governments and citizens in the Persian Gulf. Concern has been expressed over the spread of radical Islam through schools, universities, and mosques that have received donations and curricular material from Persian Gulf governments, organizations, and citizens. These institutions exist around the world, including South, Central, and Southeast Asia, the Middle East and North Africa, sub-Saharan Africa, western Europe, and the United States. Some view the teaching of religious curricula informed by Islamic traditions common in the Gulf as threatening the existence of more moderate beliefs and practices in other parts of the Muslim world. However, some argue that a differentiation should be made between funding to support charitable projects, such as madrasa-building, and funding that has been channeled, overtly or implicitly, to support extremist teachings in these madrasas. Critics of Gulf states' policies have alleged that Persian Gulf governments long permitted or encouraged fund raising by charitable Islamic groups and foundations linked to Al Qaeda. Several Gulf states have strengthened controls on the activities of charities engaged in overseas activities, including madrasa building and administration. Several Islamic charitable organizations based in Gulf states continue to provide assistance to educational projects across the Muslim world, and channels of responsibility between donors and recipients for curricular development and educational control are often unresolved or unclear. Hosting over 12,000 madrasas, Pakistan's religious and public educational infrastructure are of ongoing concern in the United States. In an economy that is marked by extreme poverty and underdevelopment, costs associated with Pakistan's cash-strapped public education system have led some Pakistanis to turn to madrasas for free education, room, and board. Others favor religious education for some of their children, whose siblings may be encouraged to pursue other professions. Links between Pakistani madrasas and the ousted Afghan Taliban regime, as well as alleged connections between some madrasas and Al Qaeda, have led some observers to consider the reform of Pakistan's madrasa system as an important counterterrorism tool and a means of helping to stabilize the Afghan government. In recommending increased U.S. attention to "actual or potential terrorist sanctuaries," the 9/11 Commission's final report singled out "poor education" in Pakistan as "a particular concern," citing reports that some madrasas "have been used as incubators for violent extremism." In September 2006, Afghan president Hamid Karzai called on Pakistan to do more to prevent the use of madrasas by extremists and terrorists. These reports received new and more urgent attention following reports that one of the four suicide bombers that carried out the July 2005 terrorist attacks on the London transportation system had spent time at a Pakistani madrasa with alleged links to extremists. In response, Pakistani authorities renewed plans to require all madrasas to register with the government and provide an account of their financing sources. The government had previously offered incentives to madrasas that agreed to comply with registration procedures, including better training, salaries, and supplies. Madrasa leaders reportedly agreed to the registration and financial accounting requirements in September 2005, but succeeded in preserving an anonymity provision for their donors. As of January 2007, over 12,000 of Pakistan's estimated 13,000 madrasas had registered with authorities. In a more controversial step, the Pakistani government also demanded that madrasas expel all of their foreign students by December 31, 2005. Of an estimated 1,700 foreign madrasa students, 1,000 had reportedly left Pakistan by January 1, 2006. In August 2006, Pakistani authorities announced their intent to deport some of the remaining 700 foreign students if they did not obtain permission to remain in Pakistan from their home governments: the visas of those with permission reportedly were extended. Some nationalist and Islamist groups have resisted the government's enforcement efforts, and authorities have made statements indicating that they do not plan to use force or shut down noncompliant madrasas in order to enforce the directives. An air-strike on a madrasa near the border with Afghanistan in the Bajaur tribal region killed 80 reported militants on October 30, 2006, and sparked massive protests across Pakistan. In July 2007, Pakistani security forces raided a girls madrasa related to the conservative Red Mosque after individuals affiliated with the facilities refused government orders to stop vigilante enforcement of religious social codes. Over 100 people were reportedly killed in related clashes. In September 2007, the U.S. Department of State reported in its annual religious freedom report that "in recent years many [Pakistani] madrasas have taught extremist doctrine in support of terrorism." The report identified "unregistered and Deobandi-controlled madrasas in the Federally Administered Tribal Areas (FATA) and northern Balochistan" and "Dawa schools run by Jamat-ud-Dawa" as being involved with teaching extremism or supporting terrorist organizations. Currently, the popularity of madrasas is rising in parts of Southeast Asia. For example in Indonesia, home to the largest number of Muslims in the world, almost 20%-25% of primary and secondary school children attend pesantren s (Islamic religious schools). Indonesian pesantrens have been noted for teaching a moderate form of Islam, one that encompasses Islamic mysticism or Sufism. Authorities in Bangladesh have expressed concern about the use of madrasas by a network of Islamist activists being investigated in connection with a number of attempted and successful bombing attacks across the country. A number of madrasa students were detained in connection with the investigations. Executive agencies and Congress have shown increasing interest in improving U.S. outreach and addressing educational challenges in the Muslim world in the aftermath of the September 11 terrorist attacks. The Final Report of the National Commission on Terrorist Attacks upon the United States (the "9/11 Commission") addressed education issues in the Islamic world in the context of its recommendations to identify and prioritize actual or possible terrorist sanctuaries and prevent the continued growth of Islamist terrorism. Relevant sections of the Intelligence Reform and Terrorism Prevention Act ( P.L. 108 - 458 , December 17, 2004) address many of the concerns reflected in the 9/11 Commission's final report regarding the improvement of educational opportunity in the Islamic world. Section 7114 of the act authorizes the President to establish an International Youth Opportunity Fund to improve public education in the Middle East. Examples of action taken to effect educational changes in Islamic countries include USAID's September 2002 commitment of $100 million over five years for general education reform in Pakistan. The Administration requested $259.664 million in FY2008 foreign operations funding to support ongoing education assistance programs in a number of Middle Eastern countries, including Egypt, Yemen, Jordan, Iraq, Lebanon, and Morocco. The Administration requested $118.670 million for similar programs in South and Central Asia, including programs in Afghanistan, Pakistan, and Bangladesh. In the 110 th Congress, Title XX of P.L. 110 - 53 , the Implementing the 9/11 Commission Recommendations Act of 2007 (signed August 3, 2007), amends and re-authorizes appropriations for an International Muslim Youth Opportunity Fund originally authorized by Section 7114 of P.L. 108 - 458 . The law also requires the Administration to submit an annual report to Congress on the efforts of Arab and predominantly Muslim countries to increase the availability of modern basic education and to close educational institutions that promote religious extremism and terrorism. A separate report is required on U.S. education assistance and the status of efforts to create the authorized Fund. | Since the terrorist attacks on September 11, 2001, the Islamic religious schools known as madrasas (or madrassahs) in the Middle East, Central, and Southeast Asia have been of increasing interest to U.S. policy makers. Some allege ties between madrasas and terrorist organizations, such as Al Qaeda, and assert that these religious schools promote Islamic extremism and militancy. Others maintain that most madrasas have been blamed unfairly for fostering anti-Americanism and for producing terrorists. This report provides an overview of madrasas, their role in the Muslim world, and issues related to their alleged links to terrorism. The report also addresses the findings of the National Commission on Terrorist Attacks Upon the United States (the "9/11 Commission") and issues relevant to the second session of the 110th Congress. Related products include CRS Report RS22009, Education Reform in Pakistan, by [author name scrubbed], CRS Report RL33533, Saudi Arabia: Background and U.S. Relations, by [author name scrubbed], CRS Report RL32499, Saudi Arabia: Terrorist Financing Issues, by [author name scrubbed], CRS Report RS21695, The Islamic Traditions of Wahhabism and Salafiyya, by [author name scrubbed], CRS Report RS21457, The Middle East Partnership Initiative: An Overview, by [author name scrubbed], and CRS Report RL32259, Terrorism in South Asia, by [author name scrubbed] and [author name scrubbed]. This report will be updated periodically. |
Head Start, a federal program that has provided comprehensive early childhood development services to low-income children since 1965, was last reauthorized in 1998 for fiscal years 1999-2003. The program has remained alive in subsequent years through the annual appropriations process. After unsuccessful efforts by the 108 th and 109 th Congresses to complete the reauthorization process, the 110 th Congress has undertaken the task. The House and Senate have each passed its own version of a reauthorization bill, the Senate version adopting the House bill's number ( H.R. 1429 ) and representing only a slightly modified version of the bill reported by the Senate Health, Education, Labor, and Pensions Committee ( S. 556 ). On November 9, 2007, House and Senate conferees filed a conference report ( H.Rept. 110-439 ). This report does not yet reflect the provisions contained in that agreement. The Improving Head Start Act of 2007 ( H.R. 1429 ) was introduced by Representative Kildee on March 9, 2007. The following week, the House Committee on Education and Labor debated, amended, and approved the bill (42-1), and the committee's written report accompanying the legislation ( H.Rept. 110-67 ) was filed on March 23, 2007. That bill was taken to the House floor on May 2, and was approved (with nine amendments) by a vote of 365-48. Twelve amendments in total were offered on the floor, in addition to a motion to recommit (which was rejected). The Head Start for School Readiness Act ( S. 556 ) was introduced by Senator Kennedy on February 12, 2007, and approved via voice vote by the Senate Committee on Health, Education, Labor, and Pensions (HELP) on February 14. The Chairman's amended version of the bill was subsequently reported on March 29, 2007; a written report ( S.Rept. 110-49 ) was filed April 10, 2007. On June 19, the Senate passed (by voice vote under a unanimous consent agreement) its bill, adopting the bill number of the reauthorization bill that passed the House ( H.R. 1429 ), but substituting its own committee-reported bill language of S. 556 (with a few technical changes). Both reauthorization bills propose to amend Head Start with the purpose of improving the program's ability to promote low-income children's school readiness by supporting their cognitive, social, emotional, and physical development. The means for doing so encompass a wide range of provisions, covering issues of program funding, administration, eligibility, accountability, quality, governance, and coordination. Below is an overview of broad areas addressed in the proposed legislation, followed by Table 1 , a detailed side-by-side comparison of each bill's provisions with current law (and, where relevant, current regulations). The areas listed below are not intended to encompass every provision included in each of the respective bills, but rather major areas addressed. The table does not reflect the provisions agreed to in conference. Despite the expiration of authorizing language, the Head Start program has continued to receive its funding through the annual appropriations process, most recently (FY2007) at a level of almost $6.9 billion. From FY1995-FY2003, the Head Start Act authorized funding Head Start at an unspecified dollar amount—"such sums as may be necessary." The reauthorization bills propose to increase funding for Head Start, with both bills designating a dollar amount ($7.350 billion) for FY2008. After FY2008, the House version of H.R. 1429 would authorize "such sums as may be necessary" for each of the remaining four years covered by the legislation, whereas the Senate version includes specific increases for FY2009 and FY2010, before once again mirroring the House bill with unspecified amounts for FY2011 and FY2012. Both bills propose changes with respect to the allocation of appropriated funds. Within the 13% currently reserved from the total appropriation for a variety of purposes, both bills introduce a greater level of specificity, assigning designated percentages (of the total appropriation) for allotments to Indian and Migrant Head Start programs. In the case of both bills, the percentages proposed reflect increases above the portion currently received (and not set in statute). The allocation formula for determining state allotments is changed in both bills to update the "hold harmless," or base amounts assured for the states. Appropriated funds available to states after allotting the hold harmless amounts would be distributed differently by the two bills. The House bill would continue to allot remaining funds based on states' relative shares of poor children under age 5, while the Senate bill introduces a new provision in which a portion of the remaining funds would be allocated based on the percentage of eligible children served by grantees within the state. Program quality is also addressed by the funding allocation provisions. The proposed legislation would maintain current law's practice of reserving a designated percentage of the aforementioned remainder funds for "quality improvement," with both bills proposing greater percentages for this purpose than under current law. Both bills elaborate on the uses of quality improvement funds. Both bills would increase the percentage of the total appropriation reserved for funding Early Head Start programs, with a caveat that these percentages may only be reached provided appropriation levels suffice. To compare the specifics of these and other funding-related provisions, see the portions of Table 1 that refer to Sections 639 and 640 of current law. Provisions designed to address issues of accountability take several forms. Both bills target accountability with respect to fiscal and program management, as well as accountability with respect to Head Start children's outcomes. Under both the House bill and Senate bill, agencies would be designated as a grantee for no more than five years at a time, after which recompetition may be required. (Under current law, grantees do not have to recompete for funds.) Only the House version would establish an application review system to be used during this process; however, both bills establish means for determining what constitutes a "high-performing" grantee, and those agencies not meeting the standard would be faced with recompetition. In order to be considered a high performing grantee under either bill, Head Start agencies would need to demonstrate competent financial management, as well as the ability to deliver a program high in quality, developmentally appropriate, and based on scientifically-based research and measures. Both bills add new language to current law, requiring programs' governing bodies to include individuals with expertise in fiscal matters. Both bills would introduce detailed definitions of "deficiency" into statute, along with provisions to help ensure that funding for any grantees or delegates unable or unwilling to correct deficiencies be suspended or terminated as necessary. As reflected in Table 1 , particularly within Sec. 641A, the two proposals often expand on current regulations with respect to corrective actions. Both bills emphasize the use of scientifically-based early childhood research as a basis for formulating educational measures for children and developing appropriate curricula that will lead to positive outcomes. Likewise, both would suspend use of the National Reporting System (NRS) in its current form, pending further review and recommendations from a National Academy of Sciences panel. The importance of effective and reliable screening and assessments in the Head Start program is stressed by both bills, accompanied by an emphasis on the value of ensuring that the tools used for screening and assessment be scientifically sound, based on the most up-to-date research in the field. Current law emphasizes shared governance and parent involvement within Head Start programs in general terms, leaving the details to regulation. Both versions of H.R. 1429 would introduce into statute more detailed provisions regarding program governance, clearly outlining the composition and responsibilities of both the governing bodies and the policy councils. The reports accompanying the legislation emphasize the committees' intent that a commitment be made to maintaining the structure of shared governance (between governing bodies and policy councils), with clear language that the governing bodies hold legal and fiscal accountability. The responsibilities of policy councils are stated in both bills, but using different language; both bills are more specific than current regulations. As in current regulations, both bills make reference to the need for an impasse policy or means for dealing with internal disputes, in the event that a governing body disagrees with recommendations from the policy council. As noted in Table 1 , within the two bills, the provisions related to program governance do not amend the same section of current law. Section 8 of the House version of H.R. 1429 includes the provisions stating the required composition, role and responsibilities of the governing bodies and councils as part of amendments to Sec. 642, whereas the Senate bill includes its program governance requirements (including composition, roles, and responsibilities) in Section 7, the portion of the bill that amends Sec. 641 of current law. Provisions that aim to improve the quality of Head Start programs (through a variety of means) permeate both reauthorization bills. Some of these provisions, already alluded to, relate to allocation of funds for quality and technical assistance and training, designating agencies, and developing standards and measures. In addition, both proposed bills would amend Sec. 648A of current law to increase staff qualifications for Head Start teachers (but with different requirements). Accompanying report language makes clear both committees' view that teacher quality is essential to early childhood program quality. Professional development is promoted in both bills, as are efforts to enhance services for children with limited English proficiency. Included in the Senate bill is a newly proposed section (641B) to the Head Start Act, which would provide for the establishment of a program under which the Secretary of Health and Human Services (HHS) would designate up to 200 exemplary Head Start agencies as "Centers of Excellence in Early Childhood." These agencies would receive (pending appropriation of funds) bonus grants of at least $200,000 per year. Like regularly designated grantees, the Centers of Excellence bonus grants would be designated for up to five years at a time. In addition to provisions aimed at improving the quality and accountability of Head Start programs, both bills would amend current law to foster even greater program coordination between Head Start and other early childhood programs, including state prekindergartens. Program coordination includes providing for alignment of Head Start goals and expectations with those schools into which Head Start children will later enroll. Coordination is also to be enhanced by bolstering state and local relationships with Head Start. The House version of H.R. 1429 proposes a new section, 642B, specifically outlining the partnerships that Head Start agencies are to enter into with local education agencies, including a description of the memorandum of understanding that each Head Start agency would negotiate with the local entities. Under both bills, collaboration grants are described in greater detail, and the state's role in collaboration is bolstered through involvement of an Early Learning Council (under the House bill) or a State Advisory Council (under the Senate bill). Under current law, all children from families with income under 100% of the poverty line are eligible for Head Start. Regulations state that at least 90% of children enrolled in each program must fit this criterion, allowing for 10% to be over-income. Both bills would allow for expansion of eligibility up to 130% of the poverty line, with the House version of H.R. 1429 specifying that no more than 20% of children served by a Head Start program be above the poverty line. In the case of both bills, the intent is that programs seek to serve children under 100% of poverty before serving those from families with higher incomes. Homeless children would also be deemed categorically eligible under both bills. Both bills address the issue of how to confront situations of under-enrollment in Head Start programs, recognizing that the cause of these situations may differ from program to program, sometimes reflecting a program weakness while in other cases demographic changes in the community. Another provision reflecting both committees' desire for greater flexibility with respect to participation and serving the needs of communities is one that allows for regular funds to be used for serving Early Head Start infants and toddlers. Doing so requires approval of a written application under both bills, but the possibility for this expansion of services would be written into law. Table 1 provides a detailed comparison of the House- and Senate-passed versions of H.R. 1429 , and current law. Where applicable, current regulations are included to show whether changes proposed in the reauthorization bills would reflect practical changes to the program. As stated earlier, the table does not include provisions agreed to in the conference report ( H.Rept. 110-439 ) filed on November 9, 2007. The table is structured in the order of current law's sections. In cases where bills address the same or similar provisions by amending different sections of current law, that has been noted in the table. The table also notes if a provision was added as an amendment during House floor debate. | Head Start, a federal program that has provided comprehensive early childhood development services to low-income children since 1965, was last reauthorized in 1998 for fiscal years 1999-2003. The program has remained funded in subsequent years through the annual appropriations process. After unsuccessful efforts by the past two Congresses to complete the reauthorization process, efforts to do so are underway in the 110th Congress. The House and Senate have each passed their own version of a reauthorization bill (H.R. 1429), and on November 9, 2007, conferees filed a conference report (H.Rept. 110-439). This report does not yet reflect the provisions included in the conference agreement. The Improving Head Start Act of 2007 (H.R. 1429) was introduced by Representative Kildee on March 9, 2007. The following week, the House Committee on Education and Labor debated, amended, and approved the bill (42-1), and the committee's written report accompanying the legislation (H.Rept. 110-67) was filed on March 23, 2007. That bill was taken to the House floor on May 2, and was approved (with nine amendments) by a vote of 365-48. The Head Start for School Readiness Act (S. 556) was introduced by Senator Kennedy on February 12, 2007, and approved via voice vote by the Senate Committee on Health, Education, Labor, and Pensions (HELP) on February 14. The Chairman's amended version of the bill was subsequently reported on March 29, 2007, with a written report (S.Rept. 110-49) filed April 10, 2007. On June 19, under unanimous consent, the full Senate passed the committee's bill, with a few technical changes, under the House bill number (H.R. 1429). Both reauthorization bills amend Head Start with the goal of improving the program's ability to promote low-income children's school readiness by supporting their cognitive, social, emotional, and physical development. The means for doing so encompass a wide range of provisions, covering issues of program funding, administration, eligibility, accountability, quality, governance, and coordination. Authorization levels for funding would be increased above current funding amounts by both bills, and eligibility would be expanded to allow for serving children up to 130% of the poverty line. Both bills include provisions that would increase competition for Head Start grants, by limiting the period for which a grantee may receive grant funds to five years, before recompetition may be required. Other similarities include increasing the percentage of the appropriation to be reserved for Early Head Start; emphasizing coordination and collaboration with other state and local early childhood programs; increasing staff qualifications; specifying requirements of shared governance principles in statute; and suspending use of the National Reporting System. Although the overall areas addressed by the two reauthorization bills are similar, a side-by-side comparison of provisions, alongside current law, reveals notable differences in detail. The table does not reflect the provisions agreed to in conference. |
T he 115 th Congress has passed legislation that substantially changes the U.S. federal tax system ( H.R. 1 ). This legislation builds on the September 27, 2017, "Unified Framework for Fixing our Broken Tax Code." This framework was intended to guide the tax writing committees' development of tax legislation. The issue of tax reform is not new in the 115 th Congress. The tax code has long been criticized for being overly complicated, unfair, and inefficient. Early in 2005, for example, President George W. Bush announced the establishment of a bipartisan panel to provide options to make the tax code "simpler, fairer, and more pro-growth." Tax reform was also considered in the context of deficit reduction in 2010. President Barack Obama created the National Commission on Fiscal Responsibility and Reform in 2010 to address the deficit and national debt. In December 2010, the Fiscal Commission released its final report, "A Moment of Truth," which included base-broadening, rate-reducing, revenue-raising tax reform as part of a broader fiscal reform package. During the 112 th and 113 th Congress, then-Chairman of the Ways and Means Committee, Dave Camp, released a series of tax reform discussion drafts, which ultimately became the Tax Reform Act of 2014. This proposal, which was intended to "fix America's broken tax code by lowering tax rates and making the code simpler and fairer for families and job creators" in a revenue-neutral manner was later introduced as H.R. 1 . No further legislative action was taken. The purpose of this report is to provide an overview of the federal tax system, including the individual income tax, corporate income tax, payroll taxes, estate and gift taxes, and federal excise taxes, as in effect through 2017. The federal income tax system has several components. The largest component, in terms of revenue generated, is the individual income tax. In fiscal year (FY) 2016, $1.5 trillion, or 47% of the federal government's revenue, came from the individual income tax. The corporate income tax generated another $300 billion in revenue in FY2016, or 9% of total revenue. Social insurance or payroll taxes generated $1.1 trillion, or 34% of revenue in FY2016. The remainder of federal revenue was collected through excise taxes (3%) or other sources (6%). The individual income tax is the largest source of revenue in the federal income tax system. Most of the income reported on individual income tax returns is wages and salaries (68% in 2014). However, a large portion of business income in the United States is also taxed in the individual income tax system. Pass-through businesses, including sole proprietorships, partnerships, S corporations, and limited liability companies, generally pass business income through to the business's owners, where that income is then taxed under the individual income tax system. To levy an income tax, income must first be defined. As a benchmark, economists often turn to the Haig-Simons comprehensive income definitions which can differ from the measure of income used in computing a taxpayer's taxes. Under the Haig-Simons definition, taxable resources are defined as changes in a taxpayer's ability to consume during the tax year. Using this definition of income, an employer's contributions toward employee health insurance would be counted toward the employee's income. This income, however, is not included in the employee's taxable income under current tax law. In practice, the individual income tax is based on gross income individuals accrue from a variety of sources. Included in the individual income tax base are wages, salaries, tips, taxable interest and dividend income, business and farm income, realized net capital gains, income from rents, royalties, trusts, estates, partnerships, taxable pension and annuity income, and alimony received. Gross income, for tax purposes, excludes certain items which may deviate from the Haig-Simmons definition of income. For example, employer-provided health insurance, pension contributions, and certain other employee benefits are excluded from income subject to tax. Employer contributions to Social Security are also excluded from wages. Amounts received under life insurance contracts are excluded from income. Another exclusion from income is the interest received on certain state and local bonds. There are special rules for income earned as capital gains or dividends. Capital gains (or losses) are realized when assets are sold. The tax base excludes unrealized capital gains. There are reduced tax rates for certain capital gains and dividends (discussed below in the " Tax Rates " section). As with ordinary income, there may be exclusions. For example, certain capital gains on sales of primary residences are excluded from income. Income from operating a business through a proprietorship, partnership, or small business corporation that elects to be treated similarly to a partnership (Subchapter S corporation), or through rental property is also subject to the individual income tax. This income is the net of gross receipts reduced by such deductible costs as payments to labor, depreciation, costs of goods acquired for resale and other inputs, interest, and taxes. A taxpayer's adjusted gross income (AGI), the basic measure of income under the federal income tax, is determined by subtracting "above the line" deductions from gross income. Above-the-line deductions are available to taxpayers regardless of whether they itemize deductions, or claim the standard deduction. Above-the-line deductions may include contributions to qualified retirement plans by self-employed individuals, contributions to individual retirement accounts (IRAs), moving expenses, interest paid on student loans and higher education expenses, contributions to health savings accounts, and alimony payments. Tax liability depends on the filing status of the taxpayer. There are four main filing categories: married filing jointly, married filing separately, head of household, and single individual. The computation of taxpayers' tax liability depends on their filing status, as discussed further below. The amounts of the personal exemption and standard deduction also depend on filing status. Taxpayers have a choice between claiming the standard deduction or claiming the sum of their itemized deductions. The standard deduction amount depends on filing status. The 2017 standard deduction for single filers is $6,350, while the standard deduction for married taxpayers filing jointly is twice that amount, or $12,700 (see Table 1 ). There is an additional standard deduction for the elderly (taxpayers age 65 and older) and the blind. The standard deduction amount is indexed for inflation. After AGI is computed, personal exemptions and deductions are subtracted, further reducing the tax base. Exemptions are allowed for the taxpayer, the taxpayer's spouse, and each of the taxpayer's dependents. In 2017, the exemption amount per person is $4,050 ( Table 1 ). The exemption amount is indexed for inflation. The personal exemption is phased out for higher-income taxpayers. In 2017, the personal exemption phaseout (PEP) begins when a taxpayer's AGI exceeds $261,500 (for those filing as singles), $287,650 (for those filing as head of household), or $313,800 (for married individuals filing jointly). These threshold amounts are adjusted for inflation. The personal exemption phaseout reduces a taxpayer's personal exemption by 2% for each $2,500 in AGI above the phaseout threshold for married filers filing jointly ($1,250 for single filers). Taxpayers also have the option of itemizing deductions. Deductions that can be itemized include deductions for state and local taxes (income taxes, sales taxes, and personal property taxes, sometimes referred to as SALT), the mortgage interest deduction, the deduction for charitable contributions, and the deduction for real property taxes. Some deductions can only be itemized and claimed in excess of a floor. For example, medical expenses can be deducted to the extent they exceed 10% of AGI. Casualty and theft losses can also be deducted in excess of 10% of AGI. Other miscellaneous expenses can be deducted in excess of 2% of AGI. Itemized deductions are subject to limitation above certain income thresholds (this limitation is known as the Pease limitation). This limitation reduces the amount of itemized deductions that can be claimed by 3% of the amount of certain thresholds. In 2017 these thresholds are AGI above $261,500 for single filers, $287,650 for head of household filers, $313,800 for married taxpayers filing jointly, and $156,900 for married taxpayers filing separately. These threshold amounts are adjusted for inflation. The total reduction in itemized deductions cannot be greater than 80% of total deductions (the taxpayer may also elect to claim the standard deduction). Certain deductions are not subject to the Pease limitation, including the deductions for medical expenses and casualty and theft losses. The income tax system is designed to be progressive, with marginal tax rates increasing as income increases. At a particular marginal tax rate, all individuals subject to the regular income tax, regardless of their overall level of earnings, pay the same tax rate on taxable income within the bracket. Once taxpayers' incomes surpass a threshold level, placing them in a higher marginal tax bracket, the higher marginal tax rate is only applied on income that exceeds that threshold value. Currently, the individual income tax system has seven marginal income tax rates: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. These marginal income tax rates are applied to taxable income to arrive at a taxpayer's gross income tax liability. Threshold levels associated with the rate brackets depend on filing status. Tax rates for 2017 are summarized in Table 2 . As was noted above, income earned from long-term capital gains and qualified dividends is taxed at lower rates. The maximum rate on long-term capital gains and qualified dividends is 20%. This 20% rate applies to taxpayers in the 39.6% bracket. Taxpayers in the 25%, 28%, 33%, and 35% tax brackets face a 15% tax rate on long-term capital gains and qualified dividends. The tax rate on capital gains and qualified dividends is 0% for taxpayers in the 10% and 15% tax brackets. Higher-income individuals with a high ratio of exemptions and deductions to income may be subject to the alternative minimum tax (AMT). There are two marginal tax rates under the AMT, 26% and 28%, that are applied to an expanded base. The AMT is discussed in further detail below. Few taxpayers file returns that are taxed at the top statutory tax rate (see Figure 3 and the related discussion). However, while less than 1% of returns filed are in the 39.6% tax bracket, nearly 16% of AGI was reported on returns that fell in the 39.6% bracket. Certain higher-income individuals may be subject to an additional 3.8% tax on net investment income. Specifically, the tax applies to the lesser of (1) net investment income, or (2) the amount by which modified AGI exceeds fixed threshold amounts. The fixed threshold amounts are $250,000 for taxpayers filing jointly and $200,000 for other filers. The net investment income tax increases the maximum tax rate on capital gains and dividends to 23.8% for affected taxpayers. The maximum rate on other investment income, including interest, annuities, royalties, and rent is 43.4% for taxpayers with modified AGI above the threshold. After a taxpayer's tax liability has been calculated, tax credits are subtracted from gross tax liability to arrive at a final tax liability (see Figure 4 ). Tax credits offset tax liability on a dollar-for-dollar basis. There are two different types of tax credits: refundable and nonrefundable. If a tax credit is refundable, and the credit amount exceeds tax liability, a taxpayer receives the credit (or a portion of the credit) as a refund. If credits are not refundable, then the credit is limited to the amount of tax liability. In some cases, unused credits can be carried forward to offset tax liability in future tax years. Some credits are phased out as income rises to limit or eliminate benefits for higher-income taxpayers. Tax credits that are refundable or have a refundable portion include the earned income tax credit (EITC) and the child tax credit (CTC). A nonrefundable tax credit can be claimed for child and dependent care expenses. There are also tax credits for other purposes, such as education and health care. The American Opportunity Tax Credit (AOTC), for example, provides a partially refundable tax credit for tuition and other related expenses. Given the complexities of the tax code, effective marginal tax rates differ from statutory marginal tax rates for many taxpayers. For example, the earned income tax credit (EITC) phases in as income increases, reducing a taxpayer's marginal tax rate. At higher income levels, as the credit phases out, the taxpayer faces a higher marginal tax rate during that phaseout range. Thus, effective marginal tax rates can be less than or greater than statutory rates. Individuals may also pay tax under the alternative minimum tax (AMT). The AMT applies lower tax rates to a broader income base. The policy goal is to prevent certain higher-income taxpayers from using tax preferences to avoid paying anything in taxes. Under current law, to calculate the AMT, an individual first adds back various tax items, including personal exemptions and certain itemized deductions, to regular taxable income. This grossed up amount becomes the income base for the AMT. The AMT exemption is subtracted from the AMT's income base. For 2017, the AMT exemption is $54,300 for single returns, and $84,500 for married taxpayers filing a joint return. These exemption amounts are indexed for inflation. The AMT exemption is reduced by 25% of the amount by which a taxpayer's AMT taxable income exceeds certain threshold amounts. In 2017, the AMT exemption amount begins to phase out at $120,700 for single filers, or $160,900 for married couples filing jointly. A two-tiered rate structure of 26% and 28% is assessed against AMT taxable income. The taxpayer compares his AMT tax liability to his regular tax liability and pays the greater of the two. Most nonrefundable personal tax credits are allowed against the AMT. Under current law, less than 4% of all tax filers pay the AMT. Higher-income taxpayers are more likely to be subject to the AMT (for 2017, the Tax Policy Center estimates that 63% of tax units with income between $500,000 and $1 million will pay the AMT, and 20% of taxpayers with income of more than $1 million pay the AMT). Taxpayers with more children, and married taxpayers, are also more likely to pay the AMT. The corporate income tax generally only applies to C corporations (also known as regular corporations). These corporations—named for Subchapter C of the Internal Revenue Code (IRC), which details their tax treatment—are generally treated as taxable entities separate from their shareholders. That is, corporate income is taxed once at the corporate level according to the corporate income tax system. When corporate dividend payments are made or capital gains are realized income is taxed again at the individual-shareholder level according to the individual tax system (discussed above). In contrast, non-corporate businesses, including S corporations and partnerships, pass their income through to owners who pay taxes. Collectively, these non-corporate business entities are referred to as pass-throughs. For these types of entities, business income is taxed only once, at individual income tax rates. The corporate income tax is designed as a tax on corporate profits (also known as net income). Broadly defined, corporate profit is total income minus the cost associated with generating that income. Business expenses that may be deducted from income include employee compensation; the decline in value of machines, equipment, and structures (i.e., deprecation); general supplies and materials; advertising; and interest payments. The corporate income tax also allows for a number of other special deductions, credits, and tax preferences that reduce taxes paid by corporations. Oftentimes, these provisions are intended to promote particular policy goals. A corporation's tax liability can be calculated as: Taxes = [(Total Income – Expenses)(1 – p ) × t ] – Tax Credits, where t is the statutory tax rate and p is the Section 199 production activities deduction. The Section 199 deduction effectively lowers the corporate tax rate for those corporations engaged in domestic manufacturing activities. For income not eligible for the Section 199 deduction, p is zero. Some corporations experience net operating losses (NOLs), which occur when total income less expenses is negative. A NOL can be "carried back" of "carried forward." If the firm had taxable income in the prior years and chooses to "carry back" the NOL it may be deducted from up to two prior years' taxable income. The corporation is then eligible for a refund equal to the difference between previously paid taxes and taxes owed after deducting the current year's loss. If the loss is too large to be fully carried back, it may be "carried forward" for up to 20 years and used to reduce future tax liabilities. Most corporate income is subject to a 35% statutory tax rate. Table 3 contains the marginal corporate tax rates faced by U.S. firms. Smaller firms face a progressive tax schedule. To increase the effective tax rate for larger firms, the statutory rate increases above 35% for two brackets: the 39% bracket for income between $100,000 and $335,000 and the 38% bracket for income between $15,000,000 and $18,333,333. Having these "bubble" rates, or higher marginal tax rates along part of the schedule, increases the effective tax rate for higher-income corporations. Essentially, these higher "bubble" brackets serve to reduce any tax savings larger corporations would have incurred from having their first $75,000 in income taxed at lower rates. In broad economic terms, the base of the corporate income tax is the return to equity capital. Wages are tax deductible, so labor's contribution to corporate revenue is excluded from the corporate tax base. Income produced by corporate capital investment includes that produced by corporate investment of borrowed funds, and that produced by investment of equity, or funds provided by stockholders. Profits from debt-financed investment are paid out as interest, which is deductible. Thus, the return to debt capital is excluded from the corporate tax base. Equity investments are financed by retained earnings and the sale of stock. The income equity investment generates is paid out as dividends and the capital gains that accrue as stock increases in value. Neither form of income is generally deductible. Thus, the base of the corporate income tax is largely the return to equity capital. Because of the nature of its base, the corporate income tax has several broad effects on the allocation of capital investment. First, it favors non-corporate investment—for example, unincorporated business and owner-occupied housing—over corporate investment. Second, it favors corporate debt over corporate equity investment since the former is not subject to the tax. However, while the base of the tax is largely equity income, the flow of capital out of the corporate sector and other economic adjustments probably cause the burden of the tax to spread to all owners of capital: owners of unincorporated business, bondholders, and homeowners. Government agencies analyzing the incidence of the corporate tax distribute most of the burden to owners of capital, with a smaller portion falling on labor income. Since owners of capital tend to be in higher income groups, and most of the corporate tax burden falls on capital, the corporate tax is widely viewed as being progressive. The United States has a worldwide (or resident-based) tax system. As a result, U.S. corporations are generally liable for tax on their worldwide income. Under current law, corporations are allowed a credit, known as the foreign tax credit, for taxes paid to other countries. The foreign tax credit may not reduce a corporation's tax liability below zero. Additionally, corporations are not required to pay U.S. tax on overseas income until income is repatriated to the United States. This ability to defer taxes is often known simply as "deferral." Deferral is not an option, however, with "Subpart F" income, which generally includes passive types of income such as interest, dividends, annuities, rents, and royalties. Payroll taxes are used to fund specific programs, largely Social Security and Medicare. Social Security and Medicare taxes are generally paid at a combined rate of 15.3% of wages, with 7.65% being paid by the employee and employer alike. The Social Security part of the tax, or the old age, survivors, and disability insurance (OASDI) tax, is 6.2% for both employees and employers (12.4% in total). In 2017, the tax applies to the first $127,200 in wages. This wage base is adjusted annually for inflation. The Medicare portion of the tax, or the Medicare hospital insurance (HI) tax, is 1.45% for both employees and employers (2.9% in total). There is no wage cap for the HI tax (the Medicare HI tax applies to all wage earnings). Certain higher-income taxpayers may be subject to an additional HI tax of 0.9%. For married taxpayers filing jointly, combined wages above $250,000 are subject to the additional 0.9% HI tax. The threshold for single and head of household filers is $200,000. These threshold amounts are not indexed for inflation. Employers may also be subject to a federal unemployment insurance payroll tax. This tax is 0.6% on the first $7,000 of wages. Federal unemployment insurance payroll taxes are used to pay for the administrative costs of the unemployment insurance (UI) program. State UI taxes generally pay for UI benefits. Most taxpayers pay more in payroll taxes than income taxes. The Tax Policy Center estimates that in 2016, 75% of tax units had positive payroll tax liability (compared to 56% of tax units with positive income tax liability) (this is discussed further in the context of Figure 9 , below). Of units with a positive tax liability (either positive payroll or income tax), 76% paid more in payroll taxes than income taxes. Payroll taxes are also regressive, with higher-income taxpayers paying a smaller share of their income in payroll taxes than lower-income taxpayers. This is a result of two factors. First, the OASDI tax wage cap results in income over that cap not being subject to the tax. Second, payroll taxes only apply to wage income, and non-wage income tends to be concentrated towards the higher end of the income distribution. Upon death, an individual's estate may be subject to tax. The base of the federal estate tax is generally property transferred at death, less allowable deductions and exemptions. An unlimited marital deduction is allowed for property transferred to a surviving spouse. Other allowable deductions include estate administration expenses and charitable bequests. The effective estate tax exemption is $5.49 million for 2017. The value of the estate over the exemption amount is generally taxed at a rate of 40%. The federal gift tax operates alongside the estate tax to prevent individuals from avoiding the estate tax by transferring property to heirs before dying. For 2017, the first $14,000 of gifts from one individual to another is excluded from taxation and does not apply to the lifetime exemption. The gift tax and estate tax are unified in that the same lifetime exemption amount applies to both taxes ($5.49 million in 2017). Being unified, taxable gifts reduce the exemption amount that is available for estate tax purposes. The gift tax rate is 40%, the same as the top rate for the estate tax, for gifts beyond the exemption amount. Few taxpayers pay the estate tax. In 2015, an estimated 11,917 estate tax returns were filed, and 41% (4,918) of those returns were taxable. Estimates suggest that through 2024, each year roughly 0.2% of decedents will face the estate tax. The estate tax is also progressive, up to the very top of the income distribution. For taxpayers in the 95 th to 99 th percentile, the estate tax has been estimated to be 0.2% of cash income in 2016. For taxpayers in the top 1% and top 0.1% of the income distribution, the estate tax has been estimated to be 0.5% of cash income in 2016. Excise taxes are levied on the consumption of goods and services rather than income. Unlike sales taxes, they apply to particular commodities, rather than to broad categories. Historically, the federal government has levied excise taxes, but not a broad-based sales tax, instead leaving sales taxes to the states as a revenue source. Federal excise taxes are levied on a variety of products. The collection point of the tax varies across products. For some goods, taxes are collected at the production level. Other excise taxes are collected on retail sales. In terms of receipts, the single largest tax is the excise tax on gasoline. Other prominent excise taxes are those on diesel and other fuels; trucks, trailers, and tractors; aviation-related taxes and fees; excise taxes on beer, wine, and distilled spirits; taxes on tobacco products; Affordable Care Act (ACA) taxes and fees (e.g., insurance provider fee, medical device excise tax, branded pharmaceuticals fee); and taxes on firearms and ammunition. Most federal excise taxes are paid into federal trust funds devoted to specific federal activities, as opposed to remaining in the federal budget's general fund . In 2016, of the $95 billion in excise tax revenue, approximately 64% supported trust funds, with the remainder being general fund revenue. The largest trust fund is the Highway Trust Fund. Devoted revenue sources include excise taxes on fuels, trucks, and tires. Aviation-related excise taxes support the Airport and Airway Trust Fund, the second largest of the excise-tax-supported trust funds. General fund excise taxes include taxes on alcohol and tobacco and ACA-related excise taxes. Excise taxes can result in consumers paying higher prices for goods and services. Overall, households from the lower part of the income distribution tend to pay a larger share of their income in excise taxes than higher-income households. Thus, taken as a whole, federal excise taxes are generally believed to be regressive. The degree of regressivity can vary for different types of excise taxes. For example, tobacco excise taxes are estimated to be more regressive than aviation-related excise taxes. Federal revenues are derived from several sources and have collectively ranged from roughly one-fifth to one-sixth the size of the economy. Figure 6 displays total federal tax revenues and major sources of federal tax revenue as percentages of gross domestic product (GDP) since 1945. Revenues in 2016 were 17.8% of GDP, slightly above the post-World War II average of 17.3% of GDP. Since the mid-1940s, the individual income tax has been the most important single source of federal revenue (business income may also be taxed under the individual income tax system, as discussed above in " The Individual Income Tax "). Between 2000 and 2010, however, the individual income tax receipts decreased relative to the size of the economy, falling from nearly 10% of GDP in 2000 to just over 6% in 2010. Individual income tax receipts have subsequently increased to 8.4% of GDP in 2016. Over time, the corporate income tax has fallen from the second- to the third-most important source of revenue. In the late 1960s, corporate taxes were replaced by social insurance and retirement taxes as the second-leading revenue source. Excise taxes and estate and gift taxes have also decreased in relative importance over time. The changing shares of federal revenues over time are more clearly shown in Figure 7 . For example, the corporate income tax accounted for roughly 30% of federal revenue in 1946, but less than 10% in 2016. Similarly, excise tax revenue is nearly 3% of federal receipts, down from nearly 18% in 1946. In contrast, receipts for social insurance and retirement taxes have risen post-World War II with the enactment of Social Security and Medicare and are now the second largest source of federal receipts at nearly 35%. The U.S. tax system is generally progressive. As shown in Figure 8 , households in the bottom four quintiles have greater shares of before-tax income than their share of federal taxes paid. In contrast, households in the top quintile received just over half of total before-tax income and paid over two-thirds of federal taxes. This is largely a result of the progressive rate structure of the individual income tax and results in a distribution of after-tax income that is slightly more even than the distribution of before-tax income. While Figure 8 highlights the distribution of the aggregate federal taxes borne by individuals along the income distribution, it does not provide a clear picture of the relative importance of federal taxes to most taxpayers. Figure 9 highlights the relative importance of the two largest categories of taxes (income and payroll) faced by most taxpayers. According to estimates from the Tax Policy Center, 62.3% of taxpayers pay more in payroll taxes than income taxes, while nearly 20% pay more in income taxes than payroll taxes. The remaining 18% who do not pay either tax is split evenly between retirees and those without jobs. How the U.S. tax system compares to those in other countries is a perennial tax policy question. As shown in Figure 10 , total U.S. taxes as a percentage of GDP is below the average for OECD countries. Four countries tend to have lower taxes as a percentage of GDP than the United States, with most others tending to have higher taxes relative to the size of the economy. Note that such a direct comparison can be difficult to interpret, as it does not take into account spending policies or deficit/surplus levels that provide more context. OECD Countries, 1987-2016 Table 4 provides this additional context for the United States and the other major democratic countries in the G-7. Among the G-7 countries, the United States has both the lowest revenue and spending as a percentage of GDP and the second highest deficit level. H.R. 1 includes broad changes to the federal tax system after the 2017 tax year. On the individual side, the act structurally changes the individual income tax system by repealing personal exemptions and increasing the standard deduction. Rates and brackets are modified, as are many individual income tax expenditures. The act also changes how businesses are taxed, with most pass-through business income being effectively taxed at rates that differ from the statutory tax rates under the individual income tax system. Corporations will face a reduced statutory tax rate, with many corporate and business tax expenditures otherwise modified. The act also moves towards a territorial tax system for multinational corporations. This report provides an overview of the federal tax system, as in effect in 2017. Changes to the federal tax system enacted in the 115 th Congress will be addressed in subsequent CRS products. The largest individual income tax expenditures are listed in Table A-1 . In 2016, the sum of individual income tax expenditures was $1.2 trillion. Of this total, $844.2 billion (or 69%) is attributable to the top 10 provisions. The largest corporate income tax expenditures are listed in Table A-2 . In 2016, the sum of corporate tax expenditures was $267.2 billion. Of this total, $222.8 billion (or 83%) is attributable to the top 10 provisions. | The 115th Congress has passed legislation that substantially changes the U.S. federal tax system (H.R. 1). This report describes the federal tax structure, provides some statistics on the tax system as a whole, as of 2017. Historically, the largest component of the federal tax system, in terms of revenue generated, has been the individual income tax. In fiscal year (FY) 2016, $1.5 trillion, or 47% of the federal government's revenue, was collected from the individual income tax. The corporate income tax generated another $300 billion in revenue in FY2016, or 9% of total revenue. Social insurance or payroll taxes generated $1.1 trillion, or 34% of revenue in FY2016. Revenues in 2016 were 17.8% of GDP, slightly above the post-World War II average of 17.3%. The federal individual income tax is levied on an individual's taxable income, which is adjusted gross income (AGI) less deductions and exemptions. Tax rates based on filing status (e.g., married filing jointly, head of household, or single individual) determine the level of tax liability. Tax rates in the United States are generally progressive, such that higher levels of income are typically taxed at higher rates. Once tentative tax liability is calculated, tax credits can be used to reduce tax liability. Tax deductions and tax credits are tools available to policymakers to increase or decrease the after-tax price of undertaking specific activities. Individuals with high levels of exemptions, deductions, and credits relative to income may be required to file under the alternative minimum tax (AMT). Corporate taxable income is also subject to varying rates, where those with higher levels of income pay higher levels of taxes. Social Security and Medicare tax rates are, respectively, 12.4% and 2.9% of earnings. In 2017, Social Security taxes are levied on the first $127,200 of wages. Medicare taxes are assessed against all wage income. Federal excise taxes are levied on specific goods, such as transportation fuels, alcohol, and tobacco. Looking at the tax system as a whole, several observations can be made. Notably, the composition of revenues has changed over time. Corporate income tax revenues have become a smaller share of overall tax revenues over time, while social insurance revenues have trended upwards as a share of total revenues. Social insurance revenues are a sizable component of the overall federal tax system. Most taxpayers pay more in payroll taxes than income taxes. Many taxpayers pay social insurance taxes but do not pay individual income taxes, having incomes below the amount that would generate a positive income tax liability. From an international perspective, the U.S. federal tax system tends to collect less in federal revenues as a percentage of GDP than other OECD countries. This report reflects the tax system as in effect in 2017. H.R. 1, the 2017 tax revision, as passed in both the House and Senate, substantially modifies the federal tax system. The purpose of this report is to review the federal tax system in 2017. Any changes to the federal tax system enacted in the 115th Congress will be explored in subsequent reports and other CRS products. |
The last new refinery to open in the United States finished construction in 1976. That record is about to fall with the construction of a small refinery scheduled to open late this year in North Dakota. Since the mid-1980s, though, some 150 or more refineries closed. However, the refineries that remained open expanded their operational capacity to keep up with the increasing demand for refined petroleum products. Current U.S. refining capacity (roughly 18 million barrels per day) appears to satisfy if not exceed demand as the increasing export of refined petroleum products would seem to suggest. The refining industry even shows signs of expanding to take advantage of less expensive U.S. crude oil and export more products. The perception remains, nevertheless, that the United States needs new refineries but economic and regulatory barriers stand in the way of their construction. Thus far, the industry has managed to negotiate regulatory hurdles in expanding refinery capacity, an option preferred over new construction and driven by the economy of scale. In general, new entrants into refining may find steep competition with existing operators. However, for some "teapot" refineries, the door is wide open, and the cost of admission is comparatively little when processing light-sweet crude oil or condensate, whether in the mid-continent or elsewhere. Some may argue that there may be only a short window of opportunity to get in and then get out. A change in crude oil prices could quickly disadvantage them. Small refineries do face many of the same economic, market, and environmental factors that affect large refineries, but they may also benefit from exemptions in complying with certain federal regulations. Further, some federal policies have had the effect of displacing petroleum products in the market place, and introduced refineries to direct challenges, such as the Renewable Fuel Standard. We begin this report with a brief discussion on the state of refining in the Unites States, paying particular attention to regulatory criteria that define refining (as this has taken on new significance), the threshold between small and large refineries, and potential opportunities for small businesses. In the discussion on " Economic Challenges ", we examine the pace of refinery construction and capacity expansion, and the profitability of operating refineries. Current economic challenges for the industry also include competition from ethanol and biodiesel producers, many of which are considered small businesses; the potential displacement of refined petroleum products by these alternative fuels, as mandated by the Renewable Fuel Standard; and the erosion in demand for refined petroleum products, due to both consumer and government-mandated trends toward increased automotive fuel efficiency. Like any other industrial facility, refineries are subject to certain environmental laws that regulate their construction and operation. In the discussion on Environmental Permitting and Regulatory Requirements, we summarize some of the major environmental requirements associated with refinery construction and operations, few of which are unique to refineries compared to any industrial operation with similar potential emissions. This discussion focuses on air emissions control requirements, often regarded as the most significant challenge in permitting the expansion of existing refineries or constructions of new refineries. By CRS's recent count, some 115 refineries/refinery complexes process roughly 18 million barrels per day (Mb/d) of crude oil in the United States. All have atmospheric distillation in common, which involves heating crude oil in a furnace then condensing it in an atmospheric distillation tower (or crude unit)—the tall, narrow columns that give a refinery its distinctive skyline (see Figure 1 ). Refineries vary in complexity, and can include, for the purposes of this report, stabilizers, condensate splitters, simple topping plants and hydroskimmers to more complex cracking and ultimately coking plants. Coking has become an increasingly important capability of the U.S. refining industry with nearly three-quarters of the fuel-producing refineries having some capacity to convert heavy crude oils into refined products. Beginning in the late 1970s, U.S refineries began facing a dwindling supply of light-sweet crude oils favored for making motor fuels. Many refineries began switching to increasingly available heavy-sour crude oils, and began adding "cracking" and "coking" processes to convert petroleum "resid" into high value motor fuels. The resid that remained after atmospheric distillation found earlier use as low value "ship's bunker fuel" and as boiler fuel in electric power plants. Cracking and coking processing upgrades came at considerable investment costs. Coking dates back to the late 1920s, but became the defining characteristic of the U.S. refinery during the 1980s and 1990s. U.S. refineries have the capacity to convert some 2.5 Mb/d of petroleum resid into higher value motor fuels. In other words, refineries increased motor fuel production without having to increase nameplate capacity by adding cracking and coking units. Several Midwest refineries have recently added coking/conversion capacity to take advantage of the increasing supply of heavier crude oils from Canada's oil sands projects. The increasingly available light sweet crude oils produced from unconventional shale resources, like North Dakota's Bakken formation and the Texas Eagle Ford formation, are changing U.S. refining prospects and have revitalized some refinery operations that formerly depended on imported light crude oil. Some have raised questions and concerns about the role of condensates in the market. The domestic market for condensate is somewhat limited, however, and "lease" condensate (a term applied to Outer Continental Shelf production) is subject to current export restrictions. Condensates are volatile light hydrocarbons in the range of ethane, propane, butane, iso-butane, and iso-pentane (natural gasoline) associated with crude oil. The elevated pressures in oil and gas reservoirs keep condensates in a condensed liquid-state. However, the drop in pressure at the surface can cause condensates to "flash" or vaporize when transferred to the stock tanks. To avoid flashing, the crude oil stream is directed through a separator or "splitter" that separates the condensates into various product streams. A splitter operates as a series of stages, each calibrated to release a particular condensate product based on its characteristic temperature and pressure. The process has similarities to refining, but at temperatures in the range of 100°F to 250°F, and under controlled pressures. In the generic three-stage splitter shown in Figure 2 , progressively heavier volatiles are separated with each stage ending with degassed crude oil entering the stock tank. From the small business perspective, several legislated provisions define small refineries, but inconsistently. According to the U.S. Small Business Administration (SBA), only refiners that employ fewer than 1,500 employees and produce less than 125,000 barrels per calendar day may qualify for a federal small business contract. By CRS count, 27 refineries make up 50% of U.S. refining capacity. Almost half of the U.S. refineries (some 50 or more) produce less than 125,000 b/d, but in total they make up only 21% of total refining capacity (roughly 18+ Mb/d). Both Title XV (Ethanol and Motor Fuels) of the Energy Policy Act 2005 and Title II (Energy Security Through Increased Production of Biofuels) of the Energy Independence and Security Act of 2007 defined a small refinery as having less than 75,000 b/d in average aggregate daily crude oil throughput. EPA regulations temporarily exempted small refineries and small volume refineries, which have a capacity below 155,000 b/d, from complying with the Renewable Fuel Standard (RFS) through 2010. The Clean Air Act regulations set 65,000 b/d as the small business threshold for complying with vapor recovery provisions. Finally, the North American Industry Classification Codes (NAICC) identifies the construction costs for small oil and gas structures at below $33.5 million. However, the smallest refinery currently under construction, a 20,000 b/d refinery in North Dakota, reportedly will cost $350 million. Smaller oilfield equipment used to treat crude oil before it reaches a refinery (e.g., oil and gas separators, splitters, and stabilizers) may line up close to NAICC costs given the mobile and temporary application of the equipment. For example, a "skid-mounted" 2,500 b/d crude oil condensate stabilizer operating in the Texas Eagle Ford shale play cost roughly $400,000 (exclusive of tanks, pipelines, and pumps) in 2012. A permanent 60,000 b/d condensate stabilizer plant might cost upwards of $80 million. Small business opportunities in refining may strongly depend on a number of factors, including regional demand for refined products, available crude oil supplies, regional price differences, and unique state environmental regulations, among others. In addition, some fuels are easier to produce than others are. The unique "boutique" fuel requirements for some regions can affect the decisions of individual companies to produce, distribute, and market them. While evaluating opportunities would exceed the scope of this report, some key factors have emerged as of late. The frequency that refinery-ownership changes hands suggests that buying an existing refinery offers the most straightforward opportunity to expand capacity quickly. This has been the case for refineries serving regional markets as well as those operating in the major refining centers of the Gulf Coast and the West Coast. The availability of light sweet crude oil in the mid-continent region (North Dakota, Colorado) presents some opportunities for constructing a small topping or hydroskimming refinery. A greater opportunity may lie in installing condensate splitter and stabilizer plants to handle the excess condensate production in North Dakota now being flared, or in Texas. Hess Corp. has applied an even simpler "heater treater" to strip out the light-end hydrocarbons by heating oil to between 80 and 120°F for the oil production from the North Dakota Bakken formation. As many as 20 other refining projects (with a total capacity of more than 900,000 b/d) are proposed or are in various stages of development. These projects range from splitting and stabilization plants for processing crude oil condensate to "teapot" or mini-refineries. It is uncertain how many projects may actually be completed. Oil companies can meet increasing/decreasing demand for petroleum products, such as gasoline, in three basic ways. They can build or idle refineries, expand or reduce capacity or capacity utilization rates of existing refineries, or they might choose to export or import petroleum products. These three alternatives allow the industry considerable flexibility in meeting changing short-term demand requirements while still allowing for the implementation of their long-term strategy. Within this framework, any individual refining company can either buy or sell a refinery to change its market position; however, this alternative is not available to the industry as a whole. In general, the industry will choose how to meet demand requirements based on which strategy is the most profitable. No new complex refineries have been constructed in the United States since the Grayville, LA, facility that opened in 1977. Over 150 refineries have closed since 1982, representing some 1.6 Mb/d in lost refining capacity. However, capacity expansion in existing refineries countered the loss, bringing it up to the current 18+ Mb/d capacity—a 23% increase since the mid-1980s. Between January 2013 and January 2014, refining capacity increased by another 101,000 b/d, the result of investments at existing refineries. Since 2008, the United States has moved from being a net importer of 1.36 Mb/d of petroleum products to being a net exporter of 1.39 Mb/d in 2013. This shift from net importer to net exporter in less than five years suggests that the United States does not suffer from a shortage of refining capacity. While domestic demand was met, capacity existed to supply foreign markets. These data suggest that the refining industry has chosen to reduce the number of refineries, increase the capacity of existing refineries, and use foreign markets to meet domestic demands for various petroleum products when it is high and to optimize capacity utilization rates when domestic demand is reduced. Over the period 2006 through 2009, as shown in Figure 1 , refiners' profits generally declined. This may be attributed to several factors, including high oil prices that peaked in 2008, coupled with weak demand due to the recession that began in December of 2007. Figure 1 also shows that North American refiners' profits increased from 2009 through 2012, because of recovering demand and discounted crude oil supplies that resulted from expanded production from U.S. tight oil deposits. Profits decreased, and then turned upward, from 2012 through the first quarter of 2014. The profit volatility over time shown in Figure 3 is common for the refining industry. Uncertainty with respect to industry profitability is an important reason why the decision to build a new refinery in the United States has not been taken. Desirable multi-billion dollar investment projects should offer companies predictable profits in the end, reflecting the long-run time frame for refinery investment and operation. Generally, North American refinery earnings per barrel processed have been positive. The refining industry undertakes capital investment for a variety of reasons, including expanding existing or creating new production facilities, implementing new or enhanced technology, regulatory compliance, and adapting existing refineries to available crude oil streams. With the exception of investments to insure compliance with environmental and other regulations, other activities may be considered to be competing for capital resources. When profitability declines or regulations tighten, the resource pool available for capital investment is reduced. Table 1 shows the capital budget expenditures of the refining industry. U.S. refining capital investment peaked in 2008, reflecting rapidly increasing world demand for petroleum products. A 22% decline in capital investment from 2008 through 2009 was followed by a further 50% decline from 2009 through 2010. More recently, the surge of petroleum product exports, coupled with investments to take advantage of new supplies of discounted light, sweet crude oil have seen investments increase. An example of the importance of new light, sweet crude oil supplies is the construction of a new refinery in Dickenson, ND, that is scheduled to open in December 2014. This new refinery, with a capacity of 20,000 b/d, is a direct result of the expansion of oil production in the Bakken fields. In addition, it has been reported that as many as five additional small refineries might be constructed in North Dakota. One part of the capital investment decision is the time and cost of permitting a new site. Many observers have raised this issue with respect to the lack of refinery construction in the United States. One reported example of permitting issues purportedly associated with refinery construction delays is the Arizona Clean Fuels Refinery, which planned to refine Mexican crude oil in Arizona for use in the western United States. Interest in constructing this approximately $3 billion facility began in 1998 and took seven years and reportedly millions of dollars of cost for permitting, and has yet to be constructed. However, the project has also experienced financing difficulties, local zoning changes, and legal challenges. For capital investment in new refineries to be desirable, certain market conditions should prevail. An important prerequisite is an expectation of growth in demand, especially in the transportation fuels, gasoline and distillates. The availability of stable, affordable crude oil supplies, and certainty with respect to the regulatory environment, are also important. While growing demand for petroleum products is a key element in refining profitability, the U.S. demand for gasoline declined by about 5% from 2007 through 2013. Although this fall in demand was likely tied to the recession, and might be considered temporary, other factors may continue to reduce demand, or at least demand growth. Among these factors are rising Corporate Average Fuel Economy (CAFE) Standards, which are set to increase to roughly 50 miles per gallon by 2025. Full implementation of these standards could reduce the U.S. demand for motor fuel by 12 Mb/d, as discussed next. These savings represent oil that the domestic refining industry will not be required to process over the next decade, reducing the need for new capacity. The growth in the use of bio-based ethanol as a component of gasoline has also contributed to reduced demand for crude oil per gallon of gasoline. To a lesser extent, this is true for biodiesel and diesel fuel as well. In addition, the potential growth in alternative fuel vehicles, including hybrid and electric vehicles and natural gas-fueled vehicles, could further demand growth. While the growing U.S. crude oil and natural gas production from unconventional resources would seem to assure the refining industry that a reliable source of domestic feedstock would be available, several problems have developed. The quality of very light sweet crude oil supplies is in one sense very high. However, larger and more complex refineries have positioned themselves to take advantage of lower quality heavy sour crude. For them, light sweet crude represents an opportunity that will depend on a competitive price advantage it offers in refining. Having made considerable investments in crack and coke heavy feedstock, these refiners now face the decision to bypass their conversion capacity and shift to light crude. This processing re-orientation spells increased competition for smaller refineries that had forgone investment in upgrades and continued to process diminishing light crude supplies. Refinery and fuel environmental regulations are covered in the next section of this report. However, it can be noted that given any level of refining industry capital investment, tightening regulations may impute a cost to any refiner that wishes to remain in operation. Two key vehicle and fuel regulatory standards—the coordinated Corporate Average Fuel Economy (CAFE)/Green House Gas (GHG) vehicle emission standards and the Renewable Fuel Standard (RFS)—have likely affected the refining industry by reducing the consumption of petroleum fuels. Compliance with the RFS may also increase the costs for some refiners, as well as present other challenges. The federal government has regulated vehicle fuel economy since 1978 and, more recently, aligned these efforts with new GHG vehicle emission standards in a joint national program aimed at reducing petroleum consumption and GHG emissions from the transportation sector. As required by the Energy Policy and Conservation Act of 1975 (EPCA), the National Highway Traffic Safety Administration (NHTSA) sets Corporate Average Fuel Economy (CAFE) standards for passenger cars and light trucks. These standards were raised under the Energy Independence and Security Act of 2007 (EISA), and, subsequently, coupled with vehicle GHG standards as administered by the Environmental Protection Agency (EPA) through its authority under the Clean Air Act and subsequent amendments. Fuel consumption and greenhouse gas (GHG) emissions from motor vehicles are closely linked. The vast majority of vehicle GHG emissions result from the burning of petroleum products, so reducing vehicle fuel consumption is the most direct means of reducing emissions. For these reasons, the Obama Administration has issued joint rules on vehicle fuel economy and GHG emissions for model year (MY) 2012-2016 passenger cars and light trucks, MY2014-MY2018 medium- and heavy-duty trucks, and MY2017-MY2025 passenger cars and light trucks. In addition, EPA and NHTSA have begun drafting a second phase of fuel economy/GHG standards for FY2019 and later medium- and heavy-duty trucks; proposed standards are expected in March 2015. NHTSA and EPA expect that combined new passenger car and light truck CAFE standards will rise to as much as 41.0 miles per gallon (mpg) in MY2021 and 49.7 mpg in MY2025, up from 34.1 mpg in MY2016. EPA and NHTSA expect that the combined National Program for MYs 2012-2016 and MYs 2017-2025 is projected to reduce U.S. oil use by more than 2 Mb/d in 2025. Critics have challenged the Administration's assumptions, countering that the costs will be higher and could lead to a drop in new vehicle sales. Though the standards do not require changes at the refinery level, they can affect refineries indirectly by contributing to improvements in the overall efficiency of the vehicle fleet and, therefore, reducing fuel consumption. These standards will certainly reduce petroleum consumption in the long term, but short-term effects on fuel consumption and thus the refining industry are less clear. For example, DOE officials stated that thus far "the impact of the standards has been limited because they affect new car sales, and there are a relatively small number of new vehicles in the overall fleet." However, other stakeholders reported to GAO that with estimated fuel savings of such magnitude, "the CAFE and GHG vehicle emissions standards have likely had a relatively large impact on petroleum demand declines in the past few years." According to the U.S. Government Accountability Office, "CAFE and GHG vehicle emission standards have contributed to reductions in the consumption of petroleum fuels, but the extent is unclear." How new and existing refinery operations—both large and small—adjust in the short and long terms to the impact of reduced domestic demand for petroleum transportation fuels will be dependent upon their respective market projections. The Renewable Fuel Standard (RFS) requires the use of biofuels in transportation fuel. The RFS was established in the Energy Policy Act of 2005 ( P.L. 109-58 ) and significantly expanded in the Energy Independence and Security Act of 2007 ( P.L. 110-140 ). The vast majority of the mandate is met using corn-based ethanol blended into gasoline (although there is no explicit mandate to use ethanol or that it be blended). For 2013, the RFS mandated the use of 16.55 billion gallons of biofuels, of which roughly 13.3 billion gallons came from corn ethanol. At the 2013 level, renewable fuels replace roughly 10% of overall demand for motor vehicle fuels, and displace roughly 1Mb/d of gasoline and diesel consumption. EISA requires a further increase in the use of renewables, to 36 billion gallons by 2022, further reducing demand for petroleum-based fuel. Renewable Identification Numbers (RINs) are the compliance mechanism for the RFS. After each year, a refiner or other obligated party must submit to EPA a sufficient number of RINs to cover its obligation (which is prorated for each obligated party based on gasoline and diesel fuel produced/supplied in that year). RINs are generated by biofuel producers and are sold with the fuel. Biofuel purchasers—generally gasoline blenders—typically "separate" the RINs from the physical fuel when they receive and blend the ethanol into gasoline. Once a RIN has been separated the owner may sell the RIN to another party, be that another obligated entity in need of additional RINs or a third-party trader. In the case when an independent refiner is not integrated with downstream operations, an obligated party may only be able to secure RINs through this secondary market. If supplies of RINs are tight, then these parties may need to pay market prices for RINs, which could reflect the marginal cost of compliance as opposed to the industry average. If RINs are trading at a high enough price, non-integrated refiners could face higher compliance costs than their competitors. Thus, although there is no direct effect on the construction of new refineries from the RFS, the need to secure RINs may present an economic hurdle to a new, independent refinery. Because of concerns over compliance costs, P.L. 109-58 gave small volume refineries (75,000 bpd or less) a temporary exemption from the RFS requirements through the end of 2010. EPA extended this exemption to small refiners (SBA definition, see " Tier 3 Sulfur Standards " below). Later, Congress directed the DOE to study whether the RFS would lead to differential economic hardship on some or all small refiners and that EPA should extend the exemption for those refineries. DOE found that some small refiners would face disproportionate economic hardship and that those refiners should be exempted. For 2011 and 2012, EPA exempted 13 small refineries (with their names redacted to protect confidential business information). EPA approved a single exemption for 2013, and proposed no exemptions for 2014. At the state level, the California legislature passed, and then-Governor Schwarzenegger signed, a 2007 law requiring statewide reductions in GHG emissions by 2020. Among other regulations to implement the law, the California Air Resources Board established a Low-Carbon Fuel Standard (LCFS) requiring refiners to reduce the carbon intensity of the fuels they provide to the California market. By 2020, the regulations require a roughly 10% reduction from 2010 levels. In general, it is expected that most of the requirement will be met using various lower-carbon biofuels, although California's standards for lifecycle emissions are stringent, and some biofuels actually have higher emissions than gasoline or diesel fuel under the rule. The interactions between the California program and the federal Renewable Fuel Standard (RFS) could be complex. It is unclear how much the LCFS will raise refiners' costs, as early reviews of the program have shown little effect on the market and compliance credits are currently trading at low levels. However, as the program becomes more stringent, the compliance costs are likely to increase. In April 2014, EPA finalized new gasoline sulfur standards. Beginning in 2017 the average sulfur content in most gasoline will be reduced from 30 parts per million (ppm) to 10 ppm. This is part of a larger strategy to reduce emissions from both new and existing passenger vehicles. The sulfur standards were issued along with new "Tier 3" emissions standards for new vehicles. The lower sulfur level limits pollutant formation in existing vehicles and allows the use of more advanced emissions systems in new vehicles—systems that are highly sensitive to the amount of sulfur in the fuel. In general, the cost of refining gasoline is expected to increase, as investments must be made in desulfurization technology. EPA estimates that the cost of compliance will average below one cent per gallon, with some refiners facing two to three cents per gallon, although industry stakeholders contend that the price could be significantly higher—as much as six to nine cents per gallon for some refiners. The studies generally found that refiners would expand existing desulfurization units instead of constructing new equipment, although it does not appear that they looked at the effects on the construction of completely new refineries. Again, the differential impacts of these standards may be more or less likely to affect new or small refinery vis-à-vis their competitors. In general, small refiners are given more flexibility in compliance with fuel standards compared to larger refiners. For most fuel standards, EPA has two classes of small refiners: Small refiners: a refiner with 1,500 or fewer employees (Small Business Administration (SBA) definition) and annual crude oil capacity of 155,000 b/d or less; or Small volume refineries: a refiner with 75,000 b/d of crude capacity, regardless of the number of employees For the Tier 3 standards, small refiners and small volume refineries will be granted an additional three years to come in compliance with the standards—until 2020—although they would be able to generate tradable credits for early compliance with the standards. As with any industrial facility involving potential air emissions, water use, and waste generation, certain environmental permitting and regulatory requirements apply to the construction and operation of refineries. The specific requirements, and the degree of difficulty or ease in meeting them, will depend not only on the nature of the project, but perhaps more importantly on the location of the project. Congress included in the Energy Policy Act of 2005 (EPAct 2005) a provisions on "Refinery Revitalization" intended to improve permitting coordination between EPA and various federal and state agencies. In general, state or local agencies handle environmental permitting and other regulatory operations, in part because EPA has delegated authority to them for many federal environmental programs. Accordingly, state and local agencies largely implement permitting, inspections, monitoring, and enforcement, and, in some cases, standards setting. In addition, many states have enacted statutes and promulgated certain requirements independent of EPA to address specific issues within their states. While air pollution permitting and standards are typically the biggest regulatory challenge for new refineries, the specific location and situation of a proposed new refinery may pose other regulatory challenges (e.g., cooling water supply may be limited, particularly in arid areas). This report focuses on air pollution permitting and standards for new and modified refineries, as well as some additional considerations such as the requirements on the fuels produced by the refineries. Under the Clean Air Act (CAA), EPA is authorized to take steps to address air emissions from stationary sources, including refineries. The agency has regulated emissions of certain air pollutants from new and modified stationary sources for several decades under the authority of various sections of the CAA, including air permitting requirements, Section 111 New Source Performance Standards (NSPS), and Section 112 National Emission Standards for Hazardous Air Pollutants (NESHAPS). While air permitting of major sources of pollution is a requirement under the CAA, all 50 states have delegated responsibility for permitting. The Clean Air Act amendments of 1990 ( P.L. 101-549 , 42 U.S.C. §§7470-7479 and §§7661-7661f) require that major industrial sources of air pollutants obtain both construction and operating permits. These permits are intended to enhance compliance by detailing for each covered facility all the emission control requirements to which the facility is subject. A Prevention of Significant Deterioration (PSD) permit applies to the construction of a new or modified facility that will have "major" and "significant" amounts of air pollution for any criteria pollutant. A PSD permit is required before a new source is constructed, or before changes or modifications are made at an existing source of air pollution. Either EPA or the designated state permitting authority may issue the permit (which must specify the construction allowed, the emission limits, and frequency of operation for the equipment being permitted). PSD requires 1. installation of the Best Available Control Technology, 2. an air quality analysis, 3. an additional impacts analysis, and 4. public participation. New and modified petroleum refineries are listed as a source category for PSD requirements. A Title V operating permit effectively consolidates and coordinates the often-complex permitting requirements for the various emissions sources characteristic of refinery operations. Emissions from a refinery arise from various specific operations, including cracker towers, coker units, gas combustion turbines, boilers, and storage tanks. The emissions from these operations typically include criteria pollutants such as volatile organic compounds (VOCs), nitrogen oxides (NO x ), sulfur oxides (SO x ), carbon monoxide (CO), and particulate matter (PM or "soot"), as well as various hazardous air pollutants (HAPs, e.g., benzene, toluene and naphthalene). Title V permits generally address "major sources" of air pollution, defined in the CAA as stationary facilities that emit or have the potential to emit 100 tons or more per year of any regulated pollutant or combination of pollutants. Title V also covers the following: 1. sources in nonattainment areas (described below) that emit as little as 10 tons per year of VOCs, depending on the region's nonattainment status; 2. sources subject to New Source Performance Standards (NSPS, described below); 3. regulated sources of HAP emissions (any source that emits more than 10 tons per year of an individual HAP or more than 25 tons per year of any combination); 4. sources required to have new source or modification permits under Title I of the act. A federal Title V permit would likely be required for an "average" (approximately 140,000 BPD) new oil refinery, but may depend on the details of the State Implementation Plan where the refinery is to be located. Specific permit requirements and conditions depend on where a potential source is located. Air pollution control requirements will be more stringent for a refinery located in a "nonattainment" area—an area where air quality does not meet the minimum National Ambient Air Quality Standards (NAAQS) established to address the health impacts from exposure to the six criteria air pollutants. For example, a refinery seeking a permit in a nonattainment area (e.g., Houston-Galveston, TX, or Philadelphia, PA) could be required to meet the "Lowest Achievable Emissions Rate" for its processes. In addition, any expected emissions potential must be offset by sufficient Emission Reduction Credits (ERCs), which are usually generated through emissions reductions at existing sources or through the shutdown of existing sources. For example, a refinery seeking a permit in an area classified as "severe nonattainment," may be required to seek ERCs at a rate of 1.3:1 compared to its expected emissions potential. The permitting requirements for a small refinery will depend on the technical specifications of what is being permitted and where. The applicability of permitting requirements is based on the "potential to emit" from facilities on contiguous or adjacent properties and under the common control of a person or entity. Thus, certain operations—depending upon their size, status, and "potential to emit"—may not require a Title V permit and could be permitted under other state permitting regulations (e.g., synthetic minor permit). The number and kinds of permitting required by a small refinery and its specific equipment will rest on these case-specific determinations. While these air permitting issues pertain to any facility, not solely refineries, with a similar potential to emit, they are summarized here because they are often viewed as a limitation to the construction of a new refinery or the modification of an old one. In some cases, the availability of offsets may pose a constraint to refinery permitting in certain nonattainment areas. In addition, the often-complex calculations may require a significant investment in technical expertise by both the facility operator seeking a permit and the permitting agency, typically at the state or local level. One of the significant air pollution regulatory requirements for a new or modified refinery includes industry-specific New Source Performance Standards (NSPS) and National Emission Standards for Hazardous Air Pollutants (NESHAPS). Industry-specific NSPS requirements have been promulgated by EPA to implement Section 111(b) of the CAA and are issued for categories of sources that cause, or contribute significantly to, air pollution, which may reasonably be anticipated to endanger public health or welfare. The existing NSPS for petroleum refineries address PM, CO, and SO 2 emissions. The standards include emissions limitations and work practice standards for fluid catalytic cracking units, fluid coking units, delayed coking units, fuel gas-combustion devices, and sulfur recovery plants, as well as requirement for monitoring and recordkeeping, among other things. An NSPS sets an emission rate limit on a given piece of equipment or activity that is equivalent to the "best system of emission reductions" that is currently and adequately demonstrated by industry practice, taking into account cost and other factors. NSPS must be implemented by all refineries, regardless of size. Industry-specific NESHAPS requirements have been promulgated by EPA to implement Section 112 of the CAA and are issued for categories of new, reconstructed, or existing sources that emit HAPs as defined under Section 112(b) of the CAA. EPA has promulgated National Emission Standards for Petroleum Refineries, including National Uniform Emission Standards for Heat Exchange Systems (Refinery MACT 1) and Catalytic Cracking, Catalytic Reforming, and Sulfur Plant Units (Refinery MACT 2). The rules establish emission limits for HAPs from petroleum refineries and requirements to demonstrate initial and continuous compliance with the emission limitations and work practice standards. On May 15, 2014, EPA issued a proposed rule that would further control HAPs from petroleum refineries. The rule proposes additional emission control requirements for storage tanks, flares, and coking units at petroleum refineries as well as the monitoring of air concentrations at the fence-line of refinery facilities to ensure proposed standards are being met and that neighboring communities are not being exposed to unintended emissions. As with the NSPS, the refinery NESHAPS must be implemented by all refineries, regardless of size, to the extent they are categorized as either a major or area source of HAPs. Starting in 2011, new refinery construction, refinery expansion, or modification of certain existing refineries became subject to the use of the "best available control technology" for greenhouse gas (GHG) emissions. The best available control technology is determined for each facility based on an analysis of available technologies considering cost and other factors. According to EPA, in most cases, the best available control technology selected for GHGs is energy efficiency improvements. For example, for refineries, this could involve the installation of heat recovery units, which capture and use otherwise wasted heat in the refinery process. Such energy efficiency improvements can lower GHG emissions and other pollutants while reducing fuel consumption and saving money. Currently, there are no federal GHG emissions control standards for petroleum refineries. If promulgated, however, such control requirements standards could affect the refining industry, depending on the nature and timing of the standards. In December 2010, EPA entered into two proposed settlement agreements to issue rules that will address GHG emissions from fossil fuel-fired power plants and refineries. In the settlement, EPA agreed to promulgate by November 10, 2012, NSPS for GHG emissions from new and modified petroleum refineries, as well as guidelines for existing petroleum refineries. However, this deadline has since passed and it is unclear when EPA will issue a proposal or a final rule or what it would look like. Although it is unclear when, or if, federal regulations would be proposed, California's requirements under A.B.32 are expected to affect refineries there and other states may follow. The United States is experiencing an energy renaissance in producing light crude oil and natural gas. Unforeseen just a few years ago, these new resources present some challenges as well as new opportunities to U.S refiners. Rather than U.S. refiners having to chase import suppliers, as has been the past case, some U.S. producers now find foreign brokers chasing them. The refining industry has largely chosen to reduce the number of refineries, increase the capacity of existing refineries rather than construct new ones, and utilize foreign markets to meet domestic demands for various petroleum products when demand is high and to optimize capacity utilization rates when domestic demand is reduced. Given the significant expansions of refineries in the industry consolidations during the past decades, there appears to be little general evidence that such growth in refinery capacity has been impeded significantly by state and federal environmental permitting requirements. Complex refineries that locked into imported heavy crude oils to run through their cracking and coking plants are taking the new light crudes and adapting their refining economics to run them. The shift could spell more competition for smaller refineries that had depended on light crudes and that returned to profitability with the crudes' increased availability. The possibility of bypassing conventional refining altogether and exporting light crude (condensate) directly is a newly emerging development. The latter case presents possible opportunities for small businesses to enter the petroleum supply sector upstream of refining. In light of the restrictions on exporting U.S.-produced crude oil and condensate, Congress may consider whether the definition of a refinery includes similar processes that produce product streams based on their physical properties. Congress may also wish to assess whether small business enterprises face unique challenges to entering refining, or unique opportunities now that the United States has become a net exporter of refined petroleum products. For further reading on refining, we suggest the following CRS reports: CRS Report R41478, The U.S. Oil Refining Industry: Background in Changing Markets and Fuel Policies , by [author name scrubbed] et al. CRS Report R43263, Petroleum Coke: Industry and Environmental Issues , by [author name scrubbed] and [author name scrubbed]. CRS Report R43390, U.S. Rail Transportation of Crude Oil: Background and Issues for Congress , by [author name scrubbed] et al. For further reading on CAFE, RFS, and Fuel Standards, we suggest the following CRS reports: CRS Report R42721, Automobile and Truck Fuel Economy (CAFE) and Greenhouse Gas Standards , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. CRS Report R43497, Tier 3 Motor Vehicle Emission and Fuel Standards , by [author name scrubbed] and [author name scrubbed]. CRS Report R40155, Renewable Fuel Standard (RFS): Overview and Issues , by [author name scrubbed] and [author name scrubbed]. | The last refinery constructed in the United States opened in 1977. Since the mid-1980s, some 150 have closed as part of an industry-wide consolidation. Over the same time, the remaining refineries expanded their operational capacity by 23% to keep up with increasing demand. Current U.S. refining capacity appears to satisfy if not exceed demand as the increasing export of refined petroleum products would seem to suggest. Notwithstanding the current surplus capacity, opportunities for new refineries appear to have emerged as the result of the rise in production of U.S. light-sweet crude oil from unconventional resources such as North Dakota's Bakken and Texas' Eagle Ford formations. These new resources have revitalized some refinery operations that formerly depended on imported light crude oil, thereby making the smaller refineries more competitive with large refineries that process more widely available heavy-sour crude oil. Rising domestic crude oil production has not only led U.S. refineries to export their petroleum products, but has led some oil producers to attempt to bypass refining and export crude oil condensates directly. However, Department of Commerce regulations currently restrict crude oil exports. Whether condensates fall under a refined product classification or crude oil remains an unresolved issue, and one that Congress may choose to take up. Congress may also consider whether small businesses face inherent disadvantages in entering an industry dominated by large complex refinery operators. While some arguments remain for new refinery construction, some argue that economic and regulatory barriers hinder new construction. Small refining enterprises may suffer certain economic disadvantages in an industry driven by the economy of scale. Furthermore, opportunities may depend on geographic location, regional markets, and source of crude oil. The barriers from regulatory requirements remain less clear. Export restrictions certainly affect potential product markets that could support new refining capacity. Whether these markets would spur new refinery construction is a separate question. The history of refinery expansions suggests that environmental requirements do not generally pose a significant barrier to refinery construction, but local challenges vary (e.g., locations with currently unhealthy air quality). Small refineries face many of the same economic, market, and environmental factors that affect large refineries, but they may also benefit from exemptions in complying with certain federal regulations. As with any industrial facility involving potential air emissions, water use, and waste generation, certain environmental permitting and regulatory requirements apply to the construction and operation of refineries. The specific requirements, and the degree of difficulty or ease in meeting them, will depend not only on the nature of the project, but perhaps more importantly on the location of the project. Small business opportunities in refining may strongly depend on a number of factors, including regional demand for refined products, available crude oil supplies, and unique regional environmental regulations, among others. A "small business" in the oil refining business is defined differently in different statutes. In addition, some fuels are easier to produce than others are. While evaluating opportunities is beyond the scope of this report, some key opportunities have recently emerged. Perhaps the most discussed potential opportunity for constructing a small topping or hydroskimming refinery is in the mid-continent region (North Dakota, Colorado) to process these new sources of light sweet crude. Other opportunities may lie in installing condensate splitter and stabilizer plants to handle North Dakota and Texas expanding production of light sweet crude oil and condensate. |
Lebanon's Hezbollah ("Party of God") is a Shiite Islamist militia, political party, social welfare organization, and U.S. State Department-designated terrorist organization. Its armed element (referred to by many in Lebanon as "the resistance") receives support from Iran and Syria and possesses significant paramilitary and unconventional warfare capabilities that rival and in some cases exceed those of Lebanon's armed forces and police. The United States government holds Hezbollah responsible for a number of kidnappings and high-profile terrorist attacks against U.S., European, and Israeli interests since the early 1980s. In the wake of the summer 2006 war between Israel and Hezbollah and an armed domestic confrontation between Hezbollah and rival Lebanese groups in May 2008, Lebanon's political process is now intensely focused on Hezbollah's future role in the country's political system and security sector. Despite its status as a U.S.-designated terrorist organization, 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 in the cabinet. Hezbollah's militia also is firmly entrenched in areas it controls, making it unlikely that any domestic security force could uproot it by force. Hezbollah has traditionally defined itself and justified its paramilitary actions as legitimate resistance to Israeli occupation of Lebanese territory and as a necessary response to the relative weakness of Lebanese state security institutions. However, Israel's withdrawal from Lebanese territory in May 2000 and the strengthening of the Lebanese Armed Forces (LAF) and Internal Security Forces (ISF) with international and U.S. support since 2006 have undermined these arguments and placed pressure on Hezbollah to adapt its rhetoric and policies. The current government's platform asserts "the right of Lebanon, through its people, army and resistance, to liberate or recover the Shib'a Farms, Kfar Shouba Hills and the Lebanese part of the occupied village of Al Ghajar and to defend Lebanon against any assault and safeguard its right to its water resources, by all legitimate and available means." Hezbollah and other Lebanese political parties have long emphasized the need to assert control over remaining disputed areas with Israel. However, current Hezbollah policy statements suggest that, even if disputed areas were secured, the group would seek to maintain a role for "the resistance" in providing for Lebanon's national defense and would resist any Lebanese or international efforts to disarm it as called for in the 1989 Taif Accord that ended the Lebanese civil war and more recently in United Nations Security Council Resolutions 1559 (2004) and 1701 (2006). Hezbollah continues to define itself primarily as a resistance movement and remains viscerally opposed to what it views as illegitimate U.S. and Israeli intervention in Lebanese and regional affairs. It categorically refuses to recognize Israel's right to exist and opposes all concluded and pending efforts to negotiate resolutions to Arab-Israeli disputes on the basis of mutual recognition, including the Israeli-Palestinian conflict. Given these positions, most observers believe that prospects for accommodation and engagement between the United States and Hezbollah are slim, even as the group's close relationships with Syria and Iran, its pivotal role in Lebanese politics, and reinvigorated U.S. engagement in regional peace efforts increase Hezbollah's potential influence over stated U.S. national security objectives. The Obama Administration is requesting $246 million in FY2011 foreign assistance to continue a multi-year program specifically designed to increase the central authority of the Lebanese state and deter the use of force by non-state actors. Since FY2006, the United States has provided more than $1.35 billion in assistance for Lebanon. Of that amount, the United States has invested more than $690 million to improve the capabilities of the LAF and ISF. (See Table 1 below.) It is doubtful that, barring an unforeseen crisis, Lebanon's fractious political leadership could, on their own, solve the dilemma of Hezbollah's militia. National Dialogue consultations on a national defense strategy were renewed in March and April 2010, but appear to remain at an impasse amid what some observers contend is a prevailing political paralysis. Prime Minister Saad Hariri and other leaders insist that discussions over Hezbollah's weapons are sensitive and should remain private, even as the United States and regional actors such as Iran, Syria, Saudi Arabia, and Israel continue to seek to influence Lebanon's internal politics with varying degrees of success. Key issues facing U.S. policy makers and Members of Congress include: Assessing the goals and 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. Managing relations with other external actors —Preventing destabilizing actions by regional parties that could renew conflict. Limiting the transfer of sophisticated weaponry to Hezbollah. 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. Safeguarding Israeli security. Influencing Lebanon's National Dialogue —Determining the preferred versus likely outcomes of the current Lebanese National Dialogue discussions about a national defense strategy and Hezbollah's weapons. Deciding if and how the United States should seek to influence these discussions and identifying potential pitfalls. Preparing for potential negative consequences including the potential for return to civil conflict in Lebanon. Critics of U.S. policies aimed at weakening Hezbollah argue that while the United States has taken measures to support the Lebanese state, it has not simultaneously taken direct action to limit the influence of Hezbollah in Lebanon and in the region, to stop the flow of weapons to Hezbollah, or to disarm its militant wing. While U.S. policy focuses on building state institutions in Lebanon in an effort to create the political space for the Lebanese government to manage its own internal security threats and develop its own national defense strategy, analysts and policy makers have posited a number of other potential diplomatic, assistance, and security-related measures that could potentially weaken Hezbollah. For more information see " Issues for Congressional Consideration: Potential Options for Weakening Hezbollah " below. In February 2010, Director of National Intelligence Dennis Blair delivered the U.S. intelligence community's most recent unclassified assessment of Hezbollah's capabilities and intentions as a component of his annual global threat assessment testimony before Congress. Director Blair stated: We judge that, unlike al-Qa'ida, Hizballah, which has not directly attacked U.S. interests overseas over the past 13 years, is not now actively plotting to strike the Homeland. However, we cannot rule out that the group would attack if it perceives that the United States is threatening its core interests.… Hizballah is the largest recipient of Iranian financial aid, training, and weaponry, and Iran's senior leadership has cited Hizballah as a model for other militant groups. In August 2010, the Obama Administration reported that Hezbollah is "the most technically-capable terrorist group in the world" and stated that the group has "thousands of supporters, several thousand members, and a few hundred terrorist operatives." According to the Administration, Hezbollah receives financial support from Lebanese Shiite expatriates around the world and "profits from legal and illegal businesses," including some illegal drug activity. The Administration reports that Hezbollah receives "training, weapons, and explosives, as well as political, diplomatic, and organizational aid from Iran, and diplomatic, political, and logistical support from Syria." In turn, Hezbollah reportedly provides material, financial, and political support to "several Palestinian terrorist organizations, as well as a number of local Christian and Muslim militias in Lebanon." The Administration also reported in 2009 that Hezbollah operatives have provided training to Iraqi Shiite insurgents, including training on "the construction and use of shaped charge IEDs [improvised explosive devices] that can penetrate heavily-armored vehicles," a tactic that killed and injured U.S. military personnel in Iraq. In early April 2010, multiple reports surfaced suggesting that Syria may have transferred Scud missiles to Hezbollah in Lebanon. Syria has denied the charges. Unnamed U.S. officials have acknowledged that they believe that Syria intended to transfer long-range missiles to Hezbollah, "but there are doubts about whether the Scuds were delivered in full and whether they were moved to Lebanon." The State Department issued a statement saying, "The United States condemns in the strongest terms the transfer of any arms, and especially ballistic missile systems such as the Scud, from Syria to Hezbollah…. The transfer of these arms can only have a destabilizing effect on the region, and would pose an immediate threat to both the security of Israel and the sovereignty of Lebanon." Subsequent Israeli press reports have cited Israeli military officials as stating that the missiles transferred to date have been M-600s, a ballistic missile with a 185-mile range and half-ton payload. In June 2010, Assistant Secretary of State for Near East Affairs Jeffrey Feltman, in his testimony before the Senate Foreign Relations Subcommittee on Near Eastern and South Central Asian Affairs, stated that "While we recognize that Hizballah is not directly targeting the United States and U.S. interests today, we are aware that could change if tensions increase with Iran over that country's nuclear program." Hezbollah emerged during the Israeli occupation of Lebanon in the early 1980s. Its ideological roots stretch back to the Shiite Islamic revival centered in southern Iraq during the 1960s and 1970s, and its early membership was drawn from a range of domestic Shiite groups. These groups were inspired and led by revivalist, Najaf-educated clerics and students who returned to Lebanon from Iraq during the 1970s and spurred the political mobilization of the country's historically marginalized Shiite community. The outbreak of the Lebanese civil war in 1975, Israel's invasion of Lebanon targeting Palestinian militants in 1978, the disappearance of Imam Musa Sadr in Libya in 1978, and the Iranian revolution of 1979 were pivotal events that shaped the politics and views of Shiite groups and leaders during this period. Lebanon's Shiite leaders split along fundamental lines in response to the Israeli invasion and occupation of southern Lebanon in 1982. Leaders favoring a militant response and supporting the long-term creation of an Iranian-style Islamic republic in Lebanon broke away from the then-leading Amal movement and formed the Al Amal al Islamiya (commonly referred to as Islamic Amal) organization. By leveraging direct support from Iran's Revolutionary Guards and recruiting from other revolutionary Shiite groups, Islamic Amal was the vanguard of the religiously inspired groups that would later emerge under the rubric of Hezbollah. Considerable financial and training assistance from Iran allowed Islamic Amal/Hezbollah to expand from its base of operations in the Bekaa valley of eastern Lebanon to the southern suburbs of Beirut and the occupied Shiite hill towns of the south. Attacks on Israeli Defense Forces (IDF) and U.S. military and diplomatic targets allowed Islamic Amal and other Iran-supported Shiite militants to portray themselves as the leaders of resistance to foreign military occupation, while their social and charitable activities in Shiite communities solidified further popular support. Hezbollah remained loosely organized and largely clandestine until 1985, when it released a manifesto outlining a militant, religiously conservative, and anti-imperialist platform. The document served as one of the movement's defining ideological statements until November 2009, when Hezbollah Secretary General Hassan Nasrallah issued a new political manifesto (see below). Echoing the ideology of Iranian Supreme Leader Grand Ayatollah Ruhollah Khomeini, Hezbollah's 1985 statement identified the United States and the Soviet Union as Islam's principal enemies and called for the "obliteration" of Israel. The document also called for the "adoption of the Islamic system on the basis of free and direct selection by the people, not the basis of forceful imposition, as some people imagine." Shiite Islamists' violent attacks against Lebanese communists and their strict enforcement of conservative Islamic social codes in areas under their control had long suggested otherwise to many Lebanese. Continuing Hezbollah-Amal differences over tactics and political goals contributed to persistent tension and occasional armed clashes between the groups, which intensified during the end of the civil war. By the war's end in 1989, Hezbollah and its rivals in Amal maintained their competition for the mantle of leadership in a now-mobilized Lebanese Shiite community, while claiming credit for having forced Israel to redeploy to the border region of southern Lebanon. The Taif Accord that ended the civil war called for the disarmament and dismantling of militia groups on all sides, and, in response, Hezbollah rebranded its armed elements as an "Islamic resistance" force dedicated to ending Israel's occupation. Debate over the role, responsibilities, and future of this so-called "resistance" force has remained at the center of Lebanese politics ever since. Hezbollah continued its military campaign against the Israeli Defense Forces (IDF) and its ally, the Southern Lebanese Army (SLA), during the 1990s, and large-scale Israeli military operations in 1993 and 1996 in response to Hezbollah attacks failed to destroy Hezbollah or dislodge it from its enclaves in the south and east of the country. Hezbollah ultimately claimed credit for forcing Israel's withdrawal from southern Lebanon, which was completed in June 2000. A 10-square-mile enclave known as the Shib'a Farms near the Israeli-Lebanese-Syrian tri-border area has remained in dispute since the Israeli withdrawal (see Figure 2 above). Hezbollah has used the continuing Israeli presence in the Shib'a Farms and other areas as a central justification for its possession of weapons in support of resistance to Israeli occupation. (For more information, see " Shib'a Farms and Other Disputed Areas " below.) Subordinating Hezbollah to state institutions and eliminating its "state within a state" may rely in part on the eventual erosion of Hezbollah's popular support, which most observers agree is strong among Lebanese Shiites and in areas historically controlled by Hezbollah. Hezbollah's popularity is based on a number of factors—its military campaign against Israel, its Lebanese character, its role as an advocate for historically marginalized Shiites, its respect for religious piety, and its vast social services network. Many of its Lebanese supporters view Hezbollah's military capability to be irrelevant and endorse the organization as a political party largely for its social services or religious piety, or for some combination of these and other factors. The legitimacy that this popular support provides compounds the challenges of limiting Hezbollah's influence by consensus. Hezbollah continues to pursue parallel political, social, and military programs and to characterize itself primarily as a resistance movement. Its decision to participate in the 1992 national elections marked the beginning of the group's transition to the active role in Lebanese politics that it plays today. As advocates for an "Islamic system" of clerical governance and as long-standing critics of what they termed the corruption of Lebanon's confessional political arrangements, Hezbollah members engaged in debates over the terms and advisability of electoral participation during the early 1990s. With political endorsement from Iran, Hezbollah participated in the 1992 elections, winning eight seats in parliament. The group continues to field candidates in national and municipal elections, and it has achieved a modest, variable, yet generally steady degree of electoral success. In the 2009 national elections, Hezbollah won 10 seats in parliament and now holds two cabinet posts for the Ministries of Agriculture and Administrative Reform. On the domestic front, Hezbollah, like other Lebanese confessional groups, vies for the loyalties of its Shiite constituents by operating a vast network of schools, clinics, youth programs, private business, and local security—which many Lebanese refer to as "a state within the state." Though the organization's policies promote a distinct Shiite religious identity, over time, even Hezbollah has had to accommodate its fundamentalist religious messaging to a pluralistic culture in which piety and modernity exist side-by-side. This has required a gradual shift from the group's Khomeinist roots toward a more contemporary Islamist nationalist approach. Hezbollah has maintained robust conventional and unconventional military capabilities, which it demonstrated by launching thousands of rockets into Israel and withstanding a blistering Israeli counterassault during the 2006 summer war. Hezbollah's deployment of a land-to-sea anti-ship missile and long-range rockets surprised Israeli military leaders, and the group's use of civilian areas for command and control, storage, and shelter confounded Israeli attempts to limit civilian casualties and damage to civilian infrastructure. Hezbollah forces also successfully deployed sophisticated anti-armor weaponry and tactics against Israeli ground forces. Current international assessments of Hezbollah's military capabilities reflect concern that the organization has replenished and improved its arsenal and capabilities since 2006. In April 2010, U.N. Secretary-General Ban Ki-moon reported that he continues "to receive reports asserting that Hezbollah has substantially upgraded and expanded its arsenal and military capabilities, including sophisticated long-range weaponry." He also noted that "Hezbollah itself does not disavow such assertions and its leaders have repeatedly claimed in public that the organization possesses significant military capabilities, which they claim are for defensive purposes." In testimony before the Israeli Knesset (parliament) on May 4, 2010, IDF Military Intelligence research director Brigadier General Yossi Baidatz stated that: Hezbollah has an arsenal of thousands of rockets of all types and ranges, including long-range solid-fuel rockets and more precise rockets.… The long-range missiles in Hezbollah's possession enable them to fix their launch areas deep inside Lebanon, and they cover longer, larger ranges than what we have come across in the past. Hezbollah of 2006 is different from Hezbollah of 2010 in terms its military capabilities, which have developed significantly. Hezbollah has a unified leadership structure that oversees the organization's complementary, partially compartmentalized elements. Full party membership is offered to applicants and recruits on the basis of allegiance to the organization's ideological program. Specialized recruiting bodies exist for women and youth. Hezbollah's leadership rests in the hands of its seven-member Majlis al Shura (Consultative Council), which selects the group's secretary general for a three-year term. Current Secretary General Hassan Nasrallah was elected in May 1993 following the assassination of Hezbollah founder and then-Secretary General Abbas al Musawi in 1992. The council subsequently amended its rules to allow a secretary general to extend his candidacy beyond two consecutive terms. Five sub-councils or assemblies oversee different aspects of Hezbollah's activities and report to the Consultative Council: 1. The Political Assembly monitors and manages relations with domestic political actors; 2. the Jihad Assembly manages "resistance activity" including "oversight, recruitment, training, equipment, security" and other activities; 3. the Parliamentary Assembly manages Hezbollah's activities in parliament and provides legislative analysis and constituent services; 4. the Executive Assembly oversees political party and organizational management, including social, cultural, and educational activities; and, 5. the Judicial Assembly provides religious rulings and conflict mediation services for Hezbollah members and communities. The assassination of Hezbollah militia commander and intelligence director Imad Mughniyah in February 2008 in Damascus was viewed as an important blow to the organization's leadership. Mughniyah was on several U.S. and international most wanted lists for his participation in numerous terrorist attacks as well as his roles as Hezbollah's military commander and intelligence chief. Other important figures in Hezbollah's leadership include Deputy Secretary General Naim Qassem, Consultative Council member and Nasrallah political advisor Hussein al Khalil, Political Assembly Chairman Ibrahim Amin al Sayyid, Executive Assembly Chairman Hashim Safi al Din, Consultative Council member and logistics coordinator Mohammed Yazbik, and military commander Mustafa Badr al Din. The basic worldview outlined in Hezbollah's 1985 manifesto continues to guide the organization, although its leaders have updated their positions to reflect changes in domestic and international politics. Drawing on Shiite religious and cultural traditions and building on the ideology of Iran's Ayatollah Khomeini and other Shiite Islamist clerics, Hezbollah portrays itself as a defender of the oppressed and the weak against what it regards as the injustice of the strong. Specifically, Hezbollah defines itself in direct opposition to what it views as a basic imbalance in global and regional power in favor of the United States and Israel. Hezbollah leaders consider recent U.S. foreign policy as driven by an urge to consolidate U.S. economic and political hegemony under the guise of combating terrorism. Historically, Hezbollah has sought to justify its actions as legitimate resistance to the occupation of Lebanese territory by Israel and as opposition to U.S. intervention in Lebanese and regional affairs. However, recent events, including the 2006 war with Israel, the May 2008 armed clashes between Hezbollah and other Lebanese groups, and the delivery of increased international assistance and training to the LAF and ISF have created a shifting political landscape that complicates Hezbollah's appeal for legitimacy beyond its core supporters. Recent statements by Hezbollah's leaders illustrate the group's desire to restate its positions and address these new realities. Most notably, on November 30, 2009, Hezbollah Secretary General Sayyid Hassan Nasrallah appeared at a televised press conference and read a lengthy political document "meant to highlight Hizballah's political vision," along with the group's "hopes, aspirations, and concerns." The speech was considered an update to the long-standing 1985 manifesto, and included statements on the following key issues: On the United States , Israel , and the international system : The course of U.S.-Israeli tyranny and arrogance … is witnessing military defeats and political failures, which showed a successive failure of the U.S. strategies and plans one after another. All this has led to a state of confusion, retreat, and inability to control the course of developments and events in our Arab and Islamic world. These facts are integrated within the framework of a larger international scene, which, for its part, contributes to exposing the U.S. predicament and the retreat of the control of the unipolar system in favor of pluralism, whose features have not become stable yet.… We are witnessing historic transformations heralding the retreat of the United States as a hegemonic power, the disintegration of the hegemonic unipolar system, and the start of the formation of the accelerating historic eclipse of the Zionist entity. On Israel and the Israeli-Palestinian conflict: Our stand toward the settlement of the Palestinian issue has been, continues to be, and will always remain a firm and unchanging ideological stand because it is based on clear and deep-rooted rights. Our stand toward the settlement and the agreements that were produced along the Madrid negotiations track, through the Wadi al Arabah agreement and its annexes, the Oslo Agreement and its annexes, and before that the Camp David Agreement and its annexes has been, continues to be, and will always remain a firm and categorical rejection of the principle and option of a settlement with the Zionist entity—an option based on recognizing the legitimacy of its existence and conceding to it what it has usurped from the Arab and Islamic land of Palestine. This stand is a firm, permanent, and final and it does not tolerate any retreat or compromise even if the entire world recognizes Israel. On Iran : Iran has formulated its political ideology and built its vital space on the basis of the centrality of the Palestine cause, hostility to Israel, confronting U.S. policies, and integration with the Arab and Muslim environment, and should be met with cooperation and a fraternal will. Iran should be dealt with as a base of awakening and motivating others; a center of strategic influence; a model of sovereignty, independence, and liberation that supports the independence-seeking and contemporary Arab-Islamic project; and as a power that renders the states and peoples of our region stronger and more impregnable. On Syria : Syria has taken a distinguished and steadfast stand in the conflict with the Israeli enemy. It has supported resistance movements in the region and stood by them in the most difficult circumstances, and sought to unite Arab efforts to safeguard the interests of the region and face the challenges. We emphasize the need to maintain the distinguished relations between Lebanon and Syria, for they are a common political, security, and economic need dictated by the interests of the two countries and the two peoples, the needs of political geography, and the requirements of Lebanon's stability and the confrontation of common challenges. We also call for an end to the entire negative climate that blemished relations between the two countries in the past few years, and we call for restoring those relations to their normal state as soon as possible. On Hezbollah's role in providing for Lebanon 's security: …in light of the existing imbalance of power, the constant Israeli threat necessitates that Lebanon should consolidate a defensive formula based on a union of popular resistance that contributes to defending the homeland in the face of any Israeli invasion, and a national army that protects the homeland and maintains its security and stability in an integrated process that proved its success in the previous stage in managing the conflict with the enemy, achieved victories for Lebanon, and provided it with means of protection. The success of the resistance's experience in confronting the enemy, and the failure of all schemes and wars to eliminate, besiege, or disarm the resistance, and the continued and persisting Israeli threat to Lebanon, makes it incumbent on the resistance to strive tirelessly to acquire the means of strength and to bolster its capabilities and resources so as to enable it to carry out its duty and undertake its national responsibilities, in order to contribute toward completing the task of liberating the part of our territory that remains under occupation in the Shib'a Farms, the Kfar Shouba Hills, and the Lebanese town of Al Ghajar, retrieve the remaining prisoners, missing persons, and the martyrs' remnants, and to participate in the task of defending and protecting the land and its people. As noted above, the nature of "the resistance" and the roles Hezbollah will play in Lebanon's future political and security arrangements are the focus of intense public debate in Lebanon. Hezbollah's new political statement and the adoption of the newly elected government's ministerial statement in late 2009 marked important attempts to define the terms of the current debate. Within this framework, Hezbollah seeks to maintain its armed capabilities in "union" with the national army, and the majority March 14 coalition and its allies seek to circumscribe the role of "the resistance" within the boundaries of specific territorial disputes with external parties. Hezbollah's fundamental opposition to Israel as outlined in its November 2009 statement suggests that potentially irreconcilable differences could emerge within Lebanon's political leadership, particularly in the event that the resolution of outstanding Lebanese or Syrian disputes with Israel over specific territories improves the prospects for bilateral peace agreements. When asked in November 2009 about the issue of Hezbollah's military capabilities persisting alongside or in combination with national security forces, Hassan Nasrallah emphasized Hezbollah's view that the need for a "union" of Hezbollah and state forces would persist "as long as the balances of power are upset and as long as the strong and able state is absent." He added, "if we have a strong and able state, there will be no need even for such a combination; the state will shoulder the responsibility and defend the country in this case." Nasrallah and other Hezbollah leaders often state their belief that the Lebanese state, even with the support of the United States and others, will be politically precluded from developing military capabilities that would allow it to effectively deter potential external aggression, particularly potential military intervention by Israel. As such, Nasrallah's advocacy of a "union until sufficiency" approach may amount to an argument for preserving the status quo indefinitely based on the expectation that state forces will never have capabilities that are sufficient in Hezbollah's view to remedy the imbalance of power with Israel. The majority March 14 movement and its allies continue to walk the line of paying lip service to nationalist opposition to Israeli occupation and over-flights of Lebanese territory while seeking to maintain political pressure on Hezbollah through public debate and the mechanism of the National Dialogue. Multiple critiques of Hezbollah's "union" proposal have been aired in recent months, with several majority figures warning of Hezbollah's intention to maintain its "state within a state." In response to increasingly heated rhetoric from both sides, Prime Minister Saad al Hariri emphasized on April 29, 2010, that: …the Lebanese disagree these days over the issue of Hezbollah's weapons, and a dialogue must be held over these weapons, given that the language of dialogue is the one which we want to triumph over any other considerations.… Any decision we take will be consensual and a dialogue is ongoing these days. We do not disclose the nature of the deliberations held on the dialogue table since this issue is sensitive and has some sort of uniqueness. This is why this issue will remain within the framework of the dialogue table and the fact of raising it is of paramount importance. As such, observers closely monitored statements by Prime Minister Hariri and others in the run-up to the June 17 and August 19 National Dialogue sessions. The sessions, as usual, did not produce an agreement on national defense or other issues. The next session is scheduled for October. Some observers continue to warn about the potential for political paralysis similar to the stalemate that prevailed from 2006 through 2008 and fueled sectarian tension. Others note that such paralysis already exists. Meanwhile, the ostensibly apolitical bodies of the LAF, ISF, and presidency continue to engage with the United States and other external parties on a number of capacity-building programs designed to strengthen state institutions vis-à-vis a range of non-state actors, including Hezbollah. Subordinating Hezbollah to state institutions and eliminating its "state within a state" may rely in part on the eventual erosion of Hezbollah's popular support, which most observers agree is strong among Lebanese Shiites and in areas historically controlled by Hezbollah. Hezbollah's popularity is based on a number of factors—its military campaign against Israel, its Lebanese character, its role as an advocate for historically marginalized Shiites, its respect for religious piety, and its vast social services network. Many of its Lebanese supporters view Hezbollah's military capability to be irrelevant and endorse the organization as a political party largely for its social services or religious piety, or for some combination of these and other factors. The legitimacy that this popular support provides compounds the challenges of limiting Hezbollah's influence by consensus. Most third parties have long maintained that the Shib'a Farms are part of the Israeli-occupied Syrian Golan Heights and are not part of the Lebanese territory from which Israel was required to withdraw under U.N. Security Council Resolution 425 (1978). Lebanon, supported by Syria, asserted that this territory is part of Lebanon and should have been evacuated by Israel when the latter abandoned its self-declared security zone in southern Lebanon in 2000. Some observers have argued that by certifying Israel's withdrawal from southern Lebanon in June 2000, then-U.N. Secretary-General Kofi Annan implied that, in the view of the United Nations, the Shib'a Farms are not part of Lebanon. However, the certification report stressed that the United Nations had "not established any legally binding or relevant precedents concerning this part of the border [the Farms] between Lebanon and the Syrian Arab Republic." (See Figure 2 above.) U.N. Security Council Resolution 1701 (2006) called on the U.N. Secretary-General to develop a proposal for the delineation of Lebanon's international borders including in the disputed Shib'a Farms enclave. U.N. Secretary-General Ban Ki-moon's October 2007 report on the implementation of Resolution 1701 included a "provisional definition" of the Farms based on the work of an expert survey team. The Secretary-General continues to urge Israel, Syria, and Lebanon to formally respond to the "provisional definition" of the Farms in the interest of advancing the border demarcation process and defusing the ongoing dispute over whether Israel is occupying Lebanese or Syrian territory in the area. The U.N. Secretary-General repeated his call for a response from the parties most recently in his April 2010 report on the implementation of Security Council Resolution 1559. In the past, Hezbollah Deputy Secretary General Shaikh Naim Qassem has welcomed international intervention in the dispute "if the whole of Shib'a Farms is returned to Lebanese sovereignty," but has warned that "this does not mean, however, that we [Hezbollah] need to disarm—the question of our arms is not linked to the issue of Shib'a Farms or a prisoner exchange" with Israel. In 2008, then-Prime Minister Fouad Siniora appeared to embrace this view by arguing that Lebanon "must completely separate the issue of Israel's withdrawal from the issue of Hezbollah's weapons," and adding his view that, "there are two different issues: The Israeli withdrawal from the Farms and placing it under the supervision of the U.N. until Syria and Lebanon decide on the borders ... and the debate on the defensive strategy, which is to be decided by the Lebanese amongst themselves." Current Prime Minister Saad al Hariri has taken a similar approach and recently reiterated his call for Israel's withdrawal from the northern half of the village of Al Ghajar, arguing that it "is a Lebanese area within the territories we took back in 2000." The northern half of Al Ghajar was placed within Lebanese territory by the U.N. demarcation of the Blue Line in 2000 and became the focus of several Hezbollah attacks on Israeli military personnel. In 2006, the IDF recaptured the northern areas of Al Ghajar and has conducted regular military patrols there since. In 2007, the U.N. Secretary-General stated that "so long as the Israel Defense Forces remain in northern Al Ghajar, Israel will not have completed its withdrawal from southern Lebanon in accordance with its obligations under Resolution 1701 (2006)." Israel has since proposed to withdraw from the northern portion of the village, which some locals oppose because it would result in the division of their community between Lebanon and the Israeli-occupied Golan Heights. The parallel dispute over the nearby Kfar Shouba hills further complicates matters in the tri-border area. More than five years after the assassination of Prime Minister Rafiq Hariri, the Special Tribunal for Lebanon (STL) at The Hague, Netherlands, has yet to issue indictments against any alleged perpetrators. The only suspects ever named in the ongoing investigation, a group of four generals who headed Lebanon's security services at the time of the assassination and were detained in 2005, were released in 2009. According to one Lebanese observer, "Foreign governments fear the instability that might ensue if Mr. Bellemare [STL Chief Prosecutor] issues indictments, so few will regret it if he doesn't. But the United Nations pushed for the Hariri investigation; its integrity is tied up with a plausible outcome. If that's impossible, there is no point in insulting the victims by letting the charade continue." In March 2010, STL Prosecutor Daniel Bellemare questioned several Hezbollah officials, including Hajj Salim, who heads the Special Operations Department, Mustafa Badreddine, head of the counter-intelligence unit, and Wafiq Safa, chief of security. Then, in May 2010, STL President Antonio Cassese stated that "Prosecutor Bellemare announced that he is likely to issue an indictment between September and December of this year." Numerous media reports in July and August 2010 speculated that high-ranking members of Hezbollah may be indicted. As the deadline for indictments approaches, Hezbollah appears to be mounting a public relations campaign aimed at discrediting the tribunal. From 2009 to 2010 Lebanese security forces arrested dozens of Lebanese citizens and government officials, many of whom worked in or had access to the telecommunications sector, on charges of spying for Israel. Hezbollah's leadership has sought to link the alleged spy networks with a broader scheme to exploit the STL investigation to create discord in Lebanon. On August 9, 2010, Nasrallah held a press conference in which he claimed to have evidence that implicates Israel in the Hariri assassination. He also characterized the STL as an "Israeli project" and called for an internal Lebanese commission to investigate the assassination. He said: We have definite information on the aerial movements of the Israeli enemy the day Hariri was murdered. Hours before he was murdered, an Israeli drone was surveying the Sidon-Beirut-Jounieh coastline as warplanes were flying over Beirut.... This video can be acquired by any investigative commission to ensure it is correct. We are sure of this evidence or else we would not risk showing it.… However, if the Lebanese government is willing to form a Lebanese commission to investigate the matter, we will cooperate.... There are some who spent $500 million in Lebanon to distort the image of Hezbollah. That's why we're engaging ourselves in a battle for public opinion, especially that some are working night and day to defend Israel's innocence. Since his address, the March 14 coalition and the opposition have exchanged criticisms in the press, and recent statements have led some observers to speculate that Hezbollah's media campaign may be affecting the March 14 coalition and Prime Minister Hariri's commitment to the process. In an interview with A s- Sharq Al-Awsat on September 6, 2010, Hariri appeared to walk back his accusation that Syria is responsible, a position that he had maintained since 2005: I have opened a new page in relations with Syria since the formation of the government.... One must be realistic in this relationship and build it on solid foundations. One should also assess the past years, so as not to repeat previous mistakes. Hence, we conducted an assessment of errors committed on our behalf with Syria, and I felt for the Syrian people, and the relationship between the two countries. We must always look at the interest of both peoples, both countries and their relationship. At a certain stage we made mistakes. We accused Syria of assassinating the martyred premier, and this was a political accusation…. I do not want to talk much about the tribunal, but I will say that the tribunal is not linked to the political accusations, which were hasty. Hariri's statements have raised concerns that the political costs of supporting the STL may be increasing, and that Hezbollah and the opposition's campaign has upped the ante for indictments; some analysts have questioned whether they will be issued at all. Bellemare has repeatedly stated that he will not allow the investigation to be influenced by Lebanese politics, "I am not influenced by what is said on TV. If I was to gauge my investigation along this, then I would be politicized. I have to go through the steps to make sure the result is a credible (step). And that the people—the victims and their relatives—will have an outcome they are able to believe." U.N. Secretary-General Ban Ki-moon responded to the recent exchanges between Hariri and Nasrallah by saying that he does not believe that the future of the STL is at stake: "The Special Tribunal on Lebanon has been working and making progress. This is an independent judiciary process, so that should not be linked with any political remarks by whomever, by any politicians." Obama Administration assessments of Syria's continuing relationship with Hezbollah have been uniformly negative. In February 2009, DNI Blair stated that "Syrian military support to Hizballah has increased substantially over the past five years, especially since the 2006 Israel-Hizballah war." In testimony before the House Foreign Affairs Committee on April 21, 2010, Assistant Secretary of State for Near Eastern Affairs Ambassador Jeffrey Feltman stated: Whereas the late Syrian President Hafez al-Asad seemed to view Hizballah as a point of leverage he could use with Israel, President Bashar al-Asad's unprecedented political and military support for the organization speaks to a different and even more troubling relationship. The Syrian Army's 2005 withdrawal from Lebanon and Hizballah's 2006 conflict with Israel deepened the strategic interdependence between the Syrian state and Hizballah. Hizballah's actions in Lebanon and abroad contravene Security Council Resolution 1701, are inconsistent with Lebanon's democratic processes, stoke sectarian tensions, and threaten to spark renewed conflict in the region. Time and again, we have seen that Hizballah's weapons and Syria's support for its role as an independent armed force in Lebanon are a threat, both to Israel, and to Lebanon itself, as well as a major obstacle to achieving peace in the region. In summary, Ambassador Feltman argued that "Syria's relationship with Hizballah and the Palestinian terrorist groups is unlikely to change absent a Middle East peace agreement." The Obama Administration has pursued a policy of limited engagement with Syria in order to more clearly communicate U.S. views and interests to Damascus. According to U.S. officials, the limited engagement strategy also seeks to convince Syrian leaders that their support for Hezbollah ultimately destabilizes the region and makes it less likely that they will secure their core national security objectives, including the return of the occupied Golan Heights from Israel. Recent reports concerning the possible transfer of "increasingly sophisticated ballistic weapons" from Syria to Hezbollah underscored the importance of clear bilateral communication. Administration officials have recounted their efforts to convince the Syrian government of the gravity of the situation with limited apparent result. In February 2010, U.N. Secretary-General Ban Ki-moon stated that, "The effective management of the borders of Lebanon continues to be affected by the lack of demarcation of the border between Lebanon and the Syrian Arab Republic and by the continued presence of Palestinian military bases which straddle the border between the two countries." Syrian-Lebanese relations appeared to improve with the visit of Lebanese Prime Minister Saad al Hariri to Damascus in late December 2009. However, since that time, no announcements have been made regarding the demarcation of a common border. The joint visit of Iranian President Mahmoud Ahmadinejad and Hezbollah Secretary General Nasrallah to Damascus in February 2010 also cast doubt on the willingness of Syrian leaders to fundamentally shift their positions regarding Lebanese sovereignty and security. The Obama Administration is supporting Lebanon's efforts to assess its border management needs and improve its capabilities. For example, in late April 2010, a State Department anti-terrorism assistance team visited Beirut's port and the border checkpoint at Masnaa on the main Beirut-Damascus highway to assess existing programs and determine the needs of Lebanese forces. At present, Lebanese authorities have prioritized the training and equipping of a new 700-person, joint LAF-ISF Common Border Force to patrol Lebanon's eastern border with Syria. According the U.N. Secretary-General's February 2010 report, "in order to become fully operational, the Common Border Force II will require equipment and the realization of necessary infrastructure works in its area of responsibility." According to U.S. officials, the Islamic Republic of Iran is Hezbollah's principal source of external material, financial, and political support. The Obama Administration's 2010 report on Iran's military power states: Iran has been involved in Lebanon since the early days of the Islamic Republic, especially seeking to expand ties with the country's large Shia population. The IRGC played an instrumental role in the establishment of Lebanese Hizballah (LH) in 1982 and has continued to be vital to the development of the organization. The IRGC-QF [Iranian Revolutionary Guard Corps – Quds Force] provides financial, weapons, training, and logistical support to Lebanese Hizballah. In turn, Lebanese Hizballah has trained Iraqi insurgents in Iraq, Iran and Lebanon, providing them with the training, tactics and technology to conduct kidnappings, small unit tactical operations and employ sophisticated improvised explosive devices (IEDs), incorporating lessons learned from operations in southern Lebanon. … Iran, through its longstanding relationship with Lebanese Hizballah, maintains a capability to strike Israel directly and threaten Israeli and U.S. interests worldwide. With Iranian support, Lebanese Hizballah has successfully exceeded 2006 Lebanon conflict armament levels. On 4 November [2009], Israel interdicted the merchant vessel FRANCOP, which had 36 containers, 60 tons, of weapons for Hizballah to include 122mm katyushas [Soviet-style short-range rockets], 107mm rockets, 106mm antitank shells, hand grenades, light-weapon ammunition. The IRGC-QF operates training camps in Lebanon, training as many as 3,000 or more LH fighters. Additionally, Iran also provides roughly $100-200 million per year in funding to support Hizballah. Experts are divided over the extent to which and means by which Iranian officials influence Hezbollah's decisions about its security posture and engagement in Lebanon's political process. Some observers contend that Iran's considerable and seemingly irreplaceable material and financial support are such that Hezbollah figures are not in a position to resist demands from Iran. Others argue that Hezbollah maintains a significant degree of independence by virtue of its indispensability to its Iranian supporters. According to this view, Iran's ability to influence political and security developments on Israel's northern border would be much diminished without Hezbollah's support, giving Hezbollah leaders significant leverage in discussions with their Iranian benefactors. Iranian influence over Hezbollah also may vary with regard to different elements of the organization and in different political contexts. The close relationship between the IRGC and Hezbollah's "resistance" elements may afford Iran a level of influence it does not enjoy with Hezbollah's political cadres, who, by Hezbollah's accounts, are compartmentalized from the decision making process for the organization's intelligence and military training activities. Recent events suggest that Hezbollah's domestic political interests and the transnational security priorities shared by Iranian and Hezbollah security officials create competing pressures in some cases. For example, in 2008, Hezbollah's armed response to Lebanese government efforts to assert control over Beirut airport security and national communication networks damaged the group's image as nationalist resistance fighters among some groups even as it may have preserved the organization's operational effectiveness as a potential Iranian military proxy. Hezbollah's network and activities extend beyond Lebanon and the Levant, though experts are divided over their extent and nature. In September 2006, in a hearing before Congress, then-Principal Deputy Coordinator for Counterterrorism at the State Department Frank Urbancic, Jr. stated that: Looking globally, Hezbollah's support network extends into the Middle East, where it performs various fundraising activities. It has supported terrorist activities in the Palestinian territories since at least 2000 by providing financial, training, and logistical support to Palestinian Islamic Jihad and other Palestinian terrorist groups. Although there is little credible evidence of operational Hezbollah cells in Latin America currently, Hezbollah does have supporters and sympathizers throughout the Arab and Muslim communities in that region, and these are involved primarily in fundraising. Hezbollah's supporters and sympathizers are also involved in a number of illegal activities, as has been mentioned by several Members of the Subcommittees. Hezbollah receives a significant amount of financing from the Shiite diaspora of West Africa and Central Africa. Since 2006, analysts have speculated about the nature of Hezbollah's international patronage networks. Most agree that the vast majority of these criminal enterprises are ethnic Lebanese in South America, North America, Europe, and West Africa who support Hezbollah for religious, ideological, or personal reasons and voluntarily remit money through couriers or electronic transfers. Some, however, have vocalized concerns that these networks also might provide logistical support or function as "sleeper cells" should Hezbollah decide to attack U.S. or Israeli interests abroad. The Middle East . While Hezbollah's most robust presence remains in the Levant, its support network extends well beyond, including into the Gulf, where Hezbollah performs various fundraising activities. Hezbollah has supported terrorist activities in the Palestinian territories since at least 2000, by providing financial, training, and logistical support to Palestinian Islamic Jihad (PIJ) and other Palestinian terrorist groups. The April 2009 conviction of a Hezbollah cell in Egypt for spying, plotting attacks on resorts frequented by tourists, and arms smuggling illustrates Hezbollah's growing regional reach and ambitions. Since at least 2004, Hezbollah has provided training to select Iraqi Shia militants, including the construction and use of shaped charge improvised explosive devices (IEDs) that can penetrate heavily armored vehicles. West and Central Africa . Hezbollah receives a significant amount of financing from the Shiite Muslim diaspora of West and Central Africa. The Lebanese diaspora is active in West Africa's commercial sector with extensive business networks throughout the region and extending beyond. In many cases these businesses have significant control over basic imported commodities, such as rice and chicken. Lebanese traders are also very active in diamond exports, both as a business and in criminal exploitation. Contributions, which often take the form of religious donations, are often paid in cash and are collected by Hezbollah couriers transiting the region. These groups provide safe haven for Hezbollah fighters. It is important to note that the Lebanese community in West Africa is not monolithically Muslim nor completely supportive of Hezbollah, but mirrors the same religious and political divisions present in Lebanon. Latin America . Although there is little credible evidence of the present activity of operational Hezbollah cells in Latin America, Hezbollah has numerous supporters and sympathizers throughout Arab and Muslim communities in the region who are involved primarily in raising funds for the terrorist group by licit and illicit means. Hezbollah supporters and sympathizers are involved in a number of illegal activities, including smuggling, drug and arms trafficking, money laundering, fraud, intellectual property piracy, and other transnational crime. Hezbollah also was implicated in the attacks on the Israeli Embassy in Argentina in 1992 and on the Argentine-Israelite Mutual Association in Buenos Aires in 1994. A number of independent reports have raised questions about Hezbollah's ongoing activities in Latin America, particularly in the tri-border area between Paraguay, Argentina, and Brazil. For example, Paraguayan investigators estimate that Lebanese immigrant Assad Barakat funneled to Hezbollah about $6 million a year between 1999 and 2003 from his extensive smuggling and counterfeiting operation. North America . In the United States, associates of terrorist organizations have used alleged Middle East charitable organizations to funnel money back home to support various terrorist organizations. The FBI, with its partners in the Department of the Treasury, Department of State, and the rest of the Department of Justice, works closely to have these organizations that are providing material support to terrorists shut down and have those knowingly engaged in such conduct criminally charged. In June 2002, two men in North Carolina were tried and convicted for providing material support to Hezbollah through racketeering and conspiracy to commit money laundering by channeling profits from cigarette smuggling to purchase military equipment for Hezbollah. In July 2007, the Department of the Treasury declared that Goodwill Charitable Organization, Inc. in Dearborn, MI, was a fundraising front for Hezbollah, closed the offices, and froze the organization's assets in U.S. financial institutions. To date, the United States has used official terrorist designations and listings to impose financial and immigration sanctions on Hezbollah and its supporters, including the blocking of assets under U.S. jurisdiction, a prohibition on U.S. citizens providing financial or material support to or engaging in financial transactions with designated parties, and a prohibition on entry into the United States and authorization of deportation for Hezbollah associated individuals. In 1995, the United States listed Hezbollah as a Specially Designated Terrorist (SDT). The Department of State designated Hezbollah as a Foreign Terrorist Organization (FTO) in 1997. In 2001, the U.S. government designated Hezbollah as a Specially Designated Global Terrorist (SDGT) pursuant to Executive Order 13224. In support of the designations of Hezbollah as an organization, the U.S. government has designated several affiliated individuals and entities as SDGTs, including Hezbollah spiritual adviser Sayyid Hussayn Fadlallah, Secretary General Hassan Nasrallah, late intelligence chief Imad Mugniyah, former Secretary General Subhi Tufayli, financial facilitators Qasem Aliq and Hussain and Ahmad al Shami, and others involved in Hezbollah's support networks in Africa and South America. Organizations and entities designated include Hezbollah financial conduits such as the Islamic Resistance Support Organization, the Bayt al Mal (House of Finance); the Yousser Company for Finance and Investment; Al Qard al Hassan (an investment firm); the Martyrs Foundation in Iran and Lebanon; Hezbollah's construction arms " Jihad al Binaa " and the Waad Project; and Hezbollah communication entities Lebanese Media Group, Radio Al Nour, and Al Manar Television. The United States also has targeted supporters of Hezbollah in Iran and Syria with financial sanctions: In 2004, President Bush issued Executive Order 13338, which targets individuals involved with Syria's provision of safe haven and support to U.S.-designated terrorists. Among those designated pursuant to E.O.13338 for providing assistance to Hezbollah are Military Intelligence Director Assef Shawkat and the late Ghazi Kanaan, then-Syrian minister of interior. Both individuals allegedly oversaw the provision of material support to Hezbollah and coordinated Syrian-Hezbollah security cooperation in Lebanon. In 2007, President Bush issued Executive Order 13441, which targets individuals acting to undermine "Lebanon's democratic processes or institutions, contributing to the breakdown of the rule of law in Lebanon, supporting the reassertion of Syrian control or otherwise contributing to Syrian interference in Lebanon, or infringing upon or undermining Lebanese sovereignty." A number of Syrian officials have been designated pursuant to this executive order including Muhammad Nasif Khayrbik, who the Department of the Treasury described as having "coordinated Syrian and Hezbollah positions during regular meetings with Hassan Nasrallah." In September 2006, the Office of Foreign Assets Control amended the Iranian Transactions Regulations (31 CFR part 560) to exclude Iran's Bank Saderat from the U.S. financial system in part for having been "a significant facilitator of Hizballah's financial activities" and serving "as a conduit between the Government of Iran and Hizballah." The United States has backed United Nations Security Council resolutions calling for the disarmament of non-state actors in Lebanon (Resolution 1701) and the prevention of weapons trafficking from Iran to other states, including Lebanon (Resolution 1747). The U.S. Navy has taken enforcement action against suspected shipments of Iranian-origin weaponry to the Levant: In January 2009, U.S. Navy personnel boarded and searched the MV Monchegorsk in the Red Sea. The ship subsequently was monitored before being detained in Cypriot waters for inspection. The United Nations Sanctions Committee on Iran established pursuant to Resolution 1737 later determined that that "military ordnance" and "raw materials used for the assembly of munitions" found on board the ship violated the embargo on arms shipments from Iran. European governments have taken a varied approach to Hezbollah. While the militaries of European Union member states play a leading role in international efforts to restrict the flow of weaponry to Hezbollah and their governments have backed U.N. resolutions calling for its eventual disarmament, many Europeans have resisted calls to designate the organization as a terrorist group. Some governments, including the former Labor government of [author name scrubbed] in the United Kingdom, have considered Hezbollah to have distinct political and military wings and pursued engagement with Hezbollah political representatives while supporting broader efforts to isolate Hezbollah militarily. However, not all governments avoid contact with Hezbollah's security elements: Germany's intelligence services have engaged in several prisoner and casualty exchange negotiations as an intermediary between Hezbollah and Israel since the mid-1990s. Members of Congress have long called for individual EU member states and the European Union as a whole to designate Hezbollah as a terrorist organization in order to target Hezbollah's recruiting, media, and fundraising activities in Europe. While some EU representatives have supported this position, others have not, and a consensus in favor of isolation has not emerged. At present, EU officials appear committed to a conditional engagement approach based on Hezbollah's participation in Lebanon's national government. In June 2009, then-EU High Representative for Common Foreign and Security Policy Javier Solana met with elected Hezbollah officials and said, "Hezbollah is part of political life in Lebanon and is represented in the Lebanese parliament." His successor, Catherine Ashton, did not meet publicly with elected Hezbollah representatives or cabinet officials during her visit to Lebanon in March 2010. At present, 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 long-standing 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 appears 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. Critics of U.S. policies aimed at weakening Hezbollah argue that while the United States has taken measures to support the Lebanese state, it has not simultaneously taken direct action to limit the influence of Hezbollah in Lebanon and in the region, to stop the flow of weapons to Hezbollah, or to disarm its militant wing. While U.S. policy focuses on building state institutions in Lebanon in an effort to create the political space for the Lebanese government to manage its own internal security threats and develop its own national defense strategy, analysts and policy makers have posited a number of other potential diplomatic, assistance, and security-related measures that could potentially weaken Hezbollah. Hezbollah's legitimacy is based on an ideology that promotes resistance to foreign "occupiers," particularly Israel, and the organization has styled itself as the defender of Lebanon against those occupiers. Hezbollah often cites historical grievances against Israel as the justification for its weapons arsenal. Some analysts have suggested that Israeli withdrawal from the occupied Al Ghajar village and limiting or ending Israeli overflights of southern Lebanon could serve to reduce tensions and undermine Hezbollah's "national resistance" credentials by eliminating the historical Lebanese grievances with Israel. Advocates of this approach argue that the organization would have no choice but to refocus its efforts on domestic Lebanese issues if its historical grievances against Israel were remedied and that statements by the organization's leadership support this assertion. In 2008, Nasrallah stated that: We are ready to draw up a defence strategy for Lebanon, have the prisoners released, and liberate the Shebaa Farms and the Kfar Shuba Hills in order to close the liberation file. As Lebanese, we will discuss the other file called the defence of Lebanon. The Israelis commit violations, level threats, and harbour ambitions in water.... This means that Lebanon remains under threat.... If we have another means to defend our country, if we no longer need the resistance and its weapons, and if it is better for us to send young men back to their schools, homes, and families, then we will have no problem. We have never said that our resistance is eternal or that we will keep our weapons forever.... Some people say that we will not accept any proposal.... The southern villagers have paid a high price over the past 30 years and since the establishment of the [Israeli] entity in 1948. Let us try to persuade the southerners of some defence strategy—and this is a new proposal—so that they can return to their homes.... We do not consider ourselves an alternative to the state or any other body.... Let others defend and protect the country. We have no problem with that at all. This strategy depends on Israel's willingness to concede these changes and/or on the ability of the United States to exact concessions from Israel. Israel fears that Hezbollah will characterize any concessions as "victories" and use them to consolidate public support, as it did both in 2000 following Israeli withdrawal and again after the war in 2006. Others argue that any short-term gain by Hezbollah in terms of popular support would be outweighed by the eventual erosion of its legitimacy. Some analysts, observers, and former U.S. government officials have argued that the current U.S. approach to Hezbollah is antiquated and that engagement may be the best way to contain and eventually disarm Hezbollah. In his testimony before Congress, retired Ambassador Ryan Crocker advocated that the U.S. reconsider its policy: We should talk to Hezbollah. One thing I learned in Iraq is that engagement can be extremely valuable in ending an insurgency. Sometimes persuasion and negotiation change minds. But in any case we would learn far more about the organization than we know now—personalities, differences, points of weakness. We cannot mess with our adversary's mind if we are not talking to him. This does not need to be styled as a dramatic change in policy; simply a matter of fact engagement with those who hold official positions as members of parliament or the cabinet. Hezbollah is a part of the Lebanese political landscape, and we should deal with it directly. Critics of this approach argue that Hezbollah is still fundamentally a violent organization and that it remains committed to war with Israel and to challenging U.S. interests in the region. Observers recently have questioned whether the Obama Administration may be open to such an approach. In May 2010, Assistant to the President for Homeland Security and Counterterrorism John Brennan stated that "There are [sic] certainly the elements of Hezbollah that are truly a concern to us what they're doing. And what we need to do is to find ways to diminish their influence within the organization and to try to build up the more moderate elements." The Administration has since walked back these comments, and officials at all levels have reiterated that the United States does not engage with terrorist organizations. For the time being, U.S. policy makers at all levels appear to reject this option. Syrian and Iranian support for Hezbollah is well documented (see " Syria " and " Iran " above), and some analysts have argued that, given that reality, engaging directly with Hezbollah will have little effect on the organization's willingness to renounce violence, recognize Israel, or disarm, because the power center of the organization and its primary arms supplier are located, respectively, in Tehran and Damascus. In order to persuade the leadership in Iran and Syria, the United States could increase the costs of support for Hezbollah in a number of ways. Some analysts have argued that the United States should pursue U.N. sanctions against Syria for clear violations of Security Council Resolution 1701 and against Iran for violating Resolution 1747. Such a campaign may be perceived as an attempt to legitimize potential airstrikes against Syrian facilities along the Lebanon border should transfers of Scud missiles or other sophisticated weapons continue, and this perception could fuel regional instability by putting Syria and Iran on the offensive. Others argue that the United States may be able to entice Syria to slow or stop its material support for Hezbollah and/or its interference in Lebanon by easing existing sanctions or brokering a peace agreement with Israel. Such an agreement could break the current alliance between Syria and Iran and eliminate or significantly diminish Syria's need for Hezbollah as a line of defense against perceived Israeli aggression. Since taking office, the Obama Administration has worked to normalize U.S.-Syria relations through direct engagement with Damascus. Syria's willingness to cooperate with the United States depends primarily on the extent to which it credits the U.S. ability to exact concessions from Israel, particularly over the disputed Golan Heights. Recent events indicate that the Administration lacks domestic political support to expand engagement with Syria, as indicated by the still-unconfirmed ambassadorial nomination of Robert Ford to Damascus. Analysts have also questioned whether the United States has the necessary leverage to bring Israel to negotiations over disputed territories. The United States has provided economic assistance to Lebanon in increasing quantities since Syria withdrew its occupation force in 2005 (see Table 1 above). The policy reflects a U.S. commitment to build state institutions and promote political and economic reforms that might eventually move Lebanon from sectarianism to a more pluralistic democracy, and creating political space for the Lebanese government to address more complex, politically sensitive issues like a strategy for national defense. While Economic Support Funds (ESF) assistance levels have been on par with military assistance in recent years, some observers question whether the U.S. assistance strategy is too focused on the security sector. Building municipal capacity in areas historically controlled by Hezbollah could allow Lebanon's Shia community to develop political alternatives to Hezbollah and increase confidence in the government's capacity to deliver services and security. Conditional assistance from the international community might target NGOs and government efforts to provide alternatives to extremism through social services, public education, and economic growth activities. Services in the south targeted to provide an alternative to Hezbollah's social services would have to be balanced by assistance in other areas of the country or the United States and the international community could be perceived as abandoning a population that has been historically sympathetic to the West. Regardless of the focus of U.S. assistance, some analysts argue that it should be tied more closely to or contingent upon structural political reforms designed to address instability and the underlying problem of Lebanese confessionalism. They assert that Hezbollah is a symptom of a broken political process and only structural change can unlock the sectarian system and create a more pluralistic democratic system. Key components of any such reform program would likely include the creation of a bicameral legislature and elections based on proportional representation. Both prospects have been met with strong opposition from Lebanon's current political leaders based on entrenched sectarian interests. Current U.S. policy toward Lebanon and U.S. security assistance to Lebanon is designed to advance two goals: state institution building and the implementation of United Nations Security Council resolutions. Critics of this policy argue that the current assistance program is not sufficient to meet those goals and that the United States should provide Lebanese security forces with more sophisticated equipment in order to enable them to take up the mantle of national defense, which Hezbollah has historically claimed. Observers have identified the need for more sophisticated equipment and more extensive training to encourage LAF leadership to cooperate and coordinate more closely with UNIFIL and for border security. If a goal of U.S. policy is to increase the capacity of the LAF to such an extent 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 in Lebanon, and 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 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. While the incident appears to have been isolated despite initial fears that it would escalate to broader conflict, the incident called attention to U.S. assistance to the LAF, leading some analysts and some Members of Congress to question the effectiveness of U.S. security assistance to Lebanon and the integrity of the LAF. Most analysts agree that U.S. policy makers are unlikely to expand U.S. security assistance to Lebanon under current circumstances. The United States is caught in a catch-22; it cannot equip a Lebanese army capable of confronting Hezbollah militarily without altering the military balance in the Levant and possibly affecting Israel's Qualitative Military Edge (QME). Furthermore, many analysts question whether the LAF, even with more advanced training and equipment, possesses the political will to confront Hezbollah. They 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. Should the security situation in Lebanon or the region deteriorate, Israel or the United States may choose to disarm Hezbollah by force. Most policy makers, analysts, and observers agree that this option is categorically undesirable, and may even be unattainable, and that any military strike of the scale required to eliminate Hezbollah's militia would have significant political costs. Some analysts and U.S. policy makers may have hoped that Israel would destroy Hezbollah in 2006, but most agree that any military campaign of that scale would be destructive to Lebanon and escalate into a broader regional war involving Syria and Iran. Still, some analysts assert that another war between Israel and Hezbollah is inevitable, citing increased anti-Israeli rhetoric on the part of Hezbollah, increased Israeli statements about Hezbollah and Iran, and heightened levels of Israeli military and defense preparedness as indicators. These analysts also speculate that Israel may view any provocation as an opportunity to attempt to eliminate Hezbollah's military capability entirely. Most analysts agree that a war between Hezbollah and Israel could escalate into a regional conflict and most certainly would be costly in human and material terms. Recent official Israeli statements indicate that it will not distinguish between the Lebanese government and other armed actors in future conflict. The Israeli cabinet reportedly decided in 2008 to hold the Lebanese government responsible for any attacks against Israel emanating from Lebanese territory, including those perpetrated by Hezbollah. Hezbollah's leadership has also adopted a more aggressive posture since 2006. On May 25, Hezbollah Secretary General Hassan Nasrallah marked the 10 th anniversary of Israel's withdrawal from Lebanon with a lengthy speech in which he warned Israel that, "In any upcoming war you want to wage against Lebanon, if you besiege our coast, shores, and ports, all the military, civilian, and cargo ships that are heading to the ports of Palestine alongside the Mediterranean will be within the range of the rockets of the Islamic resistance." Even if the next regional war effectively destroyed Hezbollah's military capability, it would be difficult to guarantee that the organization could not rebuild, especially if a state of civil war or even civil disarray ensued in Lebanon. Most Lebanese militias were integrated into the Lebanese Armed Forces (LAF) following the Taif Accord in 1989, which set out the power sharing agreement between Lebanon's confessional sects that ultimately ended the civil war. Many observers consider this an important precedent and argue that the same model could be used for Hezbollah in the context of Lebanon's National Dialogue and suggest that the United States should seek to influence these discussions in that direction. Hezbollah officials outwardly oppose the idea and there are no indications of a domestic Lebanese appetite for such an approach. This option also could complicate the U.S. policy of treating Hezbollah solely as a terrorist organization, creating the perception that the United States is willing to distinguish between the political wing of Hezbollah and its terrorist/militia component. While most analysts agree that some variation of this option, as an outcome of some domestic Lebanese political process, may be the best-case scenario for resolving the issue of Hezbollah, some have expressed concerns that the end result would be a state security apparatus that is heavily influenced, if not completely controlled by Hezbollah. Others have dismissed this claim, noting that integration would represent a de facto subordination of its militia to the state command and control structure. | Lebanon's Hezbollah is a Shiite Islamist militia, political party, social welfare organization, and U.S. State Department-designated terrorist organization. Its armed element receives support from Iran and Syria and possesses significant paramilitary and unconventional warfare capabilities. In the wake of the summer 2006 war between Israel and Hezbollah and an armed domestic confrontation between Hezbollah and rival Lebanese groups in May 2008, Lebanon's political process is now intensely focused on Hezbollah's future role in the country. Lebanese factions are working to define Hezbollah's role through a series of "National Dialogue" discussions. Hezbollah and other Lebanese political parties have long emphasized the need to assert control over remaining disputed areas with Israel. However, current Hezbollah policy statements suggest that, even if disputed areas were secured, the group would seek to maintain a role for "the resistance" in providing for Lebanon's national defense and would resist any Lebanese or international efforts to disarm it. Hezbollah continues to define itself primarily as a resistance movement and remains viscerally opposed to what it views as illegitimate U.S. and Israeli intervention in Lebanese and regional affairs. It categorically refuses to recognize Israel's right to exist and opposes all concluded and pending efforts to negotiate resolutions to Arab-Israeli disputes on the basis of mutual recognition, including the Israeli-Palestinian conflict. Given these positions, most observers believe that prospects for accommodation and engagement between the United States and Hezbollah are slim, even as the group's close relationships with Syria and Iran, its pivotal role in Lebanese politics, and reinvigorated U.S. engagement in regional peace efforts increase Hezbollah's potential influence over stated U.S. national security objectives. The Obama Administration is requesting $246 million in FY2011 foreign assistance to continue a multi-year program specifically designed to increase the central authority of the Lebanese state and deter the use of force by non-state actors. Since FY2006, the United States has provided more than $1.35 billion in assistance for Lebanon. Key issues facing U.S. policy makers and Members of Congress include: Assessing the goals and effectiveness of U.S. assistance programs—Assessing the goals of U.S. assistance to the Lebanese Armed Forces (LAF) and Internal Security Forces (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. Managing relations with other external actors—Preventing destabilizing actions by regional parties that could renew conflict. Limiting the transfer of sophisticated weaponry to Hezbollah. 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. Safeguarding Israeli security. Influencing Lebanon's National Dialogue—Determining the preferred versus likely outcomes of the current Lebanese National Dialogue discussions about a national defense strategy and Hezbollah's weapons. Deciding if and how the United States should seek to influence these discussions and identifying potential pitfalls. Preparing for potential negative consequences including the potential for return to civil conflict in Lebanon. |
Tax reductions enacted in 2001 through 2004, as well as some under consideration, reduce the effective tax rate on capital income in several different ways. Taxes on capital arise from individual taxes on dividends, interest, capital gains, and income from non-corporate businesses (proprietorships and partnerships). Reductions in marginal tax rates as well as some tax benefits for business reduce these taxes. Taxes on capital income also arise from corporate profits taxes, which are affected not only by rate reductions but also by changes to provisions affecting depreciation, interest deductions, other deductions, and credits. Finally, taxes can be imposed on capital income through the estate and gift tax. Some of these provisions were originally to expire in 2010 or earlier but were extended for an additional two years. Further extensions are under consideration. Bonus depreciation was deliberately set to be temporary, and expired in 2004. It was reinstated in 2008 and extended on several occasions as a stimulus during the recent recession, but is not included in any current legislation. The largest of the reductions, measured by estimated revenue cost, is a one-year extension of the marginal individual rate reductions, which is estimated to cost approximately $94 billion. Other revenue losses include the estate and gift tax repeal at a cost $31 billion, and the reduction in tax rates on dividends and capital gains at a cost of approximately $26 billion. In addition to extensions of various tax reductions, income tax reform, including reform of corporate and business taxes, may be considered, which could also affect capital income tax burdens. Although many issues surround these tax changes, one of them is the extent to which they benefit higher- or lower-income individuals. The eventual consequences of these tax provisions depend on the behavioral responses to tax cuts, which also drive issues of incentive effects and economic growth. This report addresses these distributional issues, in the context of behavioral responses. The first section of this paper provides general data on the distribution of capital income of various types, as a background to discussing the incidence issues. The next section discusses how behavioral responses could alter the distributional effects, examining both shifts in the types of assets held and changes in savings rates. Capital income may be earned directly by individuals in operating their own businesses or as passive income from lending or investing in corporate stocks. Income from unincorporated businesses is not separated into labor and capital income, but the distribution of income of different types can be compared by examining passive capital income sources. There are three major types of passive capital income: interest on debt, dividends on corporate stock, and capital gains (which arise from the sale of stock and from the sale of other assets). Table 1 provides data on the distribution of this income. Table 1 demonstrates several aspects of the distribution of capital income. First, as in the case of all income, the distribution is very uneven, with larger shares accruing to very small portions of the population. For example, the under $30,000 adjusted gross income class has 48% of the returns but only 10% of income, 13% of wages, 18% of taxable interest income, 9% of taxable dividends and 3% of taxable capital gains. Those over $200,000 had 26% of income, 19% of wages, 39% of taxable interest income, 39% of taxable dividends, and 57% of taxable capital gains. Secondly, on the whole capital income is more concentrated among higher-income individuals than is wage income and the concentration varies by type. Capital gains are more heavily concentrated among higher-income individuals than is income from dividends, and dividends are more concentrated than interest. Higher-income individuals are more likely to be risk takers and invest in stocks and bonds so that both dividends and capital gains are more concentrated in higher-income classes than is interest income. The greater concentration of capital gains as compared to dividends may be partly due to the preference of higher-income individuals for growth stocks, partly due to the fact that a lot of interest is effectively reported as dividends because it is funneled through mutual funds, and partly due to the fact that sales of capital assets also reflects sales of real property (also concentrated in high-income classes). High-income individuals would also tend to prefer investments that would have otherwise been subject to higher individual tax rates, and so may be more concentrated in capital gains and stocks for that reason. (Although corporate source income is taxed more heavily than non-corporate income, this rate is essentially a flat rate and there is no tax benefit to higher-income individuals. At the personal tax level, however, high-income individuals benefit from the lower capital gains rates more than lower- and middle-income individuals, because of the higher spread between the ordinary and capital gains tax rate.) Note that there are also significant amounts of capital income that are not subject to tax. One such source of income, tax exempt municipal bonds, is reported in Table 1 . There are much larger amounts of interest held in pensions and IRAs; in fact about half of interest and dividends are not taxable for this reason. The implicit rent from owning consumer durables, most importantly owner occupied housing, is not subject to tax. If individuals did not change their behavior in response to a tax change, then the effect of tax cuts or increases for these types of income could be measured by applying the change in the tax rates to income. Cuts in capital gains tax would most favor higher-income individuals, but in general, all tax cuts on capital income are likely to benefit higher-income individuals. Table 1 does not contain any information about the estate and gift tax. However, the estate tax is highly concentrated among top asset classes, with only 2.1% of decedents paying estate taxes in 2000 (before the recent round of tax cuts). Table 1 also does not contain direct information about corporate source income, but since that income is ultimately received as dividends and capital gains, the data also suggest that corporate taxes, were there to be no behavioral response, would fall on higher-income individuals. Based on this distributional data, capital income taxes fall on higher-income individuals and contribute to the progressivity of the tax system. This analysis, however, is incomplete for two reasons: portfolio shifts and possible effects on savings behavior. Portfolio shifts are considered first. Holding aggregate assets as fixed, there is no behavioral response unless returns on different types of assets are taxed differently. In general, more assets will be allocated to those activities or forms of investment whose returns are favored by the tax system. In a classic economics article that focused on the response to a differential tax—in this case the corporate income tax—the analysis showed that the likely outcome of such behavioral response is that the burden of the tax falls on all owners of capital. This behavioral response arose from the migration of capital out of the more heavily taxed sector as the post-tax return falls, and into the more lightly taxed sector. As capital migrates, the sector with the reduced capital stock will experience a higher pre-tax return (because capital is relatively scarce compared to the other sectors), while the sectors with the increased capital stock will experience a lower pre-tax return. This process occurs until after-tax returns (adjusted for risk) are once again equated. Capital owners in the tax-favored sector bear part of the burden through lower pre-tax returns and capital owners in the taxed sector have some of the original burden reduced through higher pre-tax returns. This shifting effect can, however, only occur for the "normal" return to capital (the return earned by competitive firms); excess returns due, for example, to market power should be capitalized in the value of the firm: an increase in tax produces a one-time fall in value that falls on the current owners. Labor could benefit slightly or share some small part of the burden, but in general to examine the burden of, say the corporate tax, one would want to attribute the tax to owners of capital in general. Thus to determine the distribution across income classes it is necessary to determine the distribution of capital and labor income. A Treasury study estimates the distribution of capital, labor, and all income by population quintile (with some finer divisions at the top), as reported in Table 2 . This analysis confirms the earlier findings that suggest capital income is especially concentrated at high levels. The top 1% has more than 30% of capital income but only 10% of labor income. Thus while portfolio shifts should be taken into account in determining the burden of capital income taxes, since overall capital is concentrated towards higher-income individuals, a tax on capital income is likely to fall on higher-income individuals, even considering shifts in the allocation of capital. Hence, capital income taxes contribute to the progressivity of the tax system, even if they are applied at a flat rate (as is essentially the case of the corporate tax). There is one potential reservation to this argument, even in the context of a fixed savings rate, namely the effect of capital income taxation in an open economy. When capital is migrating across sectors, labor is also free to migrate as well as wages and prices change. When capital migrates abroad, however, labor does not have the same freedom. Thus it is possible that the burden of capital income tax shifts to labor for this reason. Indeed, in a very specific set of circumstances one can find that the entire burden of a tax imposed in one country is shifted to labor and since the share of labor income received by higher-income individuals is less than the share of total income, then capital income taxes would be regressive rather than progressive. The circumstances for this outcome, however, are very narrow: the tax must be applied on a territorial basis (that is, only applied to capital used in the country, not capital owned by the country's citizens), capital investments must be perfectly substitutable across different countries, the country must be a small country, products must be perfect substitutes, and there are no returns from market power. Moreover, there must be no response to a change in tax rates from the trading partners. These conditions do not apply to the United States, which is a large country where personal level taxes are applied on a residence basis and even corporate taxes are not entirely territorial. Moreover imperfect substitutability of assets or of products can cause less and even none of the tax to fall on labor, even in the absence of market power, and the empirical evidence suggests that such is the case. Finally, with inflation, debt financed capital can actually experience a subsidy at the firm level (because nominal interest payments are deductible) and if debt is more substitutable than equity (which is likely) an increase in the corporate tax could actually cause a capital inflow rather than a capital outflow. Thus, introducing an open economy is not likely to change the conclusion that the ultimate burden of capital income taxes falls on capital in general and therefore falls more heavily on higher-income individuals, even in the limited case of the corporate tax. The burden of a capital income tax could be shifted, in all or in part, to labor, if individuals respond to the reduction in return by reducing savings. However, such an effect is not at all certain. On a theoretical basis, in a model of optimizing individuals, an increase in the rate of return can lead to more savings or less savings depending on income and substitution effects (that is, lower incomes cause one to consume less in every time period, while substitution effects cause consumption to shift over time). The outcome depends on a number of important issues and model assumptions. Secondly, the presumption that individuals can make the complex optimizing decisions about saving that are depicted in these models is questionable. Indeed, there is considerable reason to believe that individuals may employ rule-of-thumb guidelines to saving behavior that suggest that taxes on capital either have no effect or increase savings. This view is bolstered by empirical evidence that suggests savings rates tend to be relatively steady over time rather than engaging in the dramatic swings that are predicted by certain optimizing models. To interpret the empirical evidence, it must be related to a particular theory, so the first subsection lays out alternative models and approaches and their theoretical implications: the Ramsey model, the life-cycle model, and a discussion of bounded rationality. The following subsection reviews briefly some of the empirical evidence. The earliest model of economic growth, called the Solow model, simply took the savings rate to be fixed. Like much of the macroeconomic theory developed before the 1970s, the model was developed to explain empirical observations. Models of economic cycles were needed to explain depressions and recessions, and models of growth needed to reflect the stylized facts of steady growth of output and productivity in the U.S. postwar period. The Solow model with its fixed savings rate was consistent with both a steady state growth in output per capita in the U.S. economy, as well as a savings rate that seemed to show no trend. Economists were dissatisfied with those models, which were not built up from individual optimizing decisions as are other models in economics, and many new macroeconomic model variations developed. As a result, students in modern macroeconomics study many types of models. In the area of economic growth, these new models were intertemporal models which allowed individuals to choose consumption over time—that is to make savings decisions that responded to the prices and quantities in the economy. Many of these models continued to treat technological advance as exogenous and characterized by steady state growth. Of these models, there are essentially two forms: the infinite horizon or Ramsey model, and the overlapping generations life cycle model or OLG model. (The infinite horizon model is actually a special case of the OLG model.) These intertemporal models are commonly used in academic journals. Indeed, in macroeconomics there is increasingly a disconnect between the models used by forecasters (both private and in the government) and those used in the academic literature. Most forecasters use the basic model of sticky prices or wages where fiscal and monetary policy can affect output to address business cycles, with their models gradually developing into Solow models in the longer term. Certainly, no government or private sector forecaster uses a Ramsey or OLG model to predict economic variables. There has also been a reaction among academic economists to these intertemporal models, which assume an enormous amount of sophistication and planning on the part of consumers, and models of "bounded rationality" have also developed, where individuals are often assumed to follow rules of thumb. These rules of thumb often lead back to the Solow model or even to a model where savings falls when the rate of return rises. Because of its infinite horizon, the long run supply of savings is perfectly elastic in this model, which leads to a lot of response to a change in tax rate on capital income. The after tax rate of return must always return to its original value and the Ramsey model (when used to model the actual equilibrium in the economy rather than the social planner problem for which it was originally devised) effectively depicts the economy as composed of a series of identical infinitely lived individuals who optimize over time. With a sufficiently high intertemporal substitution elasticity or IES (which measures the percentage change in the ratio of consumption in two time periods divided by the percentage change in their relative prices) these effects can occur very quickly, although with more modest ones that are consistent with empirical evidence, they take place more slowly. The Ramsey model is not the only way to model the effects of the capital income tax through a formal model of individual rational choice, although it is typically taught in most macroeconomics classes and is popular because of its mathematical simplicity. A more general form of inter-temporal model is the life-cycle model, where rather than depicting individuals as having a single infinite life, individuals have a finite life and new generations are born while others die. The life-cycle model has the same outcome as the Ramsey model if bequests are motivated by interdependent utility functions, but if they occur by accident, are part of a trading situation between children and parents, or because of direct utility from the gift itself ("joy of giving" motivation), the outcome will be quite different. In the life cycle model, savings may rise or fall, due to standard income and substitution effects. The life cycle model may indicate capital income taxes reduce savings or increase savings. The magnitude and direction of outcomes depend on many factors: how substitutable consumption is over time, whether individuals take into account the effects of behavioral response on future returns, why bequests occur and how they change or do not change with a change in the interest rate, the amount of savings that is for precautionary purposes rather than for retirement, the expected period of retirement relative to the working period, and the pattern of wage growth over the career, and the use of the revenues. If a tax on capital is imposed to finance spending (and that spending does not directly affect consumption behavior) then it is likely to be projected to reduce saving, but in models with a fixed bequest target that is significant, a low substitution elasticity, a lot of precautionary saving, and a long retirement period, it is perfectly possible for savings to fall. And a capital income tax cut, even were it to increase savings, would not do so to the degree arising in the Ramsey model, so that the burden would still fall partially on capital. If the tax increase is used to reduce other taxes, the effects depend on the type; however, in the current U.S. federal system where the other major tax base is wages, such a tax substitution would easily increase the capital stock, even if the model did not have bequests. An increase used to reduce consumption taxes would, however tend to product a reduction in savings. Raising capital income taxes and using them to reduce the deficit would almost certainly expand the capital stock (although the deficit could not grow without limit and the model cannot be solved for the steady state unless the deficit was eventually offset). If an increase in capital income taxes leads to decreased consumption then, rather than workers bearing part of the burden, they actually benefit, and capital income bears more than 100% of the burden. One of the important implications of the life cycle model is that the outcome is not only sensitive to the model results, but it is also sensitive to the disposition of revenues, resulting in dramatically different outcomes depending on how revenues are used. ( Appendix A contains a detailed discussion of why this is the case). The life cycle model is superior to the infinite horizon model in some important respects for tax analysis (and public finance economists using intertemporal models tend to gravitate to life cycle models). For example, the Ramsey model does not permit heterogeneity in preferences, unless some individuals are driven to a subsistence level, or, if borrowing against future labor income is not permitted, spend only labor income. The Ramsey model also does not work when there are differential tax rates, unless one group (a country, a state, or an income class) accumulates all of the capital. Thus, it is incompatible with differential taxes across countries, differences in state level taxes, and graduated tax rates. These problems do not exist with the life cycle model. The requirement that individuals exhibit no heterogeneity is a powerful restriction on the model. The theory also implies that with mixed bequest motives, families with bequest motives governed by interdependent utility functions will ultimately own all of the capital stock, although the steady state in the model will take much longer to reach (very long if the fraction of individuals with this type of bequest motive is small). But to reach the Ramsey solution also requires that these families have a continual unbroken dynastic link across descendants that preserves preferences and always reproduce (either asexually or by intermarrying only with other dynastic families), another strong assumption. Both models, however, present some significant other problems from a theoretical standpoint. Perhaps the most important of these is the assumption that consumers are able to engage in a process of choosing savings and consumption (and labor supply in some models) based on optimizing consumption (and leisure) over a period of 55 years or so, or even an infinite period, responding all the while to changes in current and projected wage rates, taxes, and rates of return. Since solving current models requires facility with calculus, at least the knowledge of economic modeling possessed by graduate students, and in some cases the ability to program a large scale numerical model on a computer, as well as an extensive knowledge of economic conditions, such an assumption seems difficult to defend. Bernheim discusses a different type of model of behavior based on "bounded rationality" which acknowledges that individuals have trouble dealing with complex problems, even those much less complex than those presented by life cycle or Ramsey models. If so, those models cannot be used to assess behavior. The response to this criticism is that individuals need only behave as if they are optimizing (much in the way that experienced poker players may behave as if they are basing their bets on the knowledge of odds even if they cannot state those odds). Bernheim describes three conditions that might permit such behavior: if individuals have a chance to repeat the behavior frequently and observe the outcome, if they can observe others' choices and outcomes easily, or if they can obtain and evaluate expert advice. The first two options do not exist for life cycle savings, which occurs only one time and without a chance to examine outcomes and behaviors of one's own contemporaries. Financial advice is not always easy to evaluate—but more importantly, it is generally not consistent with the prescriptions of intertemporal models. Financial planners do not provide advice along the lines of the life-cycle or Ramsey models. They may recommend a rule of thumb, such as saving a percentage of income (consistent with no interest elasticity) or accumulating an appropriate annuity (which is a form of target savings which results in a rise in savings when taxes go up). A fixed saving rate is consistent with another common textbook growth model, the Solow model. It is easy to find evidence of this type of advice. For example, the National Retirement Planning Coalition posts calculators on the Internet to determine how much money you need to save to accumulate a certain recommended amount. This is a target savings approach: if the rate of return goes up you will need to save less to accumulate the target amount. Or consider these statements reported in a newspaper: "Many economists say average workers should be investing 10 to 15 percent of their pay. Other economists say no less than 25 percent"; and "They are nowhere near the $1 million in savings one is supposed to have for retirement." This advice proposes a fixed saving rate in the first case and a target savings approach in the second. Most of the intertemporal models studied have focused on taxes on the return to capital such as individual income taxes and state and local taxes. Estate and gift taxes have unique issues: the motive can strongly determine the effect; the tax affects not only the donor but the recipient; and the estate tax is very concentrated among high-income donors. Suppose that individuals leave bequests because they have saved money as a means of insuring against living too long or having bad health. In that case, the estate tax is irrelevant to their behavior because they will never have to face the tax. However, the estate tax may affect the savings behavior of their heirs—by reducing the value of the net bequest there is an income effect which induces more savings (or possibly more labor supply). If donors receive some pleasure from giving a bequest (so that we think of a bequest as a form of individual consumption) the donor faces competing income and substitution effects that have a uncertain outcome but the recipient has an income effect so that the tax encourages private saving. There are also exchange and altruistic models which have uncertain results. Most empirical evidence seems to point to little savings response. The savings rate has been relatively constant during most of the post war period and attempts to formally estimate the savings response, while problematic, have found small effects of varying sign. Statistical estimates of the substitution of consumption and leisure over time have suggested small effects as well. These latter estimates do not directly determine the savings effects, since the effects depend on the interaction of these estimates with other model features. However, low intertemporal substitution elasticities make it hard for realistic life cycle models to produce large or even negative savings effects from capital income taxes. There is little direct evidence of the effect of estate taxes on wealth accumulation, although the savings evidence in general should be informative about the estate tax as well as other capital income taxes. As noted earlier, the 2004 Economic Report of the President (ER) has argued for the shifting of the tax to labor based largely on economic theory (and specifically referencing the Ramsey model). There is one paragraph, however, which addresses empirical evidence: "Empirical work provides some evidence that capital income taxes are shifted to some extent: studies find that the before tax return to capital is higher when the tax rate on capital income is higher. However, the picture is not entirely clear, because other factors may cause tax rates and before tax rates of return to move together." These statements were based on several papers by Casey Mulligan. The primary reference is Casey B. Mulligan, Capital Tax Incidence: First Impressions from the Time Series , NBER Working Paper 9374, December 2002. Secondary references were Casey B. Mulligan, What Do Aggregate Consumption Euler Equations Say About the Capital Income Tax Burden? , NBER Working Paper 10262, February 2004 and Casey B. Mulligan, Capital Tax Incidence: Fisherian Impressions from the Time Series , NBER Working Paper 9916, August 2003. Since these papers are somewhat complicated, a careful examination of them is contained in Appendix B . That analysis suggests that, contrary to supporting the view that capital income taxes are shifted to labor income, the papers' evidence suggests the opposite. This assessment is based on the observation of a relatively constant estimated pre-tax return, despite significant variations in the tax rate over the twentieth century. This analysis suggests that the major support for the shifting of capital income tax burdens to labor income (and therefore shifting from higher- to lower-income individuals) rests in theoretical models that, while popular with many economists for their mathematical elegance, have not been empirically tested and are not consistent with most empirical evidence on saving. If a formal intertemporal model that is more realistic is used, the analysis of incidence cannot be made until the accompanying policies involving disposition of the revenues are made. For those who doubt that most individuals possess the sophistication and ability to plan (whether over a finite lifetime or an infinite family dynasty), the rule of thumb approaches that involve targeting or fixed savings rates seem consistent with bounded rationality models and suggest that capital income taxes are more likely to have little effect or increase savings. The view that there is little effect on savings seems supported by some empirical evidence. Appendix A. The Ambiguity of Results in a Life Cycle Model To understand the basic issues, including the uncertainty, surrounding the effect of cutting taxes on capital income using an inter-temporal model, consider a simple model where individuals live for two periods. Although more realistic multiperiod models are normally used to study tax issues, this model can provide important insights into what drives the results. In a two period model the individual lifetime budget constraint is: (1) C 1 + C 2 / (1 + r(1 − t)) = WL 1 + WL 2 / (1 + r(1 − r(1 − t)) where C 1 and C 2 are consumption in periods one and periods two, r is the rate of return, t is the tax rate, W is the wage rate, and L 1 and L 2 are labor hours in each period. A typical utility function will result in a relationship between C 2 and C 1 as the following: (2) C 2 / C 1 = (B(1 + r(1 − t))) s where B is the relative valuation placed on the second period consumption (B normally less than 1), indicating that future consumption is discounted in value relative to present consumption, r is the rate of return, and s is the substitution elasticity between consumption in the two periods with respect to the relative price (the price of consumption in period one is one and the price in period two is 1/(1+r(1-t)). Also assume that L 2 and L 1 are fixed, with L 2 /L 1 equal to some constant, a. If a is one, you work the same amount in both periods, and if a equals zero you are fully retired in the second period. By substituting (2) into (1) and using a you obtain the relationship between consumption and income: (3) C 1 (1 + B s (1 + r(1 − t)) (s−1) ) = WL 1 (1 + a / (1 + r(1 − t))) The first thing to notice about this relationship is that if a equals zero so there are no earnings in the second period, and s equals one, consumption and therefore savings is not affected by the rate of return. The effect of r on the left hand is the normal income and substitution effect of a price change (in this case, the price is 1/(1+r(1-t))): if the rate of return goes up you may wish to consume more in the second period, but the higher return means that it is also possible to consume more in both the first and second period. The substitution effect, s, causes savings to rise and the income effect causes savings to fall. On the right hand side there is a direct income effect on W, which is called the human wealth effect. An increase in r causes the present value of earnings to fall and that effect in isolation causes consumption to fall and savings to rise when the rate of return falls. It is the relative size of these different effects that determines whether savings rises or falls with a rise in the interest rate. If you derive the savings rate, which is (WL 1 -C 1 )/WL 1 and differentiate with respect to t and evaluate at t = 0 to get the change in the savings rate, that change is positive for a tax cut as long as: 1- a(C 1 /C 2 ) (4) s >————— (1 + a/(1+r)) One can think of a as a parameter measuring the time horizon of earnings relative to consumption. If a equals zero, s must be greater than 1. With income in the second period, s less than one can still cause a decline in savings depending on the value of a and the other parameters. Since most empirical evidence suggests that intertemporal elasticities a quite small, there is empirical ambiguity for models where significant retirement is assumed in the second period. The same forces that act in this two period model also act in a multi-period model that more realistically reflects actual life cycles (although the effects are much more complicated). In these models as well, the effect on savings depends on the magnitude of the intertemporal substitution elasticity and the time horizon of earnings as compared to the time horizon of consumption. This latter effect means that the period of retirement relative to the period of consumption will affect the results, that the path of wages over a lifetime will matter, and also that bequests can alter the effects because they can alter the horizons of income and consumption. We will return to these issues after discussing a third extremely important consideration, which is how the revenues from a capital income tax increase are used (or how the loss is made up for a decrease). Consider the following scenarios: (1) Tax cuts on capital income reduce government spending (presumed to be spent on consumption goods) which does not affect the individual's private choices. (3) Tax cuts on capital income reduce transfers, which may occur in the first period as well as the second period. (4) Tax cuts on capital income are offset by tax increases on wage income. (5) Tax cuts on capital income are made up by imposing a consumption tax. (6) Tax cuts on capital income add to the deficit. In each of these different scenarios a different outcome appears. Offsetting tax changes with government expenditures invokes the income and substitution effects shown above and thus a tax cut can either raise or lower savings rates. The effect of transfers depends on whose transfers are changed. They can be changed for the old, the young, or both. To consider the two extremes, suppose a tax cut reduces transfers by the same amount for the old. In the simple two period model, the individual loses in transfers exactly what he gained in the tax cut, so that the income effects are removed. A tax cut would unambiguously increase savings for any positive intertemporal substitution elasticity. Suppose instead that the transfer occurred in the first period. In this case, it is even less likely that a tax cut would increase savings than in the government spending case. The normal income and substitution effects that arise from increases in the rate of return would remain. But income of the young would fall because of the negative transfer and that decline in income would reduce both consumption and savings (in proportions that reflect preferences and income). Essentially this assumption produces a negative effect on the right hand side of the budget constraint much the same as a human wealth effect. In practice, lump sum transfers of this nature are unlikely to occur. But the general nature of the transfers is associated with certain types of tax substitutions. For example, if a cut in capital income taxes is financed by a higher tax on wages, that additional tax burden is concentrated more on the young. A consumption tax places more of the burden on the old. If the tax cut is financed by a deficit, then it is much more likely that the capital stock will fall because the effect of private savings is ambiguous but public savings will fall as a result of government borrowing. Note that a tax cut financed with a deficit can only be considered as a shorter or intermediate term effect in a model with myopic behavior (individuals believe that current wages and pre-tax returns will be fixed). For a long run steady state some resolution of that deficit must be determined. There are many aspects of a life cycle model that will affect the direction and magnitude of the effect on savings. The following is a partial list of model features and assumptions that will contribute to the likelihood that the model would predict a savings decrease with a cut in capital income taxes: (1) Lower intertemporal substitution elasticities. (2) Tax cut offset by higher wage taxes, or by a deficit eventually resolved by restoring higher tax rates. (3) Including bequests, which tend to lengthen the time horizon between consumption and earnings (as long as bequests do not arise from interdependent utility functions which leads to the Ramsey model discussed in the text). The effect of bequests is particularly likely to push the results towards less savings when they tend to be fixed targets, as might be the case when money is accumulated because of uninsurable uncertainties such as longevity and health in old age. (4) Incorporating risk which cannot be eliminated by market mechanisms. This could be risk in wage earnings, risk in expectancy, health, rate of return or any number of uncertainties. Risk not only leads to the accumulation of precautionary savings that is not very sensitive to the rate of return (and indeed may be more affected by income effects from the interest rate) but also leads to accumulation of bequests as a form of self-insurance which also tend to be insensitive, as noted above. (5) Longer retirement period relative to working period, which expands the time horizon of consumption relative to earnings. (6) Slower productivity growth (which slows the growth of expected wages); and in general a wage profile with declining wages in later years. (7) Assumption of a minimum subsistence amount of consumption in each period, which limits substitutability in consumption (referred to as the Stone-Geary utility function). There are many other uncertainties associated with life cycle models, some of these quite technical in nature. It is difficult, for example, to calibrate a life cycle model to match all of the features of the economy without bequests unless intertemporal elasticities are set relatively high (even if empirical evidence suggests they are low), growth rates are set artificially low, the time preference rate is negative, or the capital-output ratio is not realistic. All of those compromises affect outcomes in important ways, and it might be argued that any life cycle model that does not include bequests is deeply flawed as a model of savings behavior even if other concerns were not present. In a model that did include bequests, it was quite common to find that a shift to wage tax decreased the capital stock. Appendix B. Evaluation of the Empirical Evidence Referenced in the 2004 Economic Report of the President (ER) Turning to the primary reference (the other papers are in the same vein), the empirical evidence that is referred to in the ER report and that is the main subject of Mulligan's paper, addresses a different shifting issue altogether, namely whether firms try to mark up prices in the short run to immediately shift the burden to consumer prices. This type of short-run shifting is generally questioned by economists, because it requires firms to make irrational short run decisions. If firms are maximizing their profits before tax, then any change in prices leads to a smaller profit and adds a loss in pre-tax profit to the tax burden itself. Also if firms are in a competitive environment, it is difficult to be successful in raising prices because sales would decline significantly. Despite these reservations, a study in the 1960s argued that there was evidence for short run shifting of the corporate tax, although most economists studying the issue concluded that the effects were due to not controlling for other factors, particularly cyclical factors. The Mulligan paper actually carried out two different empirical estimates. The following is a summary and commentary on these findings. Regressing Pre-Tax Profits Against Tax Rates The paper begins with calculations of the pre-tax return to capital and the overall average tax rate on capital taken from the National Income and Product Accounts. Noting that the after tax return is r(1-t), where r is the pretax return and t is the tax rate, he regresses the log of r against the log of (1-t). A coefficient of minus one would indicate that the entire tax is shifted (i.e., the after tax return remains constant), and a coefficient of zero would indicate no shifting. He presents a scatter diagram of the average of these values for five year intervals, and his regression initially yields a coefficient of -0.27 (which would suggest about 27% is shifted). However, a visual examination of the scatter diagram contained in Mulligan's paper makes it clear that the regression coefficient is caused by two outlying periods reflecting World War II (1941-1945) and the Great Depression (1931-1935), and Mulligan suggests those periods be excluded. Once those periods are excluded, the regression line would appear to have an approximate zero coefficient—that is, although the tax rate changes substantially, there is little variation in the pre-tax returns. In particular, the rate of return early in the century is no different than later returns, even though tax rates were zero at that point. Rather than running the regression on this set of data, which would almost certainly produce an insignificant coefficient around zero, the author decides to exclude all pre-World War II data. His reason for doing so is that the data are not as reliable. However, this exclusion also eliminates much of the variability of the tax rate data. The new regression line has a coefficient of -0.51 suggesting half of the tax is shifted. However, it is apparent, again, from looking at the scatter diagram, that cyclical effects are still at work—for example, the 1981-85 period which covers a serious recession is characterized by low pre-tax returns and low tax rates, just as the case of the Great Depression. When Mulligan controls for forecasted unemployment, the relationship disappears with the coefficient not statistically different from zero (and actually positive). These data, therefore, tend to indicate that there is no short-run shifting—that is, pretax returns are not high when tax rates are high. The simple data also would not appear to present much of a case for long run shifting either, since the pre-tax return did not change over long periods of time. That is, tax rates went from zero and very low rates to fairly high rates, over a period covering many years, but there seemed to be little change in pre-tax returns. Mulligan does not use this data to address the long run issue (and there are many other factors that could have an effect). So how is it that Mulligan concludes that there is evidence of long run shifting? (His abstract states: The empirical findings are consistent with significant capital tax shifting in the long run, little shifting in the short run, and clearly rule out over-shifting.) Euler Equation Regressions This conclusion apparently arises from the second part of the paper (and actually from references to other work) which turns to a different estimating strategy. Instead of using pre-tax returns and tax rates, the analysis looks at consumption growth, using the consumption Euler equation from the first order conditions of an intertemporal model (using expectations). This first order condition is: (1) ln E(Ct/(Ct-1) = E (s (r(1-t) -p)) which says that the expected growth rate in consumption (C) is determined by the expected after tax rate of return, and s is the Intertemporal Elasticity of Substitution (IES). It is not possible using this approach to differentiate between the effect of the IES on growth and the short run shifting of the tax. That is, the growth rate of consumption might be unaffected by the tax rate because the IES is close to zero or because a change in r offsets a change in t (short run shifting). Mulligan uses estimates from another paper to set the IES to 1 by regressing consumption growth against after-tax income—an estimate that itself comes from a paper using similar data and that might be questioned. In this case [because he regresses consumption growth against the log of (1-t)] a coefficient of zero implies there is short run shifting and a coefficient of 0.08 (equal to the after tax return) suggests that there is no shifting. The results are mixed and since he is using the same data set for estimating both the IES and short run shifting, it is not clear what the findings are. And although claims are made about long run shifting, it seems difficult to reconcile these results with the data from the first part of his study, which seems to show that pre-tax returns do not change very much over long periods of time. Mulligan concludes that "the empirical findings are consistent with significant capital tax shifting in the long run, little shifting in the short run, and clearly rule out over-shifting." It appears that his conclusions about the long term arise from the fact that tax rates have varied but consumption growth has not. If one assumes a significant IES and no other disturbances (arising, for example, from demographic or technological changes) then one could interpret the stability of consumption growth over periods far apart as evidence that the tax was shifted over the long run. However, the data in his scatter diagram that directly relate pretax return to net of tax share, seem to contradict that view, indicating that, when leaving out the depression and war years and controlling for unemployment, there is no effect of taxes on the pre-tax return, a view consistent with no effect on saving. Direct evidence of long run effects of tax changes on savings is difficult to find given the limitations of data. A number of studies have tried to relate the savings rate to the after tax rate of return; those studies have mostly found small effects that vary in sign—that is small increases or small decreases, but none very significant. These results are not consistent with significant long term shifting, but there are problems with these approaches. In particular, they came under criticism because of arguments that policy changes and expectations might not be constant over time (the Lucas critique). Some of these same criticisms could be applied to comparing pre-tax rates of return over time. The other approach, a consumption Euler approach, as discussed in the Mulligan paper is also vulnerable to many criticisms. Certainly one of them is the possibility that tax rate changes are unanticipated shocks and an uncertainty about the purpose of the tax change. Suppose we presume that the infinite horizon model holds and that there is no short run shifting. An unanticipated fall in the marginal tax rate on capital income that is expected to be permanent (let us in this example hold total taxes constant) causes current consumption to fall in a way that is divorced from the Euler equation, and is set to move the economy to a new growth path. Consumption would fall all at once. Then consumption growth would be higher because the rate of return is higher. But this higher growth would gradually slow as the rate of return adjusted until a new steady state was reached. Thus the theoretical model that lies behind the estimates using the Euler equations, suggests that if the IES is actually large (i.e., one) then consumption growth must be a function of profits as well as tax. If the rate of return is to be fixed or virtually fixed, the implication is that the IES is virtually zero—which means that either the Ramsey model adjusts so slowly that it takes centuries to reach a new equilibrium, or that the Ramsey model is not the right model. Moreover, the presumption of an IES of one in this section is not consistent with the findings in the section comparing pre-tax returns with tax rates. That data seemed to show a relatively constant pre-tax return, an outcome consistent with a very low IES or a model where taxes do not affect savings rates, such as the model of bounded rationality where individuals save a target fraction of income or target an annuity. Summing Up A number of other issues might be raised about the Mulligan paper, including the fact that aggregate consumption growth is affected by technology and population growth, as well as many other institutional factors. Moreover, the author does not actually measure the marginal tax rates that should drive the savings response (he uses average rates). Taxes also include the property tax rate, which is problematic on a number of grounds (including the possibility that these tax rates are capitalized or that individuals choose to live in places where property tax rates are set so as to provide a desirable bundle of local government services). Overall, however, the most straightforward conclusion from this empirical paper is that the pre-tax return has been remarkably stable over a long period of time and in the post-war period when controlled for cycles. This evidence seems to suggest not only that taxes are not shifted in the short run, but also that they do not induce the savings behavior that results in a shift in the long run. If so, the tax burden would fall on owners of capital, not on labor | Tax reductions enacted in 2001-2004 reduce the effective tax rate on capital income in several different ways. Taxes on capital arise from individual taxes on dividends, interest, capital gains, and income from non-corporate businesses (proprietorships and partnerships). Reductions in marginal tax rates, as well as some tax benefits for business, reduce these taxes. Taxes on capital income also arise from corporate profits taxes, which are affected not only by rate reductions but also by changes to provisions affecting depreciation, interest deductions, other deductions and credits. Finally, taxes can be imposed on capital income through the estate and gift tax. Tax cuts on capital income through capital gains rate reductions, estate and gift tax reductions, and dividend relief are estimated to cost about $57 billion per year, with about half that amount attributable to the estate and gift tax. Lower ordinary tax rates also affect income from unincorporated businesses. These tax cuts are temporary and proposals to make some or all of them permanent are expected. Bonus depreciation appears less likely to be extended. While there are many factors used to evaluate the effects of these tax revisions, one of them is the distributional effect. This report addresses those distributional issues, in the context of behavioral responses. Data suggest that taxes on capital income tend to fall more heavily on high-income individuals. All types of capital income are concentrated in higher-income classes. For example, the top 2.8% of tax returns (with adjusted gross income over $200,000 in 2009) have 26% of income, 19% of wages, 39% of interest, 39% of dividends, and 57% of capital gains. Taking into account a very broad range of capital assets, a 2012 Treasury study found that the top 1% of the population has about 19% of total income and about 12% of labor income, but receives almost half of total capital income. Estate and gift taxes are especially concentrated in the higher incomes: prior to the tax cuts enacted in 2001-2004, only 2% of estates paid the estate tax at all. If there is a significant reduction in savings in response to capital income taxes, in the long run the tax could be shifted to labor and thus become a regressive tax. Some growth models are consistent with such a view, but generally theory suggests that increases in taxes on capital income could either decrease or increase savings, depending on a variety of model assumptions and particularly depending on the disposition of the revenues. There are also many reasons to be skeptical of these models, which presume a great deal of skill and sophistication on the part of individuals. New models of bounded rationality suggest that taxes on capital income are likely to have no effect or decrease saving, as individuals rely on common rules of thumb such as saving a fixed fraction of income and saving for a target. Empirical evidence in general does not suggest significant savings responses, as savings rates and pre-tax returns to capital have been relatively constant over long periods of time despite significant changes in tax rate. If capital income taxes do not reduce saving, these taxes fall on capital income and add to the progressivity of the income tax system. This report does not track legislation and will not be updated. |
The following list reviews hundreds of instances in which the United States has used military forces abroad in situations of military conflict or potential conflict to protect U.S. citizens or promote U.S. interests. The list does not include covert actions or numerous occurrences in which U.S. forces have been stationed abroad since World War II in occupation forces or for participation in mutual security organizations, base agreements, or routine military assistance or training operations. Because of differing judgments over the actions to be included, other lists may include more or fewer instances. These cases vary greatly in size of operation, legal authorization, and significance. The number of troops involved ranges from a few sailors or marines landed to protect American lives and property to hundreds of thousands in Korea and Vietnam and millions in World War II. Some actions were of short duration, and some lasted a number of years. In some examples, a military officer acted without authorization; some actions were conducted solely under the President's powers as Chief Executive or Commander in Chief; other instances were authorized by Congress in some fashion. In 11 separate cases (listed in bold-face type ) the United States formally declared war against foreign nations. For most of the instances listed, however, the status of the action under domestic or international law has not been addressed. Most occurrences listed since 1980 are summaries of U.S. military deployments reported to Congress by the President as a result of the War Powers Resolution. Several of these presidential reports are summaries of activities related to an ongoing operation previously reported. Note that inclusion in this list does not connote either legality or level of significance of the instance described. This report covers uses of U.S. military force abroad from 1798 to December 2018. It will be revised as circumstances warrant. CRS In Focus IF10675, Army Security Force Assistance Brigades (SFABs) , by Andrew Feickert. CRS In Focus IF10534, Defense Primer: President's Constitutional Authority with Regard to the Armed Forces , by Jennifer K. Elsea. CRS In Focus IF10535, Defense Primer: Congress's Constitutional Authority with Regard to the Armed Forces , by Jennifer K. Elsea. CRS In Focus IF10539, Defense Primer: Legal Authorities for the Use of Military Forces , by Jennifer K. Elsea. CRS In Focus IF10165, South Korea: Background and U.S. Relations , by Mark E. Manyin, Emma Chanlett-Avery, and Brock R. Williams. CRS Insight IN10797, Attack on U.S. Soldiers in Niger: Context and Issues for Congress , by Alexis Arieff. CRS Report R44853, Additional Troops for Afghanistan? Considerations for Congress , by Kathleen J. McInnis and Andrew Feickert. CRS Report RL30588, Afghanistan: Post-Taliban Governance, Security, and U.S. Policy , by Kenneth Katzman. CRS Report R43344, Conflict in South Sudan and the Challenges Ahead , by Lauren Ploch Blanchard. CRS Report R41989, Congressional Authority to Limit Military Operations , by Jennifer K. Elsea, Michael John Garcia, and Thomas J. Nicola. CRS Report R43377, The Central African Republic: Background and U.S. Policy , by Alexis Arieff and Tomas F. Husted. CRS Report RL31133, Declarations of War and Authorizations for the Use of Military Force: Historical Background and Legal Implications , by Jennifer K. Elsea and Matthew C. Weed. CRS Report R42699, The War Powers Resolution: Concepts and Practice , by Matthew C. Weed. CRS Report R43612, The Islamic State and U.S. Policy , by Christopher M. Blanchard and Carla E. Humud. CRS Report R43478, NATO: Response to the Crisis in Ukraine and Security Concerns in Central and Eastern Europe , coordinated by Paul Belkin. CRS Report RL33460, Ukraine: Current Issues and U.S. Policy , by Vincent L. Morelli. CRS Report R41481, U.S.-South Korea Relations , coordinated by Mark E. Manyin. CRS Report R42077, The Unified Command Plan and Combatant Commands: Background and Issues for Congress , by Andrew Feickert. CRS Report RS21405, U.S. Periods of War and Dates of Recent Conflicts , by Barbara Salazar Torreon. In addition to the historical resources listed in the " Introduction ," below are official government websites that serve as authoritative sources of information for this report. Central Intelligence Agency (CIA), News & Information, Press Releases and Statements https://www.cia.gov/news-information/press-releases-statements Department of Defense (DOD), News Releases https://dod.defense.gov/News/Releases/ DOD, Secretary of Defense Speeches https://dod.defense.gov/News/Speeches/SECDEF-All-Speeches/ DOD, Transcripts https://dod.defense.gov/News/Transcripts/ DOD, America's Continued Commitment to European Security, Operation Atlantic Resolve https://dod.defense.gov/News/Special-Reports/0218_Atlantic-Resolve/ DOD, Operation Inherent Resolve (OIR), Targeted Operations to Defeat ISIS https://dod.defense.gov/OIR/ DOD, Unified Command Plan, Commanders' Area of Responsibility https://www.defense.gov/know-your-military/combatant-commands/ Department of the Army, Official Army Announcements https://www.army.mil/news/newsreleases Department of the Navy, Continuing Promise Humanitarian Missions http://www.navy.mil/local/cp/index.asp Department of State, Bureau of Public Affairs: Office of Press Relations http://www.state.gov/r/pa/prs/ The White House Briefing Room , Briefings and Statements https://www.whitehouse.gov/briefings-statements/ | This report lists hundreds of instances in which the United States has used its Armed Forces abroad in situations of military conflict or potential conflict or for other than normal peacetime purposes. It was compiled in part from various older lists and is intended primarily to provide a rough survey of past U.S. military ventures abroad, without reference to the magnitude of the given instance noted. The listing often contains references, especially from 1980 forward, to continuing military deployments, especially U.S. military participation in multinational operations associated with NATO or the United Nations. Most of these post-1980 instances are summaries based on presidential reports to Congress related to the War Powers Resolution. A comprehensive commentary regarding any of the instances listed is not undertaken here. The instances differ greatly in number of forces, purpose, extent of hostilities, and legal authorization. Eleven times in its history, the United States has formally declared war against foreign nations. These 11 U.S. war declarations encompassed five separate wars: the war with Great Britain declared in 1812; the war with Mexico declared in 1846; the war with Spain declared in 1898; the First World War, during which the United States declared war with Germany and with Austria-Hungary during 1917; and World War II, during which the United States declared war against Japan, Germany, and Italy in 1941, and against Bulgaria, Hungary, and Rumania in 1942. Some of the instances were extended military engagements that might be considered undeclared wars. These include the Undeclared Naval War with France from 1798 to 1800; the First Barbary War from 1801 to 1805; the Second Barbary War of 1815; the Korean War of 1950-1953; the Vietnam War from 1964 to 1973; the Persian Gulf War of 1991; global actions against foreign terrorists after the September 11, 2001, attacks on the United States; and the war with Iraq in 2003. With the exception of the Korean War, all of these conflicts received congressional authorization in some form short of a formal declaration of war. Other, more recent instances have often involved deployment of U.S. military forces as part of a multinational operation associated with NATO or the United Nations. The majority of the instances listed prior to World War II were brief Marine Corps or Navy actions to protect U.S. citizens or promote U.S. interests. A number were engagements against pirates or bandits. Covert operations, domestic disaster relief, and routine alliance stationing and training exercises are not included here, nor are the Civil and Revolutionary Wars and the continual use of U.S. military units in the exploration, settlement, and pacification of the western part of the United States. For additional information, see CRS Report RL31133, Declarations of War and Authorizations for the Use of Military Force: Historical Background and Legal Implications, by Jennifer K. Elsea and Matthew C. Weed and CRS Report R41989, Congressional Authority to Limit Military Operations, by Jennifer K. Elsea, Michael John Garcia, and Thomas J. Nicola. |
Thus far, more than 500 bills have been introduced in the 109 th Congress that apply, in whole or in part, specifically to Indians, federal Indian programs, or Native Hawaiians. Among the major Native American policy issues of concern to the 109 th Congress are: Indian health care, Indian trust fund management reform, Indian gaming lands, and Native Hawaiian recognition. Each of these issues is briefly discussed in this report. Congress has for more than five years been wrestling with the reauthorization of the Indian Health Care Improvement Act (IHCIA; P.L. 94-437 , as amended). Federal responsibility for Indian health care is met primarily through the Indian Health Service (IHS) in the Department of Health and Human Services (HHS). While IHS's permanent authorizing legislation, the Snyder Act of 1921, is very broad, the IHCIA authorizes a great many specific IHS programs, including health professional recruitment and retention, mental health services, urban Indian health services, construction and repair of health facilities, various special IHS funds, and IHS reimbursement by Social Security Act health programs (Medicare and Medicaid) and other public and private health insurance programs. Authorizations of appropriations for IHCIA programs expired at the end of FY2001, but Congress continues to appropriate funds for the programs. Leading Indian health proponents in and out of Congress suggested major changes in IHCIA. A number of significant changes have not been acceptable to HHS or other agencies, however, and ongoing negotiations have produced a succession of IHCIA reauthorization bills through the 106 th -109 th Congresses. The first IHCIA reauthorization bill introduced in this Congress, S. 1057 , was referred to the Senate Indian Affairs Committee and reported on March 16, 2006 ( S.Rept. 109-222 ). A House bill ( H.R. 5312 ), very similar to S. 1057 as reported, was referred to three House committees, and ordered reported by one committee, the Resources Committee, on June 21. A Senate Finance Committee bill, S. 3524 , amending the Social Security Act regarding Indian health provisions in Medicaid, Medicare, and SCHIP, was reported by the Committee July 12 ( S.Rept. 109-278 ). For detailed discussion of these bills and Indian health issues, see CRS Report RL33022, Indian Health Service: Health Care Delivery, Status, Funding, and Legislative Issues . Congress faces a possibly multi-billion-dollar problem stemming from Indian trust funds. The federal government's management of Indian trust funds and lands has led to financial claims against the United States by Indian individuals and tribes. The Indian individual claimants alone suggest they are owed as much as $176 billion. Besides lawsuits, the issue has also led to the controversial reorganization of two agencies, the Bureau of Indian Affairs (BIA) and the Office of Special Trustee for American Indians (OST) within DOI. The BIA has long managed funds, lands, and related physical assets held in trust for Indian tribes and individuals. Trust lands total about 56 million acres (almost 46 million acres for tribes and 10 million acres for individuals). The funds' asset value recently totaled about $3.3 billion, of which about $2.9 billion was in about 1,400 tribal accounts and $400 million was in more than 260,000 Individual Indian Money (IIM) accounts. The Treasury Department houses the accounts, including making payments to beneficiaries. Historically, the BIA was frequently criticized for its management of trust lands and funds. Investigations and audits in the 1980s and after showed that, among other problems, the BIA could not document the asset values of all trust fund accounts and could not link all trust lands to their owners and accounts. Congress enacted the American Indian Trust Fund Management Reform Act of 1994 to reform the management of Indian trust funds and assets; the act directed the Secretary of the Interior to account for trust fund balances and created the OST to oversee trust management reforms. Two years later, based on the 1994 act and general trust law, IIM account holders filed a class action suit in the federal district court for the District of Columbia against the various U.S. officials, demanding an accounting of their funds and correction of fund mismanagement ( Cobell v. Norton , Civil No. 96-1285, D.D.C.). In addition, at least 25 tribal suits have been filed, covering specific tribes' funds. These events have led to the current reorganization of the BIA and OST and to congressional consideration of the settlement of IIM and tribal claims arising from trust fund and lands mismanagement. In the first of two stages of the Cobell case, the district court in 1999 found that DOI and Treasury had breached their trust duties regarding (1) the document retention and data gathering necessary for an accounting and (2) the business systems and staffing to fix trust management. The court ordered DOI and Treasury to bring trust management up to current trust standards. The final stage of the lawsuit will determine the amount of money that ought to be in the IIM plaintiffs' accounts. In an intervening stage, the district court decided what historical accounting method should be used to determine the amount owed the plaintiffs. DOI in 2003 proposed reconciling all trust account transactions above a certain value but only a sampling of transactions below that value, back to 1938, while the plaintiffs had proposed using production and mapping databases and DOI data to estimate the total amount due. DOI estimated its method would show IIM losses in the tens of millions, while the plaintiffs' methods have shown estimated losses (including interest) of well over $100 billion. The district court has twice issued orders (September 2003 and February 2005) requiring the DOI to perform a historical accounting of all IIM trust account transactions and assets since 1887, without using statistical sampling. After the second order, DOI estimated that compliance would cost $12-13 billion. Both times the U.S. Court of Appeals for the D.C. Circuit overturned the district court's order. To date the district court has not issued another order on historical accounting. The DOI continues to carry out its historical accounting plan. Congress has acted on the Cobell suit chiefly through oversight hearings and through provisions in Interior appropriation acts and reports. Both the House Appropriations Committee and the conference committee, in their reports on the FY2006 Interior appropriations act ( P.L. 109-54 ), stated that they rejected the position that Congress intended in the 1994 Act to require an historical accounting on the scale of that ordered by the district court, but no bills have been introduced in this Congress to amend the 1994 Act to delineate the extent of the historical accounting obligation. Congress has long been concerned that the costs of the Cobell lawsuit may jeopardize DOI trust reform implementation, reduce spending on other Indian programs, and be difficult to fund. Current costs include the expenses of the ongoing litigation. Possible future costs include $12-$13 billion for the court-ordered historical accounting, a Cobell settlement that might cost as much as the court-ordered historical accounting, the $27.5 billion that the Cobell plaintiffs have proposed as a settlement amount (in their statement of principles for settlement legislation), or the more than $100 billion that Cobell plaintiffs estimate their IIM accounts are owed. Among the funding sources for these large costs are discretionary appropriations and the Treasury Department's "Judgment Fund," although some senior appropriators consider the Fund insufficient for a $12-$13 billion dollar settlement, much less a larger one. Among other options, Congress may await further court actions, delay a court-ordered accounting, delineate DOI's historical accounting obligations, or direct a settlement. Thus far two settlement bills, S. 1439 and H.R. 4322 , have been introduced in the 109 th Congress. Both bills would establish an IIM accounting-claim settlement fund (whose size was left blank in the introduced bills) from which payments would be distributed to IIM claimants (under a formula to be determined by the Treasury Secretary), establish a commission to review and recommend changes in Indian trust asset management, allow increased payments for fractionated individual Indian trust interests, create a tribal trust management demonstration project, combine BIA and OST under a new Under Secretary for Indian Affairs, and require an annual independent audit of all Indian trust funds (for detailed discussion, see CRS Report RS22343, Indian Trust Fund Litigation: Legislation to Resolve Accounting Claims in Cobell v. Norton ). The Senate Indian Affairs Committee held hearings on S. 1439 in July 2005 (S.Hrg. 109-194) and March 28, 2006 (S.Hrg. 109-483), and, with the House Resources Committee, on both bills on March 1, 2006 (S.Hrg. 109-441). H.R. 4322 awaits further committee action. Senate Indian Affairs Committee mark-up of an amended S. 1439 , with a settlement amount of $8 billion, was scheduled for August 2 but withdrawn at the Administration's request, pending more negotiations over including IIM land mismanagement claims as well as IIM accounting and funds mismanagement claims under the $8-billion settlement. The DOI, BIA, and OST have undertaken, or proposed, a number of administrative and organizational changes to implement trust management reform since the 1994 Act. One of the more important changes was the 1996 transfer from BIA to OST of the office that manages the trust funds; management of trust lands and other physical assets stayed with BIA. In April 2003 the DOI undertook a new, and ongoing, reorganization that splits the BIA trust management operations off from other BIA services at the regional and agency levels, and creates OST field operations (by placing fiduciary trust officers and administrators at BIA regional and agency offices) to oversee trust management and provide information to Indian trust beneficiaries. Tribal leaders and the Cobell plaintiffs vigorously oppose the current reorganization, claiming it included insufficient consultation with tribes, insufficiently defined new OST duties, and should have followed, not preceded, creation of new trust management procedures. The DOI responded that it had consulted with tribes for a year beforehand and that it had faced a court-ordered deadline. Attempts to halt the reorganization in recent Congresses have been defeated, and bills in previous Congresses proposing various changes in DOI and BIA trust management, such as abolishing OST, assigning trust line authority to a new office, or establishing a commission to recommend improvements in federal Indian trust laws and policies, have not been reported from committee. S. 1439 and H.R. 4322 , however, as noted above, propose to reorganize DOI management of Indian trust assets, and S. 1439 may be marked up pending the negotiations mentioned above. The Indian Gaming Regulatory Act (IGRA; P.L. 100-497 ) was enacted to provide a regulatory structure for gambling on Indian reservations and certain other lands, with the intent that tribes would use gaming revenues for tribal economic development and governmental programs. IGRA prohibits gaming on any trust lands acquired after its enactment in 1988, but allows eight exceptions to this prohibition, including ones for tribes without reservations in 1988, newly recognized tribes, restored tribes, and land-claim settlements, and in circumstances where the Interior Secretary and the state governor agree that the acquisition would benefit the tribe and not harm the local community. Critics assert that the exceptions allow "reservation shopping," where tribes seek trust lands for gaming "off-reservation" (i.e., distant from tribes' existing reservations or current or historic locations), and also undermine the on-reservation economic development intended by Congress and encourage land claims and investor-funded tribal petitions for federal acknowledgment. Two of the bills introduced to curb the exceptions, S. 2078 and H.R. 4893 , have been reported. Both bills delete the exception requiring secretarial and gubernatorial agreement, but allow applications filed before a certain 2006 date (March 7 for H.R. 4893 , April 15 for S. 2078 ) to go forward, although H.R. 4893 adds a geographic limitation to lands with a "nexus" to the tribe. Both bills retain exceptions for tribes without reservations in 1988, newly recognized tribes, and restored tribes (but with limitations for the latter two exceptions, including a tribal land "nexus," Interior Secretary approval, and, for H.R. 4893 , a tribal-local mitigation agreement). The land claim exception is repealed by H.R. 4893 but retained by S. 2078 although with geographic and legal limitations. H.R. 4893 adds a new exception for tribes landless on the date of its enactment, but applies the same limits as for newly recognized tribes. Opponents object that the bills add new and unfair burdens on newly recognized, restored, and landless tribes, that the exceptions for secretarial/gubernatorial agreements and land claims have been used only rarely since 1988, and especially that H.R. 4893 's requirement for mitigation agreements is an unprecedented subjection of tribal sovereignty to local governments. S. 2078 awaits Senate floor action. H.R. 4893 was considered by the House September 13 and failed to pass. (For more information, see CRS Report RS21499, Indian Gaming Regulatory Act: Gaming on Newly Acquired Lands .) Native Hawaiians, the indigenous people of Hawaii, are not currently considered Indians under federal Indian law and have no political entity that, like Indian tribes, is recognized by the federal government. Congress has however authorized a number of federal programs to benefit Native Hawaiians. Supporters of recognition are concerned that the absence of a recognized Native Hawaiian political entity endangers federal and state Native Hawaiian programs, exposing them to current legal challenges that claim the programs are race-based. At present, Indian tribes are usually recognized either by Congress or through the DOI's administrative process; Native Hawaiians, however, are excluded from the DOI process, which means congressional action is needed for a Native Hawaiian political entity to be recognized. Three bills in the 109 th Congress, S. 147 , H.R. 309 , and S. 3064 , would establish a process by which a Native Hawaiian political entity would be organized and federally recognized. The bills leave for later negotiations (and legislation) questions concerning the political entity's governmental powers and lands, and exclude the Native Hawaiian political entity from BIA programs and from coverage under the Indian Gaming Regulatory Act. Some of the arguments for and against the bills are summarized here. Proponents argue that Congress has power to recognize a Native Hawaiian political entity because Congress's constitutional authority over "commerce with ... the Indian tribes" extends to all indigenous native peoples in the United States. They also argue that Congress has recognized a "special political and legal relationship with the Native Hawaiian people" ( S. 147 , §2(21)) identical with that with Indian tribes. They point to the numerous Native Hawaiian programs that Congress has established, especially the Hawaiian homelands program, which was established in 1921 when Hawaii was a territory but is now under Hawaii state control (with certain continuing congressional duties), under which certain public lands are reserved for lease only to Native Hawaiians. Proponents argue that Native Hawaiians have not given up their claims to sovereignty but rather had sovereignty forcibly withdrawn in the 1893 overthrow of the Kingdom of Hawaii, an action led by Americans living in Hawaii and with the active support of certain U.S. officials and armed forces there. (The new Republic of Hawaii agreed to U.S. annexation in 1898.) They further state that Native Hawaiians, like Indian tribes, have maintained a single distinct community, with cultural and political institutions. Opponents dispute these points. They argue that Congress's authority extends only to Indian tribes, not to all indigenous peoples, and that hence Congress does not have constitutional authority to recognize a Native Hawaiian political entity. A September 2005 Justice Department statement echoed this concern over constitutionality. Opponents also argue that the United States does not have a special responsibility to Native Hawaiians as it has for Indian tribes. Opponents also contend that recognition of a Native Hawaiian political entity would be based on race alone, arguing that unlike Indian tribes the Native Hawaiian entity would not need to meet criteria of geography, community, and continuous political autonomy. They argue further that Native Hawaiian recognition would set a precedent for political recognition of other, race-based, non-Indian groups. For instance, the U.S. Civil Rights Commission on May 5, 2006, issued a briefing report opposing passage of S. 147 as reported, citing racial discrimination concerns. In addition, some opponents dispute the claims regarding Native Hawaiian sovereignty, arguing among other things that Native Hawaiians' sovereignty ended well before 1893 because the kingdom gave political rights to non-Native Hawaiians, or that sovereignty resided in the monarch, not the Native Hawaiian people, and ended with the 1893 overthrow. Bills similar to S. 147 and H.R. 309 received extensive consideration in the previous three Congresses. S. 147 was reported by the Senate Indian Affairs Committee on May 16, 2005 ( S.Rept. 109-68 ). S. 3064 , an amended version of S. 147 introduced May 25, 2006, is based on discussions among congressional offices, the Administration, and the state of Hawaii. The Senate on June 8, 2006, failed to invoke cloture on a motion to proceed to consider S. 147 , effectively ending Senate consideration of S. 147 and S. 3064 . H.R. 309 was referred to the House Resources Committee and has not been reported. Separately, the House Judiciary Committee's Subcommittee on the Constitution held a hearing on July 19, 2005, on constitutional issues raised by H.R. 309 (Serial No. 109-37). | Native American issues before Congress are numerous and diverse, covering such areas as federal recognition of tribes, trust land acquisition, gambling regulation, education, jails, economic development, welfare reform, homeland security, tribal jurisdiction, highway construction, taxation, and many more. This report focuses on four Native American issues currently of great salience before Congress: health care, energy, trust fund management reform, and Native Hawaiian recognition. This report will be updated as developments warrant. |
Most voting systems used in federal, state, and local elections in the United States rely on computers in some way. The most computerized is the direct recording electronic voting machine, in which votes are recorded directly onto computer memory devices. DREs are the most technologically advanced of current voting systems. They and other forms of electronic voting offer substantial promise for improving elections for both voters and election officials. Questions about the security and reliability of DREs were a relatively minor issue until 2003. Two factors led to a sharp increase in public concerns about them: (1) the Help America Vote Act of 2002 (HAVA) requires at least one voting machine in each precinct to fully accommodate disabled voters and DREs are the only system that currently meets this requirement; and (2) the security vulnerabilities of DREs were widely publicized as the result of several studies released in 2003. Much of the debate over DREs has focused on whether they should be required to produce a paper ballot that can be verified by the voter as a solution to potential vulnerabilities. This approach is often called the voter-verified paper audit trail (VVPAT). Bills to require VVPAT were introduced in the 108 th and 109 th Congresses, but there is divided opinion about both VVPAT and the security vulnerabilities of DREs, particularly with respect to the comparative vulnerabilities of other voting methods and various other aspects of election administration. Proposals to require that DREs use VVPAT or another method of verification have been seen by some observers, including many computer-security experts, as the method of choice for addressing the concerns. However, others, including many election officials, believe that VVPAT is unnecessary or even counterproductive and that security issues are best addressed through other approaches. The public debate about DREs and VVPAT has led to some confusion about the problems and issues involved, and as a consequence, the options that might resolve them. The questions and answers that follow address selected issues and misperceptions concerning DREs and VVPAT, in an effort to clarify and inform the ongoing policy discussion. Questions that arise frequently with respect to the controversy surrounding DREs and possible misperceptions in the debate can be classified into three categories: those relating to DREs themselves, those that relate to paper audit trails, and those that relate to recounts and audits. Questions in each of those categories are addressed in turn below. Voters in various jurisdictions across the country experienced difficulties with the voting process in the November 2004 election, and to some extent in 2006, but problems with DREs were a comparatively minor issue on the whole. Both during and after the elections, the media reported issues with voter registration, the rules for counting provisional ballots, the length of time required to vote, absentee ballot problems, and allegations of voter intimidation and fraud, along with reports about malfunctions of voting equipment, including DREs. A number of malfunctions relating to DREs were covered prominently in media reports on election problems, particularly problems in Franklin County, Ohio, and Carteret County, North Carolina (discussed in greater detail below), in 2004, and Sarasota County, Florida, in 2006. Various glitches and procedural problems were reported with DREs in other states as well, but machine malfunctions that could not be attributed to human error were the exception in 2004 according to a compilation of media reports by the Election Reform Information Project. Two significant problems were reported in 2006. One was "vote flipping" on touchscreen machines, in which a voter reports that the DRE displayed a different choice (usually adjacent on the screen) from the one the voter intended. This problem could be caused by inaccurate touching of the screen by the voter, or by miscalibration of the screen. A potentially more serious problem was an apparent discrepancy in ballot totals in the race for the House seat in Florida's 13 th congressional district, where the apparent undervote in the Sarasota County part of the district was several times that in parts of the district in other counties. However, the most likely explanation for the high undervote appears to be faulty ballot design, not a hardware or software problem with the DREs. In comparison, many problems have been associated with provisional and absentee ballots. A survey sponsored by the federal Election Assistance Commission (EAC) and performed by Election Data Services found that in 2004 at least 1.9 million voters cast provisional ballots nationwide, which were counted or not according to different rules in the various states. In Ohio, which required that a provisional ballot be cast in the voter's home precinct, approximately 22% of the 157,714 provisional ballots cast in the state were not counted (nearly 34,000 ballots). The percentage of provisional ballots counted by states ranged from 0% (Idaho) to 100% (Maine), with an average of about 50%. With respect to military and overseas voters, a survey of 761 local election officials by the National Defense Committee, a private organization, reported that 126,952 absentee ballots were mailed to members of the military and citizens living abroad in 2004, and 94,359 were returned and counted in 2004. More than 30,000 of the absentee ballots in this survey (approximately 26%) were not returned at all, were disqualified for procedural reasons, or were returned too late to be counted. Long lines also plagued voters in many states in 2004, with some waiting hours to cast a ballot (one Ohio voter reportedly waited 10 hours to vote). While it is impossible to know how many voters abandoned lines without voting, long lines impede the voting process and create a final obstacle at the polling place for those who turn out to vote. In 2006, problems with voter registration and polling-place administration were more commonly reported. Among other sources, the Election Incident Reporting System, affiliated with the Verified Voting Foundation, a VVPAT advocate, recorded 42,841 complaints about the 2004 election, 11% of them relating in whole or part to voting machines. Most of the complaints in that data set related to registration or polling place problems. The major alternative voting system to DREs is optical scan, which uses paper ballots, usually marked by hand, that are read electronically. In 2006 almost half of voters used optical scan, and 40% used DREs. While technologically far simpler than DREs, optical scan systems are not immune from problems, and many of the difficulties reported in 2004 and 2006 were for these systems. However, media reports and statements by activists and others sometimes do not distinguish between the two types, lumping them together as "electronic voting systems." To the extent that voters, in contrast, reserve this term for DREs, public confusion and misunderstanding about the source of voting-system problems can result. In addition, if such reports and statements fail to distinguish between procedural and technological problems, mishaps that result from human error may be erroneously regarded as problems with the technology. DREs have been tested by scientists, but the systems have not generally undergone the kind of open scientific scrutiny that might be expected. They are proprietary machines, and manufacturers require confidentiality agreements of those who wish to acquire them. Testing is done as part of federal and state certification processes, but detailed results are not publicly available at present. More detail has been provided in only a relatively few cases, such as the analysis of software obtained from a manufacturer's unsecured website in 2003, subsequent studies by the states of California, Maryland, and Ohio, and a few independent reports. Most of those studies focused on DREs made by Diebold, one of several manufacturers of these systems. HAVA has established some procedures, including the formal involvement of the National Institute of Standards and Technology (NIST) and the science and technology communities, in the standards-development and certification processes (§214 and §221). These and other factors may lead to an increase in the involvement of scientists in the study of DREs and other aspects of election administration. That has already happened to some extent, with, for example, the establishment of the Voting Technology Project by the California Institute of Technology and the Massachusetts Institute of Technology, the involvement of the American Association for the Advancement of Science (AAAS) and the National Research Council in election reform issues, and the awarding of a major grant by the National Science Foundation to several institutions to establish a center for voting technology research. DREs currently in use have a unique set of security vulnerabilities, which has been demonstrated by several of the studies cited above (See footnote 12 ). It results from the same feature—reliance on a computer for casting and recording of votes in a single machine—that gives DREs their capabilities in accessibility, usability, and efficiency. Because the machines rely on complicated software, it is at least theoretically possible that someone could insert hidden computer code that would add, subtract, or change votes. There are several things that such malicious code, or malware, might do. In the best known potential exploit, the hidden code would cause the DRE to record a different vote from what the voter sees on the face of the machine. Another possibility is that the malware could change vote totals after they had been recorded but before they are downloaded for tallying. While an optical scan or punchcard counter could also be programmed to record a different vote from that intended by the voter, with those systems the ballot that the voter saw is preserved as part of normal practice and can be checked independently by another machine or a human. That is not possible with a DRE, where the choices the voter sees on the face of the machine are ephemeral—they are reset when the voter casts the ballot. The actual record of the voter, preserved on an electronic medium, is not something the voter ever sees. In that way, DREs are like lever machine voting systems, in which casting a ballot advances mechanical counters, which the voter cannot see, and resets the levers for the next voter. The difference is that any tampering with lever machines would have to be done one machine at a time, whereas malicious code need be inserted into DRE software only once, before it is loaded onto the machines. As with lever machines, lost or changed votes could result from malfunction as well as intentional tampering. It is generally recognized that this vulnerability of DREs poses at least a theoretical risk. The controversy arises over whether it poses a significant risk in practice, and, if so, what is the most appropriate response. Some DRE proponents claim, for example, that the design of DREs prevents the writing of malware that could change votes in a predictable way in practice. Others claim that following appropriate security and audit procedures is sufficient to prevent successful tampering and that modern DREs, when properly managed, have less risk of losing votes through malfunction than any other voting system. Many DRE critics state, in contrast, that those claims are wrong or cannot be substantiated, and that the only effective solution is a permanent paper ballot that the voter has verified, or some other method of verification that is independent of the technology used to cast and count the votes. In fact, most experts believe that it is impossible to prove that a complex system, such as a DRE or any other voting system, is secure against all possible threats. The question is rather whether they can be made sufficiently secure to make the risk from attempts at tampering acceptably low. There were no substantiated reports from any state of compromised elections due to security flaws that involved computer hacking or similar attacks in 2004. As one observer has noted, "Unlike paper ballots, in the history of DREs, no one has found any evidence of the machines being used for fraudulent purposes." Malfunctions occur, but most problems that have occurred with DREs can be attributed to human mistakes or procedural errors, rather than security issues. In one of the most celebrated DRE malfunctions in 2004, voting machines in Carteret County, North Carolina, stopped counting ballots once 3,005 voters had voted, although they appeared to continue accepting votes. Poll workers expected the machines to accommodate 10,000 voters. An estimated 4,500 votes were lost as a result, attributable to a lack of human oversight in upgrading machine capacities rather than a security breach or an attempt to commit fraud. Because of a close vote in one county race, a second election was required to resolve the contest, a very rare occurrence. The widely reported problem of an overcount in Franklin County, OH, in 2004, occurred when a laptop was used in a precinct to communicate the unofficial tallies from a DRE memory cartridge to the central office. The total number of voters casting ballots in the precinct was 638, but the number initially reported as casting a vote for President exceeded 4,500. The memory cartridge itself and other redundant memory for the DRE contained the correct count, and the error was quickly discovered and corrected. The problem was diagnosed by the DRE vendor as a technical flaw relating to communication between the memory cartridge and the laptop, and controls were added to prevent the problem in future. The undervote problem in 2006 in Sarasota County, Florida, which some have attributed to hardware or software problems with the DREs, is discussed earlier in this report. Aside from the unique security challenges posed by DREs, human interaction with electronic voting machines involves a chain of custody that parallels any other type of voting equipment or method. In this regard, there have been reports of questionable behavior by poll workers, election officials, and vendors with respect to DREs, as with other voting methods. It is not likely that most poll workers possess the knowledge to alter lever, optical scan, or DRE voting machines, and security measures should be designed to address the unique characteristics of each type of voting system to prevent tampering and fraud. Nevertheless, some observers point out that a successful attempt to tamper with DRE software may be especially difficult to detect. If so, discovery of any resultant fraud could be unlikely. Some also believe that the threshold for investigation of possible election fraud is too high in many states and that, as a result, many attempts at tampering may go undetected, no matter what voting system is used. While current DREs have unique security flaws, it has not been established that they pose a greater risk to the integrity of elections than other kinds of problems. The unique concern about DREs and, to a lesser extent, other computer-assisted voting systems, such as optical scan, is the risk from malware, described above. Some experts and activists are concerned that hidden malware could be successfully implanted by an insider, during manufacture or at some other point before distribution, and could be used to impact elections at the national level without detection. For this reason, some observers consider security flaws in DREs to be of major concern to the integrity of elections. All voting systems have security vulnerabilities, and about 60% of voters in 2006 used systems other than DREs. Optical scan systems were used by more voters, and security vulnerabilities have also been demonstrated with those systems. However, the proportion of voters using DREs could continue to increase as a result of HAVA's accessibility requirements, since DREs are currently the only kind of voting system that is generally agreed to meet those requirements. There are many other potential threats to the integrity of elections. Most are not related to voting-system technology. Possible threats include such things as voter-registration fraud, voter intimidation and misdirection, absentee-ballot fraud, flawed election procedures, poor ballot design, poor functional design or maintenance of voting equipment, and significant procedural error. Recent evidence indicates that most lost votes result from voter registration, polling place, and usability problems, not security issues. Some experts argue that such flaws pose a greater threat to the integrity of elections than recent concerns about DRE security, and too much attention is currently being paid to the latter. Unfortunately, there does not appear to be sufficient information available to determine objectively which kinds of threat should be of highest priority to counter, although some observers argue that software attacks are the least difficult type to mount against voting systems. DREs are actually more diverse than any other kind of voting system currently in use. There are several different kinds, by several different manufacturers. First introduced in the 1970s, the systems vary significantly in age, capability, and features. Some present voters with a full-face ballot and register choices via microswitches that the voter presses. Others present ballot pages on a computer screen and register choices via a touchscreen mechanism, point-and-click device, or some other mechanical method. Only more recently manufactured DREs have accessibility features for persons with disabilities. Older models are also more likely to have problems and may have been the source of most of the lost votes attributed to this kind of voting system in the 2000 election. While at some level DREs all share the vulnerability to malware discussed above, security features and vulnerabilities also vary among types and models of DRE. Consequently, a failure or weakness identified or experienced with one particular system will not necessarily be applicable to others. That is also true with respect to other technological issues such as reliability. For example, the DREs that failed in Carteret County, NC (discussed above), were an older model with more limited computer memory than more recent systems. DREs have vulnerabilities, as noted above, but most of the incidents identified with those voting machines appear to have resulted from procedural problems rather than any inherent weakness in DRE technology itself. DREs are computer-based systems, as are optical scan counters, many voter registration databases (as required in all states by HAVA starting in January 2006), and other aspects of election administration, and they are subject to the same problems as any computer-based system. But preventable problems that result from human error, such as administrative or procedural mistakes, and problems that occur with optical scan ballot counters, not DREs, are often conflated in the public eye with weaknesses in DRE technology. Available evidence also indicates that DREs, when properly implemented, can provide performance substantially superior to the systems they replace. A study on the residual vote rate (the percentage of ballots that did not record a vote for President) between 2000 and 2004 found that jurisdictions that changed to DREs from any type of voting system lowered the rate, particularly those changing from punch cards to DREs. While any change in voting system reduced the residual vote rate, DREs performed comparatively well by this measure. Although the residual vote rate is an imperfect measure because some voters may intentionally skip one or more races, it does provide some evidence of voting system performance. In general, certification standards with appropriate security provisions are considered to be necessary but not sufficient to achieve an acceptable level of security. They provide only a baseline of features, controls, and performance that a system should exhibit as part of an overall security strategy. The DREs in which security vulnerabilities had been discovered in the studies cited above had in fact been certified under the federal voting system standards (VSS). While it is not clear whether the certification testing of those systems identified any of the problems that were discovered in the studies, the process did not in any case prevent those systems from being certified and deployed with the vulnerabilities present. The Election Assistance Commission guidelines (called the Voluntary Voting System Guidelines or VVSG) that are replacing the VSS have more extensive security requirements, but the above example shows that certification alone is not sufficient protection against security vulnerabilities, and it is not generally considered to be so. There are at least two reasons for this. First, the security threat environment for information technology in general is constantly evolving, with new threats arising on a regular basis. Consequently, it is unrealistic to expect certification under a comparatively static standard to anticipate and protect against all new kinds of threats that may arise against voting systems that rely on information technology. Second, the VVSG process leads to certification of technology, but procedures and personnel are equally important to effective security and often pose significant vulnerabilities. In addition, standards often require compromise to balance different functions and goals—such as accuracy, security, speed, usability, and cost—and unless security is considered paramount, it will of necessity be subject to such compromise. If the vulnerabilities discussed above pose a significant risk for DREs in practice, there are methods other than adding paper ballots which could be used to address them. Unfortunately, none of these methods, including paper, have been sufficiently developed to compare efficacy, practicality, and cost in a meaningful way. Paper ballots used with DREs—usually called a voter-verified paper audit trail, or VVPAT—provide a permanent, independent record of votes that can be verified by the voter before casting the ballot. VVPAT is one of a class of security methods called independent verification (IV). These methods have in common the creation of two truly independent records of the voter's choices that the voter can verify and that can be compared in any audit. Another IV method, audio recordings of ballot choices, may be more voter-friendly than paper and exhibit superior verifiability. The above methods do not provide true voter verifiability, because the voter can verify the ballot only before it is cast. A third method uses cryptographic techniques to allow the voter to verify after casting the ballot that it was counted correctly, without violating ballot secrecy. It also permits voters to verify that no ballots were changed, added, or subtracted inappropriately—a feature known as results verifiability. Thus, this method could potentially make the election process far more transparent than is possible with other approaches. Methods could also be developed that do not require the voter to separately verify the choices made on the DRE. Conceptually, this approach would be equivalent to taking a separate snapshot of the ballot choices listed on the face of the DRE just before the voter casts the ballot. Security methods other than an independent ballot record might also provide ways to sufficiently manage any risks. For example, product standards for secure computing, such as the Common Criteria, could be combined with sufficiently stringent engineering and administrative security practices to improve resistance to tampering. One consequence of the secret ballot is that a voter cannot know how his or her vote is recorded, unless certain cryptographic techniques are used. With VVPAT, a voter is given the opportunity, before the vote is cast, to review a paper printout of ballot choices made and to compare them to the choices listed on the DRE display. If the voter finds a discrepancy, the ballot can be cancelled and a new voting session begun. However, once the ballot is cast, the voter does not know what was actually recorded in the DRE's memory. Any discrepancies between the recorded vote and the printout can be discovered only by election officials if they compare the electronic and printed records after the election. The circumstances under which they would do that will depend on state and local election law and procedures. True voter verifiability, in which the voter can confirm that the ballot was counted as intended, is possible without violating ballot secrecy, but is not currently in use in U.S. federal elections. The simplest way to achieve verifiability is to have ballots publicly counted and associated with the names of the voters—analogous to a recorded vote in the House or Senate. A classic example in public elections would be voice voting for candidates in a town-hall meeting. However, such methods would eliminate ballot secrecy, which is generally regarded as an important safeguard against voter fraud and coercion. Other methods, though, could be used that do not compromise ballot secrecy. For example, cryptographic techniques used in national security permit a secret message to be authenticated without revealing its contents. Similarly, they can provide voters the ability to determine that their ballots were counted accurately without revealing the actual votes cast (see above). Some systems using this approach have been developed. There appears to be an assumption among many VVPAT advocates that paper ballots are far more secure and less subject to fraud and tampering than are DREs, but whether that is so has not been established as fact. It is generally accepted that paper has certain desirable security features compared to electronic records—for example, it is durable; it can be difficult to alter without detection; and it can be directly inspected without the use of machines or devices. However, paper also has several security weaknesses in comparison—for example, it is easy to manipulate by hand without specialized tools; it does not eliminate risk from Trojan horses or other malware if counting is done with the aid of computers; and, unlike electronic records, it cannot take full advantage of the protections afforded through the use of cryptographic techniques, although those techniques are not currently used in public elections in the United States. The evolution of voting security can be considered a kind of arms race, with new technologies developed to combat fraud, and miscreants evolving ways to attack each new technology in turn. For example, the bribery associated with voice voting in the eighteenth and early nineteenth centuries was countered by the use of paper ballots, which evolved into ticket ballots provided by the political parties. Subsequently, the Australian secret ballot was adopted to combat the fraud that became associated with the ticket ballot, and the lever machine came into wide use in part because it prevented certain kinds of fraud that had become prevalent even with the Australian ballot. For example, lever machines and DREs prevent a particularly notorious kind of ballot fraud known as chain voting, in which each voter obtains a previously marked ballot before entering the poll, deposits that ballot, and leaves with the unmarked ballot the voter obtained in the polling place. That ballot is then marked for the next voter. Other classic forms of ballot fraud with paper ballots include such methods as stuffing of the ballot box, altering or substituting ballots, and producing fraudulent counts. At least some of these methods can be made more difficult with the proper use of voting technology, including lever machines, DREs, and counting devices, although all of those systems have potential vulnerabilities of their own. In addition, recent technological advances have made production of counterfeit ballots and other methods for tampering with paper ballots potentially more feasible. The arms-race characteristics of the evolution of voting systems strongly suggests that VVPAT would have exploitable vulnerabilities that might not yet be apparent. For that and other reasons, a simple reliance on such a technological solution, or any "magic bullet" countermeasure, is unlikely to be successful. In general, effective security uses a layered, multifaceted approach that involves procedural and technological safeguards as well as technology. One threat analysis that compared optical scan systems with DREs with and without VVPAT found that all such systems exhibited vulnerabilities, and that effective countermeasures are available against them, but that few jurisdictions had implemented such countermeasures. The study also concluded that random partial recounts and audits are particularly useful countermeasures, but that such recounts require paper and so are unavailable for DREs without VVPAT. There is not a generally agreed definition of transparency in the context of elections. However, it is usually taken to mean that election processes are open and observable in all of their essential parts, so that tampering, malfeasance, incompetence, and other threats to integrity are difficult to hide. Voter verifiability is arguably an important component of transparency, and to the extent that paper ballots provide verifiability, they can be important to transparency. However, as discussed in more detail above, the requirement for ballot secrecy as an anti-tampering measure severely limits the ability of paper ballots to provide verifiability, and other methods may prove superior when used with electronic voting systems. Consequently, paper ballots are not essential to ensure the transparency of an election. The secret ballot has long been recognized as important in the prevention of fraud and coercion in voting. Some observers have misunderstood VVPAT as permitting voters to remove the printed list of ballot choices from the polling place, which would compromise ballot secrecy. However, that is not how this verification method works. As used in conjunction with DREs, VVPAT can be seen by the voter but not handled or removed from the polling place. As a result, they cannot be used by voters to prove how they voted. There is one way in which VVPAT can potentially compromise ballot secrecy. Most current implementations print the ballot choices on a roll of paper. If someone at the polling place keeps track of the order in which voters use a given DRE, which is reportedly common practice in some jurisdictions, it would be possible to identify which voter cast which ballot on that machine. However, there are several possible countermeasures that could be implemented to combat this vulnerability. In fact, the only voting method currently in use in federal elections for which violations of ballot secrecy is a significant potential concern is the absentee or mail-in ballot. Paper ballots have long posed problems for voters with disabilities, including blind voters, some voters with impaired sight, and voters with other types of disabilities that prevent them from filling out a paper ballot. In the past, a paper ballot could be filled out by a person designated to do so by a disabled voter, but the ballot was not secret, and blind voters had no means of verifying that their choices were properly marked. At a polling place, a disabled voter needed to bring someone with them or accept the assistance of someone at the polling place, often a stranger. HAVA changed that arrangement by requiring that polling places provide at least one voting machine that is accessible to voters with disabilities and provides the same level of secrecy and verifiability as for other voters (§301(a)(3)). DREs outfitted with a paper audit trail cannot be verified at present by certain disabled voters, particularly blind and sight impaired voters. In a Senate Rules Committee hearing on voter verification in June 2005, Senator Christopher Dodd, a HAVA cosponsor, noted, "We say in HAVA that every voter must have the right to verify their ballot before the ballot is cast...all of the legislation or most of it that has been introduced excludes the ability of the disabled to have the same right. By insisting on paper, we are denying the people who cannot read because they cannot see, or for reasons otherwise cannot manually operate the system, a chance to verify what they have done." The accessibility problems with paper ballots are potentially solvable but would require the use of additional technology, such as electronic reading aids. One exception is vote-by-phone, used in a few states such as Vermont as the accessible voting system, in which the system produces a printed paper ballot which it can then scan and read back to the voter to provide verifiability. While the basic technology used in VVPAT is proven, the system as a whole is not. The VVSG include an approved federal standard for this verification method, but it does not go into effect at the federal level until 2007. VVPAT also adds a significant level of complexity to DRE voting, both because of the additional technology required and the effort needed by a voter to compare the on-screen and printed ballots. It also adds complexity to the administration of an election by requiring procedures for handling and processing paper ballots in addition to the electronic ballot records. There was little testing of VVPAT in public elections before the 2006 primaries. Most states now require all voting systems to produce paper ballots, and experience has been mixed. Among the drawbacks of VVPAT cited by critics is the added cost to states (in addition to the cost of HAVA requirements), the lack of data on its performance, and problems associated with the technology in actual use. There were reports of jammed printers in some places in 2004. Whether a paper trail assists voters in correcting errors is unknown and probably difficult to measure. What little research is currently available suggests that voters do not use it effectively as it is currently implemented. Furthermore, one study found problems in the implementation of VVPAT that, if uncorrected, could cast significant doubt on its ability to serve as the official ballot record for recounts. An election recount is intended to confirm an election result, because a contest was particularly close or for some other reason that called the initial result into question. The focus of a recount is the voted ballot, rather than an examination of voting equipment or voting processes. Recounts and the methods for triggering them vary by state. Some states require an automatic (partial) recount for a close race; other reasons for conducting a recount may include a demonstrated irregularity or other evidence that a result is questionable and may require a recount, or a formal request by a candidate. An audit is an in-depth examination of the accuracy of the voting process as a whole, rather than just the voted ballots or election totals. With proper record-keeping, an audit can facilitate a step-by-step examination of how a voting machine recorded cast ballots and computed vote totals to determine whether it performed accurately. Audits may also review the chain of custody for voting equipment, printed ballots, registration lists (and the method of compiling them), deployment of voting equipment, and the vote-counting process. Presumably, an audit can examine any aspect of the election process that can be measured or recorded. Some VVPAT proposals require that the paper print-out be the ballot of record in the event of any differences detected between the paper and electronic records. The basic argument in favor of the position is that the paper ballot is more trustworthy, since the voter had the opportunity to examine it directly. Others, however, point out that this approach may actually create vulnerabilities, since miscreants could simply focus their attacks on the paper ballots. They say it is preferable to use the entire audit trail to determine the correct outcome in the event of a discrepancy. In addition, printer-jamming or other problems that prevent DREs from producing VVPAT ballots could result in a paper audit trail that does not accurately reflect the ballots cast. Some VVPAT proposals include the requirement that hand recounts be done of a sample of the paper ballots and compared to the machine counts recorded by the DREs. The likelihood that such an approach will detect any irregularities depends on several factors. To be effective, a sample recount would need to provide for a meaningful comparison of recount results with original tallies. One way to do that is to recount entire precincts. The number recounted would need to be high enough to provide a reasonable probability that inaccuracies would be detected. That number will depend on the degree of inaccuracy election officials are interested in detecting, as well as the probability of detection deemed necessary to serve as a sufficient deterrent to potential miscreants. At least one analysis has found that random partial recounts can be a highly effective countermeasure against several forms of fraud aimed at computer-assisted voting systems. VVPAT proposals often stipulate that recounts of paper ballots must be done by hand. They often argue that only direct counting by humans can ensure accuracy. That may indeed be the case in some circumstances, but it is not likely to hold broadly. In general, humans are not as accurate as machines in performing simple, highly repetitive tasks such as counting ballots. They tend to make many more errors. That is one reason why repeated manual recounts may yield different results. Machine accuracy is especially likely to be higher if the ballot choices made by the voter are printed, as they are with VVPAT. In contrast, machines are not as good at judging voter intent if markings are ambiguous or not within machine parameters, as may be the case if the ballots are marked directly by voters, as in optical scan systems. Machine miscounts can also result from miscalibration or other technical failure, or potentially from malware if it has been implanted. However, there are several ways to guard against such problems. As of the end of 2006, most states required paper ballot records. However, neither Maryland nor Georgia, which use DREs statewide, had enacted such requirements, opting instead to focus on other security approaches. As VVPAT is used by more states, and more studies of its effectiveness are done, more will be known about the cost, performance, and any limitations of VVPAT in normal use. Misperceptions about DREs could have important policy implications as states, and possibly Congress, consider proposals to require VVPAT for all electronic voting machines. In particular, the following issues may be worth considering: Lack of information. There remains considerable uncertainty about the relative security of DREs in comparison to other voting systems; how security measures such as VVPAT may impact other important goals such as accuracy, reliability, usability, and accessibility; and the effectiveness of those security measures. Congress could direct the EAC to fill those information gaps through appropriate research as states move to implement VVPAT and other security measures. Potential conflicts with HAVA requirements. To the extent that states require paper-based ballots, they may be perceived to be in violation of the accessibility requirements of HAVA, unless their paper-based systems can be made sufficiently accessible. Congress might be asked to resolve any such conflicts through changes to HAVA. Voter Confidence. One of the arguments used in favor of VVPAT by some observers is that it is necessary to help restore voter confidence in the U.S. election process. However, there is little evidence that confidence of the average voter is affected by this issue. Even if the adoption of VVPAT does increase confidence in the electoral process, if that confidence is false—as might be the case if voters mistakenly believe that a paper-ballot requirement is a "magic bullet" security measure—that could itself pose a risk to the integrity of elections. Congress may wish to examine the extent and causes of any decline in voter confidence, and the impact of various possible measures on it, in considering whether to enact legislation relating to this matter. Impacts on Innovation. While the mandating of security requirements such as VVPAT can result in innovation with respect to those requirements, there is a risk that the requirements will be written in such a way that other kinds of innovation, such as potentially superior security measures not using VVPAT, will be difficult to implement without additional legislation. For example, any law requiring paper ballots would have to be changed before an alternative independent-verification or software-independent system, such as those discussed in the VVSG , could be implemented. Congress may wish to consider ways to ensure that the federal and state regulatory environment for voting systems does not inhibit such innovation. | Most voting systems used in U.S. elections rely on computers in some way. The most computerized is the direct recording electronic voting machine, or DRE. In this system, votes are recorded directly onto computer memory devices. While DREs have been in use since the early 1990s, questions about their security and reliability were previously a relatively minor issue, even following the November 2000 presidential election and the subsequent congressional deliberations leading to the enactment of the Help America Vote Act of 2002 (HAVA, P.L. 107-252). However, at least two factors led to a sharp increase in public concerns about DREs, beginning in 2003. First, the voting accessibility provisions in HAVA promote the use of DREs, which have been the only kind of voting system that can meet the HAVA requirements to permit persons with disabilities, including blindness, to vote privately and independently. Second, potential security vulnerabilities with DREs were publicized as a result of several studies. Several bills were introduced in the 109th Congress that would address these issues in different ways; a number of similar bills have been introduced thus far in the 110th Congress. In the public debate about DREs, there has been some confusion about what the problems and issues are, arising to a significant degree from the complexity of DREs and of elections in general. This confusion can lead to misperceptions about facts as well as issues and options for resolving them. Several points are worth noting: DREs do have unique security concerns and have only recently been studied by the scientific community. However, most problems in recent elections were not associated with DREs. Security flaws in them are not known to have compromised any elections, and it is not clear how much of a threat those vulnerabilities pose to election integrity in practice, especially in comparison to other kinds of threats. The different models of DREs in current use vary substantially in design, and problems that one model exhibits may not occur in others. Many of the problems that have occurred are procedural, not weaknesses in the technology itself. It is not clear whether the unique security problems posed by DREs are best addressed by requiring that they produce paper ballots or by other means. While paper has useful security properties and is well-known, other methods exist that might be superior. Furthermore, paper ballots used with DREs (called voter-verified paper audit trails, or VVPAT) are largely unproven and it is not clear how well they can meet HAVA requirements for accessibility or other goals such as usability. As the 110th Congress considers proposals relating to DREs, salient issues might include the lack of information about DRE security, especially in relation to other systems and other components of election integrity; potential conflicts with HAVA requirements that might be associated with the proposals; how those proposals might impact voter confidence; and what impacts they might have on future innovation that could greatly improve the transparency and integrity of elections. This report will be updated in response to major developments. |
The Reading First program was authorized as part of the Elementary and Secondary Education Act (ESEA) through the No Child Left Behind Act of 2001 (NCLBA). The NCLBA was signed into law on January 8, 2002, and will expire at the end of FY2008 (including the automatic General Education Provisions Act one-year extension). It is expected that the 110 th Congress will consider legislation to extend the authorization of the ESEA as amended by the NCLBA. The NCLBA included three new reading programs: Reading First, Early Reading First, and Improving Literacy Through School Libraries. The NCLBA also reauthorized the William F. Goodling Even Start Family Literacy Programs. This report focuses on the Reading First program. Reading First was drafted with the intent of incorporating scientifically based research on what works in teaching reading to improve and expand K-3 reading programs to address concerns about student reading achievement and to reach children at younger ages. The Reading First program includes both formula grants (states are allocated funds in proportion to the estimated number of children, aged 5 to 17, who reside within the state from families with incomes below the poverty line) and targeted assistance grants to states. For the first two years of the program, 100% of funds, after national reservations, was allocated to states as formula grants. States then competitively award grants to eligible local educational agencies (LEAs). LEAs that receive Reading First grants shall use those funds for the following purposes: selecting and administering screening, diagnostic, and classroom-based instructional reading assessments; selecting and implementing a learning system or program of reading instruction based on scientifically based reading research that includes the essential components of reading instruction; procuring and implementing classroom instructional materials based on scientifically based reading research; providing professional development for teachers of grades K-3, and special education teachers of grades K-12; collecting and summarizing data to document the effectiveness of these programs; and accelerating improvement of reading instruction by identifying successful schools; reporting student progress by detailed demographic characteristics; and promoting reading and library programs that provide access to stimulating reading material. LEAs may use Reading First funds for the Prime Time Family Reading Time program; for training parents and other volunteers as reading tutors; and for assisting parents to encourage and provide support for their child's reading development. The Reading First program required significant start up time on the part of states. Because the program is complex and many of its requirements are new, it took time for states and LEAs to put together the necessary staff, curriculum, assessment, and evaluation components for the program. By the end of October 2003, all states and the District of Columbia had received their FY2002 and FY2003 Reading First awards. The Virgin Islands received its first Reading First funds in September of 2004. Reading First state grants are awarded for a six-year period, pending a satisfactory midterm review. According to the U.S. Department of Education (ED), only two states were able to distribute Reading First money to LEAs for the 2002-03 school year. Twenty-seven states conducted their first distribution of Reading First funds to LEAs for the 2003-04 school year, and for the 2004-05 school year, 24 additional states awarded their first Reading First grants to LEAs. The Virgin Islands awarded its first grants for the 2005-06 school year. Puerto Rico's situation is unique because it did not spend the first Reading First funds it received (for FY2003), and it declined funds for FY2004 because of disagreements with ED over instruction and methods to be employed. Puerto Rico's application for FY2005 funds was not found acceptable by ED. Puerto Rico reapplied for FY2006 funds; however, its application was not approved. Puerto Rico received the Reading First Advisory Committee's comments on its FY2006 application in November of 2007. ED has notified Puerto Rico that it may revise its application to incorporate responses to the Committee's comments and resubmit it for FY2007 funds. The NCLBA specifies that a midterm peer review of states' performance in the Reading First program be conducted after the completion of the program's third grant period (which would mean a review would have occurred in the fall of 2005). Because of the time involved in initial implementation of the program, ED made adjustments to the timeline to provide states with sufficient time to have participated in three grant cycles as envisioned by the statute, before undergoing a midterm review. ED established November 2006 as the deadline for states' submission of their midterm progress reports. These state reports are being reviewed by the Reading First Advisory Committee. On the basis of the Committee's comments, ED will determine whether states have made sufficient progress to continue receiving their Reading First grant funds. The awarding of the first targeted assistance grants was delayed so that there would be more states meeting the requirement of having one year of baseline data and two years of follow up data showing improvement. States that wished to be considered for one of the first round of targeted assistance grants were required to have submitted an application by July 30, 2005. The first Reading First targeted assistance award (of approximately $3 million) was awarded to Massachusetts in September of 2005 (out of FY2004 funds). The second round of targeted assistance applications was due to ED by July 30, 2006. Tennessee was the only state to receive an FY2005 targeted assistance grant; it received $4.8 million. FY2006 awards were given to Massachusetts ($950 thousand), Tennessee ($1.4 million), and Virginia ($1.2 million). The Reading First program is required to meet relatively extensive standards. In addition to midterm reviews of states' performance, LEAs are required to track the progress of individual students, and states are required to submit annual evaluations to ED with data on overall school, LEA and state progress. ED has also contracted to have several evaluations of Reading First conducted. These evaluations include an impact study of Reading First's effect on student achievement. The first report from this study, which is being conducted by Abt Associates and MDRC, is expected to be available in early 2008. In addition, ED has contracted with Abt Associates for an implementation study of Reading First based on a nationally representative sample of schools participating in Reading First. The interim implementation report was issued in July of 2006 (discussed in more detail below); the final implementation report is expected to be issued in the summer of 2008. There will also be a follow-up evaluation of the implementation of RF; data collection will occur in the 2008-2009 school year. ED is also conducting a descriptive study of the relationship between a school's receipt of Reading First funds and its rate of learning disabilities. It is anticipated that a report from this study will be issued in 2008. Another study is investigating how well prospective teachers are prepared to teach the essential components of reading instruction—a report from this study is anticipated in the summer of 2008. Finally, ED contracted with RMC Research Corporation to sample grades K-3 in 20 states to see how well reading standards are aligned with the five essential components of reading delineated in Reading First. RMC issued its report in December of 2005. Information from ED's April 2007 report on state performance data, a 2007 Center on Education Policy report, Reading First: Locally Appreciated, Nationally Troubled , and a 2007 GAO report have all provided relatively positive information about states and local school districts opinions of the impact of Reading First on student achievement. However, state assessment measures and cut-off scores for determining reading proficiency vary from state to state, making it difficult to draw definitive conclusions on Reading First's performance from these data. ED's report— The Reading First Annual Performance Report Data , based on state data, found improvements in the percentages of students reaching proficiency in reading fluency and comprehension on state measures. According to these data, on average, between 2004 and 2006, the 26 states with baseline data increased the performance of students meeting or exceeding proficiency on fluency outcome measures by 16% for 1 st graders, 14% for 2 nd graders, and 15% for 3 rd graders. In addition, these 26 states also increased the performance of students meeting or exceeding proficiency on comprehension outcome measures by 15% for 1 st graders, 6% for 2 nd graders, and 12% for 3 rd graders. The first of two implementation reports, prepared for ED by Abt Associates, was issued in 2006. The Reading First Implementation Evaluation: Interim Report (Interim Report) was based on data collected during the 2004-2005 school year through surveys of teachers, principals, and reading coaches chosen from a nationally representative sample of Reading First and non-Reading First Title I schools; and through interviews of Reading First state coordinators and a review of states' Reading First applications. The report also drew on other existing data sources. The interim report addressed two questions—how Reading First is being implemented by LEAs and schools, and whether instruction in Reading First schools is different from that of non-Reading First schools. Questions related to student achievement in Reading First schools will be addressed in the final implementation report, after a second round of data has been collected. Overall, the interim report found that Reading First was being properly implemented (as intended by the NCLBA) by schools, and that there are differences between Reading First schools and non-Reading First schools (such as the presence of reading coaches) that have the potential to improve student achievement in reading. The Interim Report summarized its key findings as the following. Reading First schools appear to be implementing the major elements of the program as intended by the legislation. Reading First schools received both financial and nonfinancial support from a variety of external sources. Classroom reading instruction in Reading First schools is significantly more likely to adhere to the Reading First legislation than classroom reading instruction in Title I schools. Reading First teachers in three grades (kindergarten, second, and third) were significantly more likely than their counterparts in other Title I schools to place their struggling students in intervention programs. Assessment plays an important role in reading programs in both Reading First and non-Reading First Title I schools. Principals in Reading First schools were significantly more likely to report having a reading coach than were principals of non-RF Title I schools. RF staff received significantly more professional development than did Title I staff. Information from an October 2007 Center on Education Policy (CEP) report on Reading First indicates that many states and districts believe that the professional training, reading instruction, and assessments provided through Reading First have been important causes of increases in student achievement. However, the CEP report notes that "these responses represent the views of state and district officials, rather than a cause and effect relationship between Reading First and achievement." The 2007 CEP report is based on annual surveys of states and districts, and on in-depth case studies. According to the CEP report, in 2006, 82% percent of states indicated that Reading First professional development was very or moderately effective in increasing achievement in reading. The percentage of states indicating that Reading First curriculum and assessments were very or moderately effective in increasing student achievement in reading equaled 78% in 2006. Of districts reporting increases in reading achievement, 69% indicated that Reading First assessments were an important or very important factor, and 68% indicated that Reading First instruction was an important or very important factor. The CEP report also noted that 80% of states and 75% of districts indicated that they coordinated Reading First and Title I. In addition, more than half of Reading First districts indicated that they used elements of Reading First in non-Reading First schools. A June 2005 CEP study examined ED's administration of the state application process for Reading First grants, among other things. The 2005 report is based on a review of all state Reading First applications, an in depth review of 15 randomly selected state applications and a review of revisions to state applications based on 10 representative states; in addition to state and district surveys and case studies. The CEP found that many states were required to revise their initial application for Reading First grants one or more times before ultimately having their application accepted. In addition, it found that "states are remarkably consistent in their selection of specific instruments for assessing students' reading progress." It noted that in their final applications, almost all states included the Dynamic Indicators of Basic Early Literacy Skills (DIBELS) in their list of approved assessments, and used A Consumer ' s Guide to Evaluating a Core Reading Program Grades K-3: A Critical Elements Analysis ( Consumer ' s Guide) to evaluate and choose a reading curriculum. CEP analysis of a sample of original and final applications from 10 states found that some modified their original applications to adopt these specific instruments: In each case, 4 of the 10 states added DIBELS and the Consumer's Guide to their applications after initial review, and none dropped either item. In all, 9 of 10 states are using DIBELS and 8 of 10 are using the Consumer Guide. Additionally, the CEP study found that state recommendations of specific reading programs appear to have influenced districts' choice of reading programs. The survey of districts receiving Reading First funds indicated that half changed the reading programs used by the district to qualify for a grant from their state. GAO focused on three Reading First issues: whether there have been changes in reading instruction as a result of Reading First; the criteria used by states to award subgrants and the difficulties states have had in implementing Reading First; and the guidance, assistance, and oversight provided to states by ED and its contractors. The GAO report was written in response to a September 23, 2005, Senate Committee on Health, Education, Labor, and Pensions request for an investigation of questions related to the implementation of the Reading First program. The GAO report was based on ED data, a web survey of 50 states' and the District of Columbia's Reading First Directors, 12 in-depth interviews, and four site visits. In addition, GAO interviewed federal, state, and local education officials as well as Reading First Technical Assistance Center administrators and providers of reading programs and assessments. GAO's findings generally support the findings of ED's performance report data, the CEP study, and the interim Reading First evaluation. The GAO report included information on state responses to a variety of Reading First implementation issues. Forty-eight states reported that ED staff were helpful or very helpful in addressing their implementation-related questions. Thirty-nine states reported that ED staff were helpful or very helpful in addressing their application-related questions. Ten states reported receiving suggestions that they eliminate specific programs or assessments, and four received suggestions to adopt specific programs or assessments. Forty-eight states modified their Reading First grant applications at least once. Most states reported changing the assessments they used, and most indicated that they had included multiple assessment tools on their approved list. DIBELS was the assessment program most frequently listed on states' (48 states) approved list. Twenty-two states developed a state-approved list of Reading programs for districts to select from. GAO reported the following findings on Reading First. States reported changes and improvements in reading instruction, including more emphasis on the five key components of reading, assessments, and professional development. Reading First schools made more use of reading coaches and increased the amount of time devoted to reading. Sixty-nine percent of states reported great or very great improvement in reading instruction. Eighty percent of states reported great or very great improvement in professional development, and approximately 75% reported an increase in resources for this purpose. However, GAO also found the ED had not developed written policies and procedures to guide ED officials and contractors in dealing with the states, districts, and schools to ensure compliance with statutory requirements regarding local control of curriculum. In addition, GAO found that ED had not developed written procedures governing its monitoring visits, which caused confusion among states regarding monitoring procedures, timelines, and expectations for taking corrective actions. GAO recommended that ED take the following actions. Establish control procedures to guide ED officials and contractors in their interactions with states, districts, and schools. Develop and distribute guidelines regarding its monitoring procedures so that states and districts are made aware of their roles, responsibilities, and timelines. There has been considerable debate in the field of education research on the value of different research methodologies, and on what types of research should receive priority for federal dollars. Many researchers argue that the type of research that is appropriate varies with the question that is being asked. However, many have also argued that scientifically-based research (SBR), and randomized controlled trials (RCTs) in particular, are the "gold standard" in research. RCT research protocol requires random assignment—with participants assigned randomly to either an experimental group that receives the treatment under investigation, or a control group that does not. RCTs are viewed by many as the most credible way to verify a cause-effect relationship, when the RCT study employs a well designed and implemented methodology with a large sample size. Nevertheless, RCT studies do not necessarily provide a one-size-fits all solution to all educational research needs. A CRS report analyzing RCTs included a summary of some of the potential limitations of putting too much emphasis on RCTs: ... RCTs are occasionally seen as impractical, unethical, requiring too much time, or being too costly compared to other designs that also seek to assess whether a program causes favorable outcomes. Finally, there is wide consensus that RCTs are particularly well suited for answering certain types of questions, but not others, compared to other evaluation research designs. For example, RCTs typically do not assess how and why impacts occur, how a program might be modified to improve program results, or a program's cost-effectiveness. RCTs also typically do not provide a full picture of whether unintended consequences may have resulted from a program or indicate whether a study is using valid measures or concepts for judging a program's success. Many of these kinds of questions have been considered to be more appropriately addressed with observational or qualitative designs. The NCLBA has endorsed the use of SBR in funded activities, including over 100 references to the use of SBR in choosing instructional and assessment programs, as well as for professional training programs, and other NCLBA funded activities. The emphasis is on experimental research, particularly RCTs. Programs in the NCLBA affected by the requirement that funded educational interventions be based on SBR include Title I, Part A, grants for the education of the disadvantaged, Reading First, Early Reading First, Even Start, Literacy Through School Libraries, Comprehensive School Reform, Improving Teacher Quality State Grants, Mathematics and Science Partnerships, English Language Acquisition State Grants, and Safe and Drug-Free Schools and Communities. This discussion focuses on the application of SBR to the Reading First program. The NCLBA language authorizing Reading First makes clear that the intent of the program is to require recipients of Reading First funds to implement programs which are based on scientifically based reading research (SBRR). The definition of SBRR in the NCLBA, is as follows: The term "scientifically based reading research" means research that (A) applies rigorous, systematic and objective procedures to obtain valid knowledge relevant to reading development, reading instruction, and reading difficulties; and (B) includes research that (I) employs systematic, empirical methods that draw on observation or experiment; (ii) involves rigorous data analyses that are adequate to test the stated hypotheses and justify the general conclusions drawn; (iii) relies on measurements or observational methods that provide valid data across evaluators and observers and across multiple measurements and observations; and (iv) has been accepted by a peer-reviewed journal or approved by a panel of independent experts through a comparably rigorous, objective, and scientific review. ED's application of SBRR to the Reading First program draws extensively on the work conducted by the National Reading Panel (NRP). In 2000, the NRP issued a report, Teaching Children to Read. The NRP was convened by the National Institute of Child Health and Human Development (NICHD) in consultation with ED in response to a congressional charge to review the literature on reading and use it to assess the effectiveness of different techniques for teaching reading, and whether these techniques were ready to be applied to classroom settings. Based on the NRP's research, the NCLBA incorporated five essential components of reading as requirements for reading instruction funded under the Reading First program. These essential components are defined in the NCLBA as ... explicit and systematic instruction in—(A) phonemic awareness; (B) phonics; (C) vocabulary development; (D) reading fluency, including oral reading skills; and (E) reading comprehension strategies. This section summarizes major implementation issues that have arisen regarding the application of SBRR to the Reading First program. Issues discussed here include ED's implementation of SBRR requirements, and the implications of the current state of SBRR for states and LEAs trying to navigate and apply existing research and resources to their educational programs as well as maintain local autonomy in choosing curricula. Some criticisms have been raised regarding ED's application of SBRR to the Reading First Program. For example, Robert Slavin, of the Success for All Program, has argued that the NCLBA's requirement that interventions be based on SBR does not differentiate between programs that have themselves been rigorously evaluated and those programs that have not been rigorously evaluated for efficacy, but can cite SBR that supports their interventions. The Success for All Foundation also argues in a letter to the Office of the Inspector General of the U.S. Dept. of Education (OIG), that ED has inappropriately narrowed the definition of scientifically based research in its implementation of the Reading First program: In essence, through the implementation of Reading First, the U.S. Department of Education has narrowed the definition of SBRR to the five "essential components" of reading as identified by the National Reading Panel. Research on program efficacy has been ignored. Because Reading First was so closely managed by the U.S. Department of Education, and because it contains such a strong focus on the use of scientifically based research, it is paving the way for how states, districts and schools are coming to understand the meaning of SBR, and how they will apply it to other Federal programs. As a consequence of the alleged "narrowing" of the definition of SBRR, states have been unnecessarily limited in their choices of reading programs, assessments and professional development packages, according to critics of ED's implementation of Reading First. Some of the controversies that have surrounded implementation of SBRR in the Reading First program reflect the current state of SBRR and the difficulties of applying existing research to concrete educational interventions. Some observers have noted that there are many areas of education research with few if any RCT studies to draw upon. Robert Boruch, who served on the National Research Council that produced the book Scientific Inquiry in Education , stated in an interview with Education Week that "One cannot just demand controlled experiments ... That's akin to asking people to levitate." Some have argued that navigating the existing array of resources is difficult for states and LEAs because much of the research is academic. In addition, although there is more user-friendly material available than ever before, evaluations of the application of SBRR to concrete educational interventions is still limited, and there is no single federal website or resource that currently catalogs and evaluates all the available user-friendly resources. The following discussion summarizes some of the resources that are currently available. There are a variety of federally funded offices and resources that provide information, and/or technical assistance offering guidance on SBR to states and LEAs. There are also guides intended to provide user-friendly information on SBR, that states and LEAs can access through ED websites and publications. Online resources include a NCLBA website with information on SBR and related resources, a searchable ERIC database on education research, and access to educational statistics and National Assessment of Educational Progress (NAEP) data on ED's National Center for Educational Statistics website. The Institute of Education Sciences (IES) has made publications and other resources available on SBR. In December of 2003 IES published a report, Identifying and Implementing Educational Practices Supported by Rigorous Evidence: A User Friendly Guide . In addition, ED has awarded 20 five-year grants to comprehensive centers to provide advice to states and LEAs on meeting the requirements of the NCLBA. There are also ten regional centers with functions defined in the Education Sciences Reform Act of 2002. One of these centers, the Mid-continent Research Center for Education and Learning, in conjunction with the Education Commission on the States (ECS), published a February 2004 publication, A Policymaker ' s Primer on Education Research: How to Understand, Evaluate and Use it. ECS has also published user-friendly guides on teacher issues and maintains a 50 state database on teacher preparation, recruitment, and retention. Another of the regional centers funded by ED, the North Central Regional Education Laboratory, published a report in its Spring 2003 edition of Learning Point, A Call for Evidence: Responding to the New Emphasis on Scientifically Based Research. These resources are however, not all centralized in one location, and relatively few provide analysis of specific educational instruction or assessment packages that might meet the SBR requirements of the NCLBA. It can be difficult for states and LEAs to sift through the volume of information that is available and find what they need to chose effective curriculum and assessment programs. Ellen Lagemann was interviewed by Education Week on the topic of SBR while working for the Spencer Foundation. She stated We have tended to think that if you do research and get results, that will be useful to practitioners. There's an intermediary step. You have to take the results of research and build it into toys, tools, tests, and texts. You have to build it into things that practitioners can use. They can't use the conclusions of a study. ED's IES created a What Works Clearinghouse (WWC) to address this need for clear user-friendly information on SBR, including evaluations of specific educational interventions. The WWC publishes reviews of educational interventions that have SBR to back up their efficacy claims on education topics that the WWC has identified as priorities. Initially the WWC intended to issue only topic reports, but in May of 2006, the WWC modified its website to include new intervention reports. These intervention reports have been introduced so that potentially useful information can be made available as quickly as possible. After an intervention that meets WWC standards is reviewed, an intervention report will be posted on the website. After all such interventions on a specific topic have been reviewed, a topic report will be posted on the website. The information provided in intervention reports includes program descriptions, costs of implementing the programs, and ratings of program effectiveness—including a category of "potentially positive" for promising results. Resources on SBRR specifically targeted to the Reading First program have also been provided by ED. These include information and links to additional resources provided in the Reading First and NCLBA websites. ED sponsored Reading First Leadership Academies to assist states with understanding and applying for Reading First grants, and it has issued nonregulatory guidance on Reading First. In addition, ED established a National Center for Reading First Technical Assistance to provide training to states and districts to assist with Reading First. According to ED in its March 1, 2004, issue of the Achiever, Administrators and teachers will receive training in scientifically based reading research and instruction; assistance in reviewing reading programs and assessments; critiques of Reading First sub-grant applications and methods of scoring them; and training in using assessment data to improve student reading performance.... Technical assistance will be provided through a range of learning opportunities, including national and regional conferences, institutes and seminars; training and professional development; on-site, telephone and e-mail consultations; and links to national reading experts. The National Institute for Literacy (NIFL) is charged with the mission of disseminating information on SBRR as it relates to children, youth, and adults. NIFL is also to disseminate information on specific reading programs supported by SBR and information on effective classroom reading programs that have been implemented by states and LEAs. NIFL publications are available for downloading on their website. Perhaps in part because of the difficulties in finding specific information on SBRR based educational interventions that meet the requirements of the NCLBA, many states have chosen to rely upon a limited number of instructional, assessment and professional training programs. This has raised concerns by some about what they call the "overprescriptiveness" of ED's application of SBRR to Reading First and the potential infringement on states' and LEAs' ability to choose curricula. Some argue that this "overprescriptiveness" is not consistent with section 9527 of the No Child Left Behind Act. This section states the following: (a) GENERAL PROHIBITION—Nothing in this Act shall be construed to authorize an officer or employee of the Federal Government to mandate, direct, or control a State, local educational agency, or school's curriculum, program of instruction, or allocation of State or local resources, or mandate a State or any subdivision thereof to spend any funds or incur any costs not paid for under this Act. (b) PROHIBITION ON ENDORSEMENT OF CURRICULUM.—Notwithstanding any other prohibition of Federal law, no funds provided to the Department under this Act may be used by the Department to endorse, approve, or sanction any curriculum designed to be used in an elementary school or secondary school. The 2005 CEP study discussed earlier in this report did find that states were "remarkably consistent" in their choice of programs. For example, the 2005 CEP study found that many states were required to revise their initial application for Reading First before it was accepted. CEP found that in their final accepted applications, almost all states included DIBELS on their list of approved assessments, and used the Consumer ' s Guide to evaluate and choose a reading curriculum. Additionally, the CEP study found that state recommendations of specific reading programs appear to have influenced districts' choice of reading programs. The survey of districts receiving Reading First funds found that half changed the reading programs used by the district to qualify for a grant from their state. Three groups representing different reading programs filed separate complaints with ED's OIG, asking that the Reading First program be investigated. The three groups that filed complaints are Dr. Cupp's Readers and Journal Writers, Success For All, and the Reading Recovery Council of North America. In response, the OIG has conducted several audits of the Reading First program. It issued its first report on the federal Reading First program, specifically on Reading First's grant application process, in September of 2006. In addition, several audits of state Reading First programs have been issued, and audits have been conducted on ED's administration of the Reading First program and on the RMC Research Corporation's Reading First Contract. These three reports essentially validated many of the concerns that had been raised in complaints filed with the OIG. ED concurred with the OIG's recommendations in all three reports and has addressed the recommendations. The OIG report on the Reading First application process was highly critical of ED's implementation of the Reading First program. The major findings included in this report are summarized below. The OIG found that the expert review panel that reviewed state applications for Reading First grants was not selected as required by the NCLBA. Section 1203(c)(2)(A) of the NCLBA requires the peer review panel to include at a minimum, three individuals selected by each of the following agencies: the Secretary of the U.S. Department of Education, the National Institute for Literacy (NIFL), the National Research Council of the National Academy of Sciences (NAS), and three individuals selected by the National Institute of Child Health and Human Development. ED created 16 subpanels to review state applications, and according to the OIG, a majority of the panelists on 15 out of the 16 subpanels had been nominated by ED. In addition, none of the subpanels included a nominee from each of the other organizations specified in Section 1203(c)(2)(A) of the NCLBA. And the OIG found no evidence that the subpanels met to review applications as a whole before recommending that the Secretary approve or disapprove a state's application. The OIG's report states that "Because the Department did not meet the requirements at Sections 1203(c)(2)(A), it raises the question of whether any of the applications were approved in compliance with the law." Although not required to do so by law, ED screened potential panelists for conflicts of interest. However, the screening process used was ineffective, according to the OIG. The OIG reviewed resumes provided to ED by 25 Reading First panelists, and found that six of the panelists had significant professional connections to a specific reading program. ED failed to follow its own guidance ( Reviewer Guidance for the Reading First Program ) for conducting the peer review process. The OIG found that the review panelists provided constructive comments in the Panel Chair Summaries submitted to ED that would have been useful to states whose applications were not approved, in making needed modifications to their applications. However, ED did not share these panel summaries with the states; instead, the Reading First director and his assistant used these panel summaries to write their own reports, which were then provided to states. According to the OIG, these reports did not always accurately reflect the Panel Chair summaries—sometimes the Reading First director and his assistant changed or omitted panelists' comments, and sometimes they added their own comments. As a consequence, states sometimes lacked adequate information to correct their applications and were required to submit amended applications several times before they were approved. In addition, the OIG found that five state applications were approved without documentation that these states had met the required criteria, or that the subpanels had approved these applications. Some of the criteria required by the department for panelists to approve a state's application were not based on requirements included in the NCLBA. ED provided panelists with 25 criteria to be rated in each state application ( Reading First: Criteria for Review of State Applications ). Three rating categories were established for each criterion: "Exemplary," "Meets Standard," and "Does Not Meet Standard." The "Meets Standard" category was the bar all states were expected to meet for application approval. The "Exemplary" category was applied to conditions above and beyond "Meets Standard" that were believed would result in the highest-quality programs. However, the OIG found that some of requirements in the "Meets Standard" category were not requirements contained in the NCLBA, and as a consequence, "State applications were reviewed based upon standards that were not required by statute." Finally, the OIG found that "program officials tried to purposely obscure the content of the statute ( the ESEA ) and otherwise took actions to disregard Congress' direction and intent." The OIG also found that ED's "actions demonstrate that the program officials failed to maintain a controlled environment that exemplifies management integrity and accountability." Further, the OIG found that ED's actions may have violated prohibitions in the Department of Education Organization Act (DEOA) and the ESEA against federal endorsement of particular curricula. The OIG recommended that the Assistant Secretary of ED's Office of Elementary and Secondary Education (OESE) take the following actions. Implement procedures to ensure OESE staff know when to solicit advice from the Office of the General Counsel (OGC); as well as procedures to resolve disputes that might arise between OESE staff and the OGC to "ensure that programs are managed in compliance with applicable laws and regulations." In consultation with the OGC, make improvements to strengthen procedures for evaluating potential conflicts of interest in panel review processes. Review all Reading First applications to ensure all necessary criteria were met. Make changes, as appropriate, to the management and staff structure of the Reading First program to ensure that Reading First's implementation is consistent with NCLBA requirements. Ask the OGC to provide guidance on what is prohibited by Section 3403(b) of the Department of Education Organization Act. Rely upon an internal advisory committee (which includes representatives from OESE programs, the OGC, and ED's Risk Management Team) to ensure that future initiatives are appropriately implemented and coordinated with other ED programs. Request that the internal advisory committee evaluate whether "the implementation of Reading First harmed the Federal interest," and whether any remedial actions are required. In addition, request that the internal advisory committee ensure that ED has internal controls in place so that future programs do not have problems similar to those that occurred with Reading First. Establish a discussion with state and local education representatives "to discuss issues with Reading First as part of the reauthorization process." The Secretary of the U.S. Department of Education (ED) responded in writing that she agreed with all of the recommendations of the OIG, and would take immediate action to implement these recommendations. However, ED also responded that it did not agree with all of the findings reached by the OIG. ED noted that it has no information to indicate that its peer review process adversely affected any state. It also noted that screening for conflicts of interest was not required—but it took this extra effort and made reasonable efforts to adapt conflict-of-interest procedures to the Reading First program. Regarding its screening of panelists, ED stated that "We know that while additional steps could have been taken, the steps we took were effective and more than what was required by law." ED also indicated that the statute did not specify the role of peer review comments, and that it had not replaced a process required by the NCLBA. In addition, its further review of Reading First staff summaries of these comments found that, overall, " the summaries did not deviate significantly from the reviewers' comments." ED also stated that the peer review panel was advisory, and that it was not practical to have the panel review every resubmitted state application. In addition, ED noted that the Reading First criteria it issued to panelists was intended to "encourage high-quality projects that go beyond the minimum standards of the statute." ED stated that "Overall, the Reading First guidance has proven to be helpful and it is consistent with the law, and consistent with helping ensure the submission of high quality applications." Finally, ED stated that "We are not aware of information showing inappropriate actions to require particular programs or approaches." This audit focused on ED's administration of several aspects of the Reading First program: the Reading First Leadership Academies (RLAs) held in January and February of 2002; the Reading First website; ED's April 2007 Guidance for the Reading First Program ; and ED's monitoring of conflicts of interest in its technical assistance contracts. The major findings included in the OIG's report are summarized below. The April 2007 Guidance for the Reading First Program and ED's administration of its Reading First website were consistent with the law. ED did not ensure that the RLAs complied with curriculum provisions contained in the Department of Education Organization Act (DEOA) and the NCLBA. In particular, the Theory to Practice sessions provided during the RLAs focused on a select number of reading programs, and the RLA Handbook and Guidebook appeared to promote DIBELS. ED did not adequately address issues regarding bias and objectivity when hiring technical assistance providers. The OIG recommended that the Assistant Secretary of ED's Office of Elementary and Secondary Education take the following actions: Establish controls to ensure that ED complies with all DEOA and NCLBA curriculum requirements in department-sponsored events. Establish controls to ensure that ED does not promote (or appear to promote) any specific curriculum in department-sponsored conference materials. In consultation with ED's Chief Financial Officer, establish procedures to ensure that all department contractors have been adequately assessed for bias and objectivity. The Secretary of the U.S. Department of Education responded in writing that she agreed with all of the recommendations of the OIG, and would take immediate action to implement the recommendations. However, ED also responded that it did not agree with all of the findings reached by the OIG. ED said that the OIG report did not provide a balanced perspective of the activities discussed, and failed to mention the positive elements of these activities. ED argued that it was necessary to discuss specific reading programs in the Theory to Practice sessions held at the RLAs in order for these sessions to be useful to participants. Furthermore, ED noted that participants at the RLAs were told that the purpose of the sessions was not to endorse any particular reading program. In addition, ED noted that simply having expertise in a particular program should not disqualify an individual from serving as a provider of technical assistance, so long as the individual does not have a financial interest in the areas for which he or she provides advice. This audit focused on RMC's Reading First technical assistance contracts. RMC was issued three contracts by ED. The first two contracts were to provide technical assistance to SEAs to assist them in preparing their Reading First applications and to transition to program implementation. The third contract was for RMC to manage three regional technical assistance centers to assist in providing technical assistance to SEAs and LEAs in the program implementation phase. The OIG's major findings are summarized below. RMC did not adequately monitor its staff and its subcontractors' staff to ensure that there were no conflicts of interest or potential bias. In two instances, a particular assessment may have been inappropriately promoted to SEAs. RMC did not include ED's required conflict-of-interest clause in its contracts, and it did not adequately screen the technical assistance providers it used for affiliations with particular reading programs. The OIG recommended that the Assistant Secretary of ED's OESE require RMC to work with the department to take the following actions. Implement formal conflict-of-interest procedures to be applied to all current and future contracts with the ED. Investigate and try to remedy any instances of bias on the part of TA providers on the National Technical Assistance Center contract. Develop and implement a conflict-of-interest certification form for all technical assistance providers. RMC concurred with the OIG recommendations, and has consulted with ED and taken action to improve and strengthen conflict-of-interest requirements. The House Committee on Education and Labor has held two oversight hearings on Reading First. The first hearing was held on April 20, 2007. Witnesses at the hearing included ED's Inspector General, John Higgins; the Director of the Reading First program (until September, 2006), Chris Doherty; and three members of the Committee on Reading Assessments (Roland Good, Edward Kame'enui, and Deborah Simmons). The focus of the hearing was on the administration of Reading First under Doherty's leadership and on connections of the three panelists who had served on the Committee on Reading Assessments to the DIBELS assessment program. The purpose of the second hearing, held on May 10, 2007, was to receive testimony from the Secretary of the U.S. Department of Education, Margaret Spellings, on the Reading First program and on the student loan program. On May 9, 2007 the Senate Committee on Health, Education, Labor and Pensions issued a report indicating that four out of five Reading First Technical Assistance (TAC) directors had financial ties with publishers while serving as TAC directors. In its conclusion, the report notes that The Chairman's investigation reveals that four Reading First Technical Assistance Center directors—subcontractors to the Department—had substantial financial ties to publishing companies while simultaneously being responsible for providing technical assistance to states and school districts seeking guidance in selecting reading programs that would help them secure federal grants. These findings are troublesome because they diminish the integrity of the Reading First program. Congress should act to ensure that future conflicts of interest are identified and addressed. The report agreed with all of the OIG recommendations. In addition, it recommended that Congress adopt new requirements regarding financial disclosure to prevent future conflicts of interest by federal employees and others involved in the administration or implementation of K-12 education programs, as well as those providing technical assistance. H.R. 1939 (McKeon), the Reading First Improvement Act, was introduced on April 19, 2007, and referred to the House Committee on Education and Labor. This legislation establishes procedures for setting up a Reading First Advisory Committee and potential subcommittees. It would prohibit one entity or individual from nominating a majority of the committee or subcommittee members. The bill would also require ED to establish stronger conflict-of-interest procedures and provide guidance on how the advisory committee and any subcommittees are to review and provide feedback on state applications, as well as ensure decisions are well-documented and available to the public. The legislation would also prohibit ED from providing a contract or subcontract for program evaluation to any entity that received a contract or subcontract to implement any aspect of Reading First. Additionally, it would require conflict-of-interest screening by contractors and subcontractors of all employees involved in the contract or subcontract. | The Reading First program was authorized as part of the Elementary and Secondary Education Act (ESEA) through the No Child Left Behind Act of 2001 (NCLBA). The NCLBA was signed into law on January 8, 2002, and will expire at the end of FY2008 (including the automatic General Education Provisions Act one-year extension). It is expected that the 110th Congress will consider legislation to reauthorize the ESEA. Reading First was drafted with the intent of incorporating scientifically based reading research (SBRR) on what works in teaching reading to improve and expand K-3 reading programs to address concerns about student reading achievement and to reach children at younger ages. By the end of October 2003, all states and the District of Columbia had received their FY2002 and FY2003 Reading First awards. Information from the U.S. Department of Education's (ED) April 2007 report on state performance data; a February 2007 Government Accountability Office report, and a 2007 Center on Education Policy report, Reading First: Locally Appreciated, Nationally Troubled, have all provided relatively positive information about states' and local school district's opinions of the impact of Reading First on student achievement. However, state assessment measures and cut-off scores for determining reading proficiency vary from state to state, making it difficult to draw definitive conclusions on Reading First's performance from these data. There have, however, been criticisms of the program that centered on the perceived "overprescriptiveness" of the program as it has been administered, perceptions of insufficient transparency regarding ED's requirements of states, and allegations of conflicts of interest between consultants to the program and commercial reading and assessment companies. Controversies have also arisen regarding the application of the SBRR requirements in the NCLBA to the Reading First program. Three groups representing different reading programs filed separate complaints with ED's Office of Inspector General (OIG), asking that the program be investigated. In September of 2006, the OIG issued a report on Reading First's grant application process. Subsequent OIG audit reports were issued on ED's administration of selected aspects of the program, on the RMC Research Corporation's Reading First contracts, and on several states' administration of the program. The OIG reports were highly critical of ED's implementation of the Reading First program, and essentially validated many of the concerns that had been raised in complaints filed with the OIG. In response to the controversy surrounding Reading First, the program's funding was cut from $1 billion in FY2007 to $393 million in FY2008. The Administration has requested that the program's funding be restored to $1 billion for FY2009. This report will be updated periodically. |
The notion of Japan developing nuclear weapons has long been considered far-fetched and even taboo, particularly within Japan. Hailed as an example of the success of the international non-proliferation regime, Japan has consistently taken principled stands on non-proliferation and disarmament issues. Domestically, the largely pacifist Japanese public, with lingering memories of the destruction of Hiroshima and Nagasaki by atomic bombs in the closing days of World War II, has widely rejected any nuclear capacity as morally unacceptable. The inclusion of Japan under the U.S. nuclear "umbrella," with regular reiterations from U.S. officials, provides a guarantor to Japanese security. Successive Japanese administrations and commissions have concluded that Japan has little to gain and much to lose in terms of its own security if it pursues a nuclear weapons capability. Today, Japanese officials and experts remain remarkably uniform in their consensus that Japan is unlikely to move toward nuclear status in the short-to-medium term. However, as the security environment has shifted significantly, the topic is no longer toxic and has been broached by several leading politicians. North Korea's test of a nuclear device in 2006 and China's military modernization have altered the strategic dynamics in the region, and any signs of stress in the U.S.-Japan alliance raises questions among some about the robustness of the U.S. security guarantee. An ascendant hawkish, conservative movement—some of whom openly advocate for Japan to develop an independent nuclear arsenal—has gained more traction in Japanese politics, moving from the margins to a more influential position. In addition, previous security-related taboos have been overcome in the past few years: the dispatch of Japanese military equipment and personnel to Iraq and Afghanistan, the elevation of the Japanese Defense Agency to a full-scale ministry, and Japanese co-development of a missile defense system with the United States. All of these factors together increase the still unlikely possibility that Japan will reconsider its position on nuclear weapons. Any reconsideration of Japan's policy of nuclear weapons abstention would have significant implications for U.S. policy in East Asia. Globally, Japan's withdrawal from the Nuclear Non-Proliferation Treaty (NPT) could damage the most durable international non-proliferation regime. Regionally, Japan "going nuclear" could set off a nuclear arms race with China, South Korea, and Taiwan and, in turn, India, and Pakistan may feel compelled to further strengthen their own nuclear weapons capability. Bilaterally, assuming that Japan made the decision without U.S. support, the move could indicate Tokyo's lack of trust in the American commitment to defend Japan. An erosion in the U.S.-Japan alliance could upset the geopolitical balance in East Asia, a shift that could indicate a further strengthening of China's position as an emerging hegemonic power. These ramifications would likely be deeply destabilizing for the security of the Asia Pacific region and beyond. Japan's post-war policy on nuclear weapons and non-proliferation has been to reject officially a military nuclear program. The Japanese Army and Navy each conducted nuclear weapons research during World War II, but neither was successful in gaining enough resources for the endeavor. Despite the fact that by the early 1970s Japan had already acquired the technical, industrial and scientific resources needed to develop its own nuclear weapons, Japanese policy has repeatedly stated its opposition to the development of nuclear weapons. Complicating Japan's anti-nuclear weapons policy has been a post-World War II dependence on the U.S. "nuclear umbrella" and security guarantee. Under the terms of the Mutual Security Assistance Pact signed in 1952 and the 1960 Treaty of Mutual Cooperation and Security, Japan grants the U.S. military basing rights on its territory in return for a U.S. pledge to protect Japan's security. The rejection of nuclear weapons by the Japanese public appears to be overwhelmingly driven by moral, rather than pragmatic, considerations, but Japan's leaders have based their policy of forswearing nuclear weapons on protection by the U.S. nuclear arsenal. The bedrock of domestic law on the subject, the "Atomic Energy Basic Law" of 1955, requires Japan's nuclear activities to be conducted only for peaceful purposes. In 1967, the "Three Non-Nuclear Principles" ( hikaku sangensoku ) were announced by Prime Minister Eisaku Sato, enshrining the policy of not possessing, not producing, and not permitting the introduction of nuclear weapons into Japan. When Japan ratified the Nuclear Non-Proliferation Treaty (NPT) in 1976, it reiterated its three non-nuclear principles, placed itself under the treaty obligation as a non-nuclear weapons state, and pledged not to produce or acquire nuclear weapons. Japan has been a staunch NPT supporter in good standing ever since. Despite multiple reiterations of Japan's non-nuclear status, this orthodoxy has been challenged on several occasions, usually when Japan has felt strategic vulnerability. Probably the most prominent episode occurred in the mid-1960s: China tested a nuclear device for the first time in 1964, and the United States was engaged in the Vietnam War. Prime Minister Eisaku Sato secretly commissioned several academics to produce a study exploring the costs and benefits of Japan's possible nuclearization, the so-called "1968/70 Internal Report." Another secret investigation into Japan's nuclear option was done by the Japan Defense Agency (JDA) in 1995 as Japan assessed its standing in the new post-Cold War environment after the 1994 North Korean nuclear crisis in 1994 and as the international community was considering the indefinite extension of the NPT. Both reports concluded that Japan should continue to rely on the U.S. security guarantee and that development of nuclear weapons would threaten that relationship. Since the end of the Cold War, and particularly in the past decade, developments in the region have increased Japan's sense of vulnerability and caused some in the policy community to rethink Japan's policy of forswearing nuclear weapons development. During the Cold War, the U.S. military presence in Japan represented the Pacific front of containing the Soviets, a reassuring statement of commitment to Japan's security to many Japanese. North Korea's test of a ballistic missile over Japan in August 1998 dispelled the sense of a more secure post-Cold War environment for the archipelago. Moreover, India and Pakistan both conducted underground nuclear weapons tests earlier that year, which to many undermined the success of the international non-proliferation regime and set off fears of a new nuclear arms race. Japan was particularly alarmed at the tests, and instituted a freeze on new loans and grants to the two states. Since then, more provocative behavior from Pyongyang, particularly its 2006 tests of medium-range missiles and a nuclear device, have heightened Japan's fear of potential attacks. The nuclear test prompted prominent officials in the ruling party to call for an open debate on whether to pursue nuclear arms: both then-Foreign Minister (and current Prime Minister) Taro Aso and chairman of the party's policy council called for such a debate before later backing off their comments. In addition to North Korea's activities, a U.S.-India civilian nuclear deal has led to concern among some Japanese non-proliferation experts that the NPT has weakened further. To these experts, the legitimacy and deterrent effect of the global non-proliferation regime underpins Japan's commitment to its own non-nuclear status. While North Korea represents a more immediate danger, many defense experts see China as the more serious and long-term threat to Japan's security. China's rapid military modernization and advancements in weapons systems have compounded Tokyo's concern. Japanese defense papers have pointed to Beijing's apparent progress in short and medium range missiles, its submarine force (some of which have on occasion intruded into Japan's territorial waters), and nuclear force modernization as specific areas of concern. As Chinese military spending continues to accelerate, Japanese defense budgets have stagnated or declined. Although Sino-Japanese relations appear to have stabilized since a period of tension under former Prime Minister Junichiro Koizumi's administration, fundamental distrust and the potential for conflict remains between the Pacific powers. Japan is a country poor in natural resources but with a high level of energy consumption. Since the 1960s, Japan has relied on nuclear power for a significant portion of its energy; nuclear energy currently provides 35% of its electricity. The Japan Atomic Energy Commission's 2005 Framework for Nuclear Energy Policy emphasizes the importance of nuclear power for energy independence and carbon emission reduction. Japan is currently the third-largest user of nuclear energy in the world, with 55 light-water nuclear power reactors (49.58 million kW) operated by 10 electric power companies. The first commercial power reactor began operation in 1966. Two nuclear power plants are under construction, four are in regulatory review, and an additional seven may be built over the next decade. Japan's policy is to achieve a fully independent, or "closed," fuel cycle. The closed fuel cycle promotes the use of mixed-oxide (MOX) fuel in light-water reactors. The set goal is to have 16-18 such reactors by FY2010, and utilities in Japan are now in the process of being licensed for MOX loading and obtaining consent from the local governments. The Japan Atomic Energy Agency (JAEA) was established on October 1, 2005, to integrate Japan's R&D institutes, the Japan Atomic Energy Research Institute and the Japan Nuclear Cycle Development Institute. JAEA carries out R&D work on the full range of fuel cycle activities. Two of the more controversial aspects of Japan's civilian power program are its large stocks of separated plutonium and advanced fuel cycle facilities. Plutonium is a by-product of the uranium fuel used in all nuclear reactors. Plutonium in spent fuel is not weapons-usable. Once this reactor-grade plutonium is separated out of spent fuel through reprocessing, it is potentially directly usable in nuclear weapons. This separated plutonium can also be "recycled" into MOX fuel for light-water power reactors. France, India, Japan, Russia and the U.K. currently all produce reactor fuel through reprocessing. The global stockpile of separated plutonium is estimated to be about 500 tons, including military and civilian stocks. Stocks of civilian separated plutonium are growing around the world. Japan possesses 6.7 MT of civilian stocks of separated plutonium stored in Japan, and 38 MT of separated plutonium stored outside the country. This material has the potential to make over 1,000 nuclear weapons. Japan's civilian separated plutonium stockpile is expected to grow to 70 tons by 2020. To date, Japan has sent its spent fuel to the United Kingdom (Sellafield) and France (La Hague) for reprocessing and MOX fuel fabrication. But Japan is completing facilities which will eliminate the need for such outsourcing. The private company Japan Nuclear Fuel Limited (JNFL) has built and is currently running active testing on a large-scale commercial reprocessing plant at Rokkasho-mura. The testing phase is expected to be completed in August 2009. Its expected capacity is 800tons/year. Advance site preparation work was started in October 2008 for a MOX fuel fabrication plant being built by JNFL at Rokkasho-mura. An experimental reprocessing plant has operated at Tokai-mura since 1977. It completed its contractual work to reprocess spent fuel for nuclear power utilities in March 2006. The Tokai plant is currently being prepared to conduct R&D work for fast reactor fuels. Around 2050, Japan plans to shift from MOX fuel in light water reactors to using MOX fuel in fast breeder reactors. R&D work continues using the prototype MONJU and JOYO fast breeder reactors, despite earlier accidents and continued technical difficulties. A final disposal site for high level radioactive waste has not yet been selected. Japan plans to store and dispose of its nuclear waste domestically. Japan also has a uranium enrichment R&D facility at Tokai-mura and is developing an advanced centrifuge uranium enrichment plant at Rokkasho-mura. The industrial-scale Rokkasho-mura reprocessing plant, the first in a non-nuclear weapon state, has raised some proliferation concerns. Fast breeder reactors also produce more plutonium than they consume, potentially posing a proliferation risk. Some cautionary voices point out that advanced countries have been shifting away from the pursuit of reprocessing technologies as the international community strives to find appropriate multilateral approaches to containing the spread of enrichment and reprocessing technologies to new countries. To counteract public concern, Japan emphasizes transparency in all aspects of its nuclear activities to assure the public and international community that atomic energy is used solely for peaceful purposes. All reactor-operating electric power utilities in Japan are required by law to make public the quantity of plutonium in possession and a plutonium use plan each fiscal year. All of Japan's nuclear facilities are subject to IAEA full-scope safeguards, and an Additional Protocol to its IAEA safeguards agreement came into force in December 1999. The protocol augments the agency's authority to verify that nuclear activities are not diverted to military purposes. Once the Rokkasho Reprocessing Plant starts operation, it will be the largest facility ever placed under IAEA safeguards. Japan has worked with the IAEA since the design phase to incorporate unique IAEA verification measures into the plant. Japan has been a leader in developing advanced safeguards technologies with the IAEA, and participates in multilateral advanced research efforts for future fuel cycle technologies, such as Generation IV International Forum (Gen-IV), International Project on Innovative Nuclear Reactors and Fuel Cycles (INPRO) and the U.S.-led Global Nuclear Energy Partnership (GNEP). Japan's technological advancement in the nuclear field, combined with its stocks of separated plutonium, have contributed to the conventional wisdom that Japan could produce nuclear weapons in a short period of time. In 1994, Prime Minister Tsutomu Hata famously told reporters that "it's certainly the case that Japan has the capability to possess nuclear weapons but has not made them." Indeed, few dispute that Japan could make nuclear weapons if Tokyo were to invest the necessary financial and other resources. However, the ability to develop a few nuclear weapons versus the technological, financial and manpower requirements of a full nuclear deterrent should be considered. Producing nuclear weapons would require expertise on bomb design including metallurgists and chemists; while a reliable deterrent capability may also require reliable delivery vehicles, an intelligence program to protect and conceal assets from a first-strike, and a system for the protection of classified information. The 1995 JDA report stated that Japan's geography and concentrated populations made the political and economic costs of building the infrastructure for a nuclear weapons program "exorbitant." If one assumes that Japan would want weapons with high reliability and accuracy, then more time would need to be devoted to their development unless a weapon or information was supplied by an outside source. As some analysts have pointed out, if Japan manufactured nuclear warheads, then it would need to at the minimum perform one nuclear test—but where this could be carried out on the island nation is far from clear. Furthermore, Japan's nuclear materials and facilities are under IAEA safeguards, making a clandestine nuclear weapons program difficult to conceal. The Rokkasho-mura reprocessing plant was built in close consultation with the IAEA, with safeguards systems installed in process lines during construction. Japan seems to have intentionally built its nuclear program so it would not be ideal for military use, in compliance with Japanese law. In general, public opinion on defense issues in Japan appears to be shifting somewhat, but pacifist sentiment remains significant. In the past, Japanese public opinion strongly supported the limitations placed on the Japanese military, but this opposition has softened considerably since the late 1990s. Despite this overall shifting tide, the "nuclear allergy" among the general public remains strong. The devastation of the atomic bombings led Japanese society to recoil from any military use of nuclear energy. Observers say that the Japanese public remains overwhelmingly opposed to nuclearization, pointing to factors like an educational system that promotes pacifism and the few surviving victims of Hiroshima and Nagasaki who serve as powerful reminders of the bombs' effects. While Japanese public opinion remains, by most accounts, firmly anti-nuclear, some social currents could eventually change the conception of nuclear development. Many observers have recognized a trend of growing nationalism in Japan, particularly among the younger generation. Some Japanese commentators have suggested that this increasing patriotism could jeopardize closer cooperation with the United States: if Japan feels too reliant on U.S. forces and driven by U.S. priorities, some may assert the need for Japan to develop its own independent capability. Another wild card is the likelihood that Japan will face a major demographic challenge because of its rapidly ageing population: such a shock could either drive Japan closer to the United States because of heightened insecurity, or could spur nationalism that may lean toward developing more autonomy. A review of recent articles and interviews with prominent Japanese opinion-makers and experts revealed a near-consensus of opposition to the development of nuclear weapons. Realist-minded security observers cite the danger of threatening China and causing unnecessary instability in the region, while foreign policy managers point to the risk of weakening the U.S. alliance. Some observers claim, however, that a younger generation of upcoming elites may be more nationalistic and therefore potentially more supportive of the option in the future. There is some degree of disagreement in Japan on if a debate itself about whether Japan should consider the nuclear option would be a valuable exercise. Some nuclear critics argue that such a debate would solidify Japan's non-nuclear stance by articulating for the public why not possessing nuclear weapons serves the national interest. The debate could also reassure those who oppose Japan's nuclear development. Others, however, argue that simply raising the issue would alarm Japan's neighbors, arouse distrust, and negatively affect regional security. Domestically, some analysts think that a public debate on nuclear weapons would outrage the Japanese public, making most politicians averse to the proposal. There are several legal factors that could restrict Japan's ability to develop nuclear weapons. The most prominent is Article 9 of the Japanese constitution, drafted by American officials during the post-war occupation, that outlaws war as a "sovereign right" of Japan and prohibits "the right of belligerency." However, Japan maintains a well-funded and well-equipped military for self-defense purposes, and the current interpretation of the constitution would allow, in theory, the development of nuclear weapons for defensive purposes. Beginning with Prime Minister Nobusuke Kishi in 1957, and continuing through Shinzo Abe in 2006, Japanese administrations have repeatedly asserted that Article 9 is not the limiting factor to developing nuclear weapons. As Chief Cabinet Secretary in 2002, former Prime Minister Yasuo Fukuda said that the constitution did not prohibit nuclear weapons, adding that "depending upon the world situation, circumstances and public opinion could require Japan to possess nuclear weapons." Although the Constitution may be interpreted to allow for possession of nuclear weapons, since 1955 Japanese domestic law prohibited any military purpose for nuclear activities. Its basic policy statement (Article 2) says: "the research, development, and utilization of atomic energy shall be limited to peaceful purposes, aimed at ensuring safety and performed independently under democratic management, the results therefrom shall be made public to contribute to international cooperation." This law, which also established regulatory bodies for safety and control issues, is at the core of Japanese policy in maintaining a peaceful, transparent nuclear program. Japanese leaders have often cited the "Three Non-Nuclear Principles" as another obstacle to Japanese development of nuclear weapons. The trio consists of Japanese pledges not to allow the manufacture, possession, or importation of nuclear weapons. Many security experts, however, point out that the principles, passed as a Diet resolution in 1971 as part of domestic negotiations over the return of Okinawa from U.S. control, were never formally adopted into law, and therefore are not legally binding. Although not technically a legal constraint, Japanese leaders have consistently stated their commitment to the principles, including a reiteration by Prime Minister Shinzo Abe in the aftermath of North Korea's nuclear test in 2006. Japan is obligated under Article 2 of the NPT not to "receive the transfer from any transferor whatsoever of nuclear weapons or other nuclear explosive devices or of control over such weapons or explosive devices directly, or indirectly; not to manufacture or otherwise acquire nuclear weapons or other nuclear explosive devices; and not to seek or receive any assistance in the manufacture of nuclear weapons or other nuclear explosive devices." Under Article 3 of the NPT, Japan is required to accept IAEA full-scope safeguards on its civilian nuclear program. Japan signed an Additional Protocol in 1998 under which the IAEA can use an expanded range of measures to verify that civilian facilities and materials have not been diverted to a military program. Lacking adequate indigenous uranium supplies, Japan has bilateral civilian nuclear cooperation agreements with the United States, France, United Kingdom, China, Canada, and Australia. If a Japanese nuclear program for military purposes were declared or discovered, Japan would need to return the supplied material to its country of origin. Japan's civilian nuclear energy program—which supplies over a third of Japan's energy—would then be cut off from world supplies of natural uranium, enriched uranium and related equipment. The United States most recent nuclear energy cooperation agreement with Japan took effect on July 17, 1988. Article 12 of this agreement states that, if either party does not comply with the agreement's nonproliferation provisions or violates their IAEA safeguards agreement, the other party has the right to cease further cooperation, terminate the agreement, and require the return of any material, nuclear material, equipment or components transferred or "any special fissionable material produced through the use of such items." If Japan withdrew from the NPT, it would likely be subject to UN Security Council-imposed sanctions and economic and diplomatic isolation. Penalties under a U.N. Security Council resolution could include economic sanctions beyond the Nuclear Suppliers Group cut-off of nuclear-related supply. Diplomatically, the policy turn-about would have profound implications. Japan has built a reputation as a leader in non-proliferation and as a promoter of nuclear disarmament. It has consistently called for a "safe world free of nuclear weapons on the earliest possible date." Japan submits a resolution to the General Assembly's First Committee each year on a nuclear-free world and submits working papers to the NPT review conferences and preparatory committees on disarmament. It has been a vocal advocate for IAEA verification and compliance and was the first to respond with sanctions to nuclear tests in South Asia and North Korea. It has been a constant voice in support of nuclear disarmament in international fora. An about-face on its non-nuclear weapon state status would dramatically change the global view of Japan, or might dramatically change the perception of nuclear weapons possession in the world. This move could have profound implications for nuclear proliferation elsewhere, perhaps leading to additional NPT withdrawals. Acquiring nuclear weapons could also hurt Japan's long-term goal of permanent membership on the U.N. Security Council. Perhaps the single most important factor to date in dissuading Tokyo from developing a nuclear arsenal is the U.S. guarantee to protect Japan's security. Since the threat of nuclear attack developed during the Cold War, Japan has been included under the U.S. "nuclear umbrella," although some ambiguity exists about whether the United States is committed to respond with nuclear weapons in the event of a nuclear attack on Japan. U.S. officials have hinted that it would: following North Korea's 2006 nuclear test, former Secretary of State Condoleezza Rice, in Tokyo, said, " ... 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." Most policymakers in Japan continue to emphasize that strengthening the alliance as well as shared conventional capabilities is more sound strategy than pursuing an independent nuclear capability. During the Cold War, the threat of mutually assured destruction to the United States and the Soviet Union created a sort of perverse stability in international politics; Japan, as the major Pacific front of the U.S. containment strategy, felt confident in U.S. extended deterrence. Although the United States has reiterated its commitment to defend Japan, the strategic stakes have changed, leading some in Japan to question the American pledge. Some in Japan are nervous that if the United States develops a closer relationship with China, the gap between Tokyo's and Washington's security perspectives will grow and further weaken the U.S. commitment. These critics also point to what they perceive as the soft negotiating position on North Korea's denuclearization in the Six-Party Talks as further evidence that the United States does not share Japan's strategic perspective. A weakening of the bilateral alliance may strengthen the hand of those that want to explore the possibility of Japan developing its own deterrence. Despite these concerns, many long-time observers assert that the alliance is fundamentally sound from years of cooperation and strong defense ties throughout even the rocky trade wars of the 1980s. Perhaps more importantly, China's rising stature likely means that the United States will want to keep its military presence in the region in place, and Japan is the major readiness platform for the U.S. military in East Asia. If the United States continues to see the alliance with Japan as a fundamental component of its presence in the Pacific, U.S. leaders may need to continue to not only restate the U.S. commitment to defend Japan, but to engage in high-level consultation with Japanese leaders in order to allay concerns of alliance drift. Disagreement exists over the value of engaging in a joint dialogue on nuclear scenarios given the sensitivity of the issue to the public and the region, with some advocating the need for such formalized discussion and others insisting on the virtue on strategic ambiguity. U.S. behavior plays an outsized role in determining Japan's strategic calculations, particularly in any debate on developing nuclear weapons. Security experts concerned about Japan's nuclear option have stressed that U.S. officials or influential commentators should not signal to the Japanese any tacit approval of nuclearization. Threatening other countries with the possibility of Japan going nuclear, for example, could be construed as approval by some quarters in Tokyo. U.S.-Japanese joint development of a theater missile defense system reinforces the U.S. security commitment to Japan, both psychologically and practically. The test-launch of several missiles by North Korea in July 2006 accelerated existing plans to jointly deploy Patriot Advanced Capability 3 (PAC-3) surface-to-air interceptors as well as a sea-based system on Aegis destroyers. If successfully operationalized, confidence in the ability to intercept incoming missiles may help assuage Japan's fear of foreign attacks. This reassurance may discourage any potential consideration of developing a deterrent nuclear force. In addition, the joint effort would more closely intertwine U.S. and Japan security, although obstacles still remain for a seamless integration. To many security experts, the most alarming possible consequence of a Japanese decision to develop nuclear weapons would be the development of a regional arms race. The fear is based on the belief that a nuclear-armed Japan could compel South Korea to develop its own program; encourage China to increase and/or improve its relatively small arsenal; and possibly inspire Taiwan to pursue nuclear weapons. This in turn might have spill-over effects on the already nuclear-armed India and Pakistan. The prospect—or even reality—of several nuclear states rising in a region that is already rife with historical grievances and contemporary tension could be deeply destabilizing. The counter-argument, made by some security experts, is that nuclear deterrence was stabilizing during the Cold War, and a similar nuclear balance could be achieved in Asia. However, most observers maintain that the risks outweigh potential stabilizing factors. The course of the relationship between Beijing and Washington over the next several years is likely to have a significant impact on the nuclearization debate in Japan. If the relationship chills substantially and a Cold War-type standoff develops, there may be calls from some in the United States to reinforce the U.S. deterrent forces. Some hawkish U.S. commentators have called for Japan to be "unleashed" in order to counter China's strength. Depending on the severity of the perceived threat from China, Japanese and U.S. officials could reconsider their views on Japan's non-nuclear status. Geopolitical calculations likely would have to shift considerably for this scenario to gain currency. On the other hand, if U.S.-Sino relations become much closer, Japan may feel that it needs to develop a more independent defense posture. This is particularly true if the United States and China engaged in any bilateral strategic or nuclear consultations. Despite improved relations today, distrust between Beijing and Tokyo remains strong, and many in Japan's defense community view China's rapidly modernizing military as their primary threat. Any eventual reunification of the Korean peninsula could further induce Japan to reconsider its nuclear stance. If the two Koreas unify while North Korea still holds nuclear weapons and the new state opts to keep a nuclear arsenal, Japan may face a different calculation. Indeed, some Japanese analysts have claimed that a nuclear-armed reunified Korea would be more of a threat than a nuclear-armed North Korea. Such a nuclear decision would depend on a variety of factors: the political orientation of the new country, its relationship with the United States, and how a reunified government approached its historically difficult ties with Japan. Although South Korea and Japan normalized relations in 1965, many Koreans harbor resentment of Japan's harsh colonial rule of the peninsula from 1910-1945. If the closely neighboring Koreans exhibited hostility toward Japan, it may feel more compelled to develop a nuclear weapons capability. The United States is likely to be involved in any possible Korean unification because of its military alliance with South Korea and its leading role in the Six-Party Talks. U.S. contingency planning for future scenarios on the Korean peninsula should take into account Japan's calculus with regard to nuclear weapon development. If Japan decided to go nuclear, its international reputation as a principled advocate for non-proliferation would erode. Many observers say this would rule out Japan's ambition of eventually holding a seat on the United Nations Security Council. Japan, of course, would bear the brunt of these consequences, but it could be harmful to U.S. interests as well. Japan is generally viewed overwhelmingly positively by the international community, and its support for U.S.-led international issues can lend credibility and legitimacy to efforts such as democracy promotion, peacekeeping missions, environmental cooperation, and multilateral defense exercises, to name a few. Japan's development of its own nuclear arsenal could also have damaging impact on U.S. nonproliferation policy. It would be more difficult for the United States to convince non-nuclear weapon states to keep their non-nuclear status or to persuade countries such as North Korea to give up their weapons programs. The damage to the NPT as a guarantor of nuclear power for peaceful use and the IAEA as an inspection regime could be irreparable if Japan were to leave or violate the treaty. If a close ally under its nuclear umbrella chose to acquire the bomb, perhaps other countries enjoying a strong bilateral relationship with the United States would be less inhibited in pursuing their own option. It could also undermine confidence in U.S. security guarantees more generally. | Japan, traditionally one of the most prominent advocates of the international non-proliferation regime, has consistently pledged to forswear nuclear weapons. Nevertheless, evolving circumstances in Northeast Asia, particularly North Korea's nuclear test in October 2006 and China's ongoing military modernization drive, have raised new questions about Japan's vulnerability to potential adversaries and, therefore, the appeal of developing an independent nuclear deterrent. The previous taboo within the Japanese political community of discussing a nuclear weapons capability appears to have been broken, as several officials and opinion leaders have urged an open debate on the topic. Despite these factors, a strong consensus—both in Japan and among Japan watchers—remains that Japan will not pursue the nuclear option in the short-to-medium term. This paper examines the prospects for Japan pursuing a nuclear weapons capability by assessing the existing technical infrastructure of its extensive civilian nuclear energy program. It explores the range of challenges that Japan would have to overcome to transform its current program into a military program. Presently, Japan appears to lack several of the prerequisites for a full-scale nuclear weapons deterrent: expertise on bomb design, reliable delivery vehicles, an intelligence program to protect and conceal assets, and sites for nuclear testing. In addition, a range of legal and political restraints on Japan's development of nuclear weapons, including averse public and elite opinion, restrictive domestic laws and practices, and the negative diplomatic consequences of abandoning its traditional approach is analyzed. Any reconsideration and/or shift of Japan's policy of nuclear abstention would have significant implications for U.S. policy in East Asia. In this report, an examination of the factors driving Japan's decision-making—most prominently, the strength of the U.S. security guarantee—analyzes how the nuclear debate in Japan affects U.S. security interests in the region. Globally, Japan's withdrawal from the Nuclear Non-Proliferation Treaty (NPT) would damage the world's most durable international non-proliferation regime. Regionally, Japan "going nuclear" could set off an arms race with China, South Korea, and Taiwan. India and/or Pakistan may then feel compelled to further expand or modernize their own nuclear weapons capabilities. Bilaterally, assuming that Japan made the decision without U.S. support, the move could indicate a lack of trust in the U.S. commitment to defend Japan. An erosion in the U.S.-Japan alliance could upset the geopolitical balance in East Asia, a shift that could strengthen China's position as an emerging hegemonic power. All of these ramifications would likely be deeply destabilizing for the security of the Asia Pacific region and beyond. This report will be updated as circumstances warrant. |
Throughout the nation's history, the governors of the states have filled most Senate vacancies by the appointment of interim or temporary Senators whose terms continued until a special election could be held. Between 1789 and 1913, the Constitution's original provisions empowered governors to "make temporary Appointments until the next Meeting of the [state] Legislature, which shall then fill such Vacancies." With the 1913 ratification of the Seventeenth Amendment, which provided for popular election of the Senate, the states acquired the option of filling Senate vacancies either by election or by temporary gubernatorial appointment: When vacancies happen in the representation of any State in the Senate, the executive authority of such State shall issue writs of election to fill such vacancies: Provided, That the legislature of any State may empower the executive thereof to make temporary appointments until the people fill the vacancies by election as the legislature may direct. Gubernatorial appointment to fill Senate vacancies has remained the prevailing practice from 1913 until the present day, with the executives of 45 states possessing some form of appointment authority, provided the candidate meets constitutional requirements. Of Senate appointments that have occurred since 1913, the vast majority have been filled by temporary appointments, and the practice appears to have aroused little controversy during that 96-year period. Aside from the death or resignation of individual Senators, vacancies may also occur when a newly elected administration is inaugurated. During the presidential transition following an election, incumbent Senators may resign to accept appointments to executive branch positions or to assume the office of President or Vice President. In 2008-2009, for instance, four vacancies were created following the presidential election: two in connection with the election of Senators Barack H. Obama and Joseph R. Biden as President and Vice President, and two more when Senator Hillary Rodham Clinton was nominated to be Secretary of State and Senator Kenneth L. Salazar of Colorado was nominated to be Secretary of the Interior. This report discusses the latest developments in vacancies in the Senate; identifies state provisions to appoint or elect Senators to fill vacancies; and reviews the constitutional origins of the appointments provision and its incorporation in the Seventeenth Amendment. One Senate vacancy was generated in connection with the 2016 election of Donald J. Trump as President. On January 20, 2017, the President nominated Alabama Senator Jeff Sessions for the office of Attorney General of the United States. Senator Sessions was confirmed by the Senate on February 8, 2017; he resigned from the Senate the same day and was sworn in the following day, February 9. In accordance with Alabama law, Governor Robert Bentley announced his appointment of state Attorney General Luther Strange III to fill the vacancy on February 9. Senator Strange, who was sworn in the same day, would serve until a special election. On April 18, Governor Kay Ivey, who succeeded Governor Bentley on April 10, ordered special primary and general elections to fill the Senate seat for the balance of the current term, which expires in 2021. The special primary was held August 15 and the runoff on September 26; the special general election was scheduled for December 12, 2017. The special election was contested by major party nominees Roy Moore (Republican) and Doug Jones (Democratic). Jones won the special election, the results of which were certified on December 28; he was sworn in on January 3, 2018. Senator Jones will serve for the balance of the term, which expires on January 3, 2021. On December 6, 2017, Minnesota Senator Al Franken announced his intention to resign from the Senate. In accordance with Minnesota law, Governor Mark Dayton announced on December 12 that he would appoint Lieutenant Governor Tina Smith to fill the vacancy until a special election could be held. Senator Franken resigned on January 2, 2018, and Senator Smith was sworn in the next day, January 3. She will serve until a special election, which will be held concurrently with Minnesota's regularly scheduled general election on November 6, 2018. At that time, the seat will be filled for the balance of the term, which expires on January 3, 2021. On March 5, 2018, Senator Thad Cochran announced that he would resign on April 1, due to reasons of health. On March 21, Governor Phil Bryant announced his appointment of Mississippi Agriculture Secretary Cindy Hyde-Smith to fill the vacancy until a special election. Under provisions of Mississippi law, the vacancy will then be filled for the balance of the term, which expires in January 2021. Senator Hyde-Smith, who was sworn in on April 9, 2018, brings the number of women Senators to a historical record of 23. The special election will be held concurrently with the regularly scheduled November 6 statewide general election. A regularly scheduled election for Mississippi's other Senate seat, the current term of which expires in 2019, and which is held by Senator Roger Wicker, is also scheduled for 2018. As a result, Mississippi voters will vote to elect two Senators on November 6: one to fill Senator Cochran's seat for the balance of his term, and the second for a full term for the other seat. Special elections for Mississippi Senate seats have certain distinctive characteristics: they are nonpartisan; there is no primary—all qualified candidates contest the special general election; and, a majority of votes is required to win. If no candidate wins a majority, the two who gained the most votes would contest a runoff election held three weeks later, on November 27. At present, five states require that vacancies can be filled only by a special election. The remaining 45 states provide some form of appointment by their governors to fill U.S. Senate vacancies. Five states currently provide that Senate vacancies be filled only by special elections; their governors are not empowered to fill a vacancy by appointment. Typically, these states provide for an expedited election process in order to reduce the period during which the seat is vacant: North Dakota Oklahoma Oregon Rhode Island Wisconsin As noted previously, 45 states authorize their governors to fill Senate vacancies by appointment. The most widespread practice is for governors to appoint temporary Senators who hold the seat until the next statewide general election, at which time a special election is held to fill the seat for the balance of the term. The National Conference of State Legislatures identifies two variations within this larger category: 36 states that provide for gubernatorial appointments to fill Senate vacancies, with the appointed Senator serving the balance of the term or until the next statewide general election; and 9 states that provide for gubernatorial appointments, but also require a special election on an accelerated schedule, often within a relatively short period after the vacancy occurs. In addition, within the first sub-category, six states also identified below require that the Senator appointed by the governor be a member of the same political party as the prior incumbent. The 36 states listed below authorize their governors to fill Senate vacancies by appointment, with the temporary Senator serving the balance of the term or until a special election is held concurrently with the next statewide general election. General elections are scheduled with relative frequency throughout the states. They are held in every state at least once in every even-numbered year, for Representatives in Congress, Senators, if applicable, and, quadrennially, for the President and Vice President, as well as for a broad range of state officials, including governors, legislators, and other state and local elected officials. In addition, a number of states schedule statewide elections for local elected officials for odd-numbered years. In several states—Hawaii, Minnesota, New Jersey, New York, and Virginia—if a Senate vacancy occurs in close proximity to a regularly scheduled statewide primary or general election, the appointed Senator serves until the following statewide election. Six of the states listed above that authorize their governors to fill vacancies by appointment also place political party-related restrictions on that power. These provisions are intended to ensure that the appointing governors respect the results of the previous election by selecting a temporary replacement who will either be of the same political party as the prior incumbent, or who has been endorsed or "nominated" by the prior incumbent's party apparatus. Arizona requires the governor to appoint a replacement Senator from the same party as the previous incumbent. Hawaii requires the governor to select a candidate from a list of three prospective appointees submitted by the political party of the previous incumbent. Maryland requires the governor to appoint a replacement Senator "from a list of names submitted by the state central committee of the political party of the vacating office holder." North Carolina requires the governor to appoint a replacement Senator from the same party at the previous incumbent. Utah requires the governor to appoint a replacement Senator from the same party as the previous incumbent. Wyoming requires the governor to appoint a replacement Senator from the same party as the previous incumbent. Some commentators have questioned these "same party" requirements on the grounds that they attempt to add extra qualifications to Senate membership, beyond the constitutional requirements of age, citizenship, and residence. Another category of states includes nine that authorize their governors to fill Senate vacancies by appointment until a special election, but require that the special election be held in relatively close proximity to the date the vacancy occurred. If the vacancy does occur close to a regularly scheduled general election, the special election may be held concurrently, but if not, the special election may be scheduled within a few months of the vacancy. This provision is intended to reduce the length of time an appointed Senator holds office before being replaced by an elected successor. In these states, the appointed Senator generally serves only until the election results for a successor are certified. The following state requirements do not include information on nomination procedures. Alabama authorizes the governor to fill a Senate vacancy by appointment. The Code of Alabama also requires the governor to order a special election if the vacancy occurs more than four months before a general election. If it occurs between 2 and 4 months before the general election, it is filled at that election, but if it occurs within 60 days of a general election, the governor shall schedule a special election to be held "on the first Tuesday after the lapse of 60 days from and after the day on which the vacancy is known to the governor." Alaska authorizes the governor to fill a Senate vacancy by appointment. Alaska statutes also require the governor to order a special election not less than 60 or more than 90 days after the vacancy. If, however, the vacancy occurs less than 60 days before the primary election in the general election year in which the term expires, no special election is held. Connecticut authorizes the governor to fill a Senate vacancy by appointment under limited circumstances. Within 10 days of a vacancy, the governor orders a special election to be held 150 days later, unless the vacancy occurs in close proximity of regular statewide state or municipal elections, in which case the special election is held concurrently with the regular elections. If it occurs after municipal elections during the year the term expires, the governor nominates an appointee to fill the vacancy for the balance of the term, subject to approval by two-thirds of the members of both houses of the legislature. If, however, the vacancy occurs in close proximity of the elections at which the seat would be filled, the seat remains vacant for the balance of the term. Louisiana authorizes the governor to fill a Senate vacancy by appointment for the balance of the term if it expires in one year or less. Otherwise, the governor orders a special election to be held in conformity with a range of dates provided in state law, but not less than 11 weeks after the election proclamation. Massachusetts authorizes the governor fill a Senate vacancy by appointment to serve only until a special election has been held. The governor calls a special election to fill a Senate vacancy between 145 and 160 days after the vacancy occurs, unless the vacancy occurs after April 10 of an even-numbered year, in which case the special election is held concurrently with the regularly scheduled statewide election. Mississippi authorizes the governor to fill a Senate vacancy by appointment until a special election has been held; if less than one year remains on the prior incumbent's term, the appointee serves the balance of the term. If more than one year remains on the term, the special election is held within 90 days of the date on which the governor ordered the election, unless the vacancy occurs during a year in which a regular statewide election is scheduled, in which case the vacancy is filled concurrently with the regularly scheduled election. Texas authorizes the governor to fill a Senate vacancy temporarily by appointment if the vacancy exists or will exist when Congress is in session. If the vacancy occurs in an even-numbered year and 62 or more days before the primary, the vacancy is filled at that year's general election. If the vacancy occurs in an odd-numbered year, or fewer than 62 days before the primary, the governor calls a special election which is scheduled for the first uniform election date falling 36 or more days after it has been ordered. Vermont authorizes the governor to fill a Senate vacancy by appointment until a successor has been elected. The governor calls a special election, which is held within three months of the vacancy, except if the vacancy occurs within six months of a general election, in which case the special election is held concurrently with the regularly scheduled general election. Washington authorizes the governor to fill a Senate vacancy by appointment until a successor has been elected. Not more than 10 days after the vacancy occurs, the governor calls a special election to be held not less than 140 days later. If the vacancy occurs less than eight months before a general election, the special election is held concurrently with the regularly scheduled election. If the vacancy occurs after the close of the filing period, a special election is held not more than 90 days following the regularly scheduled general election. The Constitutional Convention of 1787 addressed the question of Senate vacancies not long after it had approved the Great, or Connecticut, Compromise, which settled on equality of state representation in the Senate, and representation according to population in the House of Representatives. On July 24, the delegates appointed five members to serve as the Committee of Detail; the committee was charged with assembling all the points decided by that stage of the deliberations, arranging them, and presenting them to the convention for further refinement and discussion. The committee's report, presented on August 6, proposed that governors would fill Senate vacancies if they occurred when the state legislature was not in session: Article 5, Section 1. The Senate of the United States shall be chosen by the Legislatures of the several States. Each Legislature shall choose two members. Vacancies may be supplied by the Executive until the next meeting of the Legislature (emphasis added). Each member shall have one vote. On August 9, the delegates turned to Article 5; Edmund Randolph of Virginia, a member of the Committee of Detail, explained that the provision was thought ... necessary to prevent inconvenient chasms in the Senate. In some states the legislatures meet but once a year. As the Senate will have more power and consist of a smaller number than the other house, vacancies there will be of more consequence. The executives might be safely entrusted, he thought, with the appointment for so short a time. James Wilson of Pennsylvania countered by asserting that the state legislatures met frequently enough to deal with vacancies, that the measure removed appointment of the Senators another step from popular election, and that it violated separation of powers by giving the executive power to appoint a legislator, no matter how brief the period. Oliver Ellsworth of Connecticut noted that "may" as used in the provision was not necessarily prescriptive, and that "[w]hen the legislative meeting happens to be near, the power will not be exerted." A motion to strike out executive appointment was voted down eight states to one, with one divided. Hugh Williamson of North Carolina then offered an amendment to change the language to read "vacancies shall be supplied by the Executive unless other provision shall be made by the legislature," which was also rejected. The Committee on Style and Arrangement made minor alterations, and inserted the provision in Article I, Section 3, paragraph (clause) 2 in its September 12 report. The full convention made final changes and approved the provision on September 17, and it was incorporated without debate into the Constitution in the following form: and if vacancies happen by Resignation, or otherwise, during the Recess of the Legislature of any State, the Executive thereof may make temporary Appointments until the next Meeting of the Legislature, which shall then fill such Vacancies. The appointments provision does not appear to have aroused much interest during the debate on ratification. A review of available sources, including The Federalist and proceedings of the state conventions that ratified the Constitution, reveals almost no debate on the question. For the next 124 years, governors appointed temporary Senators according to the constitutional requirement with only minor controversy. During this long period, 189 Senators were appointed by state governors; 20 of these appointments were contested, but only 8 were "excluded" by the Senate. The primary grounds for these contested appointments appear to have centered on whether vacancies happened during the recess of the legislature. According to historian George Haynes, throughout much of this time, "the Senate refused to admit to its membership men who had been appointed by the governors of their several States when the legislature had had the opportunity to fill the vacancies, but had failed to do so by reason of deadlocks." Aside from this recurring controversy, the appointment of temporary Senators seems to have been otherwise unremarkable. A random survey of various states during the period from 1789 through 1913 identifies an average of 3.3 senatorial appointments per state for the period, with individual totals dependent largely on the length of time the state had been in the Union. For instance, New Hampshire, one of the original states, is recorded as having had eight appointed temporary Senators during this period, while Montana, admitted in 1889, never had an appointment under the original constitutional provision. For more than 70 years following ratification of the Constitution, there was little interest in changing the original constitutional provisions governing Senate elections and vacancies. Although an amendment providing for direct election was introduced as early as 1826, few others followed, and by 1860, only nine such proposals had been offered, all but one of which was introduced in the House. Satisfaction with the status quo began to erode, however, after the Civil War, and support grew for a constitutional amendment that would provide direct popular election of the Senate. During the last third of the 19 th century, indirect election of Senators by state legislatures came under growing criticism, while proposals for an amendment to establish direct election began to gain support. The decades following the Civil War witnessed increasing instances of both protracted elections, in which senatorial contests were drawn out over lengthy periods, and deadlocked elections, in which state legislatures were unable to settle on a candidate by the time their sessions ended. In the most extreme instances, protracted and deadlocked elections resulted in unfilled Senate vacancies for sometimes lengthy periods. According to Haynes, 14 seats were left unfilled in the Senate for protracted periods, and while "[t]he duration of these vacancies varied somewhat ... in most cases, it amounted to the loss of a Senator for the entire term of a Congress." During the same period, the Senate election process was increasingly regarded as seriously compromised by corruption. Corporations, trusts, and wealthy individuals were often perceived as having bribed state legislators in order to secure the election of favored candidates. Once in office, the Senators so elected were said to "keep their positions by heeding the wishes of party leaders and corporate sponsors rather than constituents." A third factor contributing to the rise of support for direct election of Senators was what one historian characterized as "a long-term American inclination to strengthen representative democracy." As such, the campaign for popular election might be considered part of the series of state and federal laws and constitutional amendments intended to expand the right to vote and guarantee the integrity of election procedures. As the movement for reform gained strength, "progressive" elements in both major parties, and rising political movements, such as the Populist and Socialist parties, all supported direct election of the Senate. Action for popular election of Senators proceeded on two levels. First, beginning as early as the 1870s, the House of Representatives considered popular election amendment proposals. As support for this idea gained strength, the House approved a popular election amendment for the first time in 1893. Moreover, the House continued to approve popular election amendments by increasing vote margins a total of five times between 1893 and 1902; in each case, however, the Senate took no action. Faced with the Senate's refusal to consider a direct election amendment, the House put the question aside, and the question of popular election of Senators remained quiescent for nearly a decade, at least in Congress. Efforts to secure direct election of Senators met with greater success in the states during this period. After years of experimentation with different plans by the states, Oregon voters used the newly enacted initiative process in 1904 to pass legislation that had the effect of requiring state legislators to pledge to elect the Senate candidate who received the most votes in the popular primary election. The winner of the primary, who would then be elected Senator by the state legislature, would reflect the people's choice by one degree of removal. The "Oregon Plan" spread quickly, so that by 1911, over half the states had adopted some version of indirect popular election of Senators. Pressure continued to build on the Senate in the first decade of the 20 th century. In addition to enacting versions of the Oregon Plan, a number of states petitioned Congress, asking it to propose a direct election amendment, while others submitted petitions for an Article V convention to consider an amendment. Deadlocked elections in several states continued to draw publicity, while in 1906, a sensational but influential series of articles titled "The Treason of the Senate" ran in William Randolph Hearst's Cosmopolitan . All these influences helped promote the cause of direct election. After a false start in the 61 st Congress, when the Senate failed to approve a direct amendment proposal, both chambers revisited the issue early in 1911 as the first session of the 62 nd Congress convened. H.J.Res. 39, excerpted below, was the House vehicle for the proposed amendment. The Senate of the United States shall be composed of two Senators from each State, elected by the people thereof, for six years; and each Senator shall have one vote. The electors of each state shall have the qualifications requisite for electors for the most numerous branch of the State legislature. The times, places, and manner of holding elections for Senator shall be as prescribed in each State by the legislature thereof. When vacancies happen in the representation of any State in the Senate, the executive authority of such State shall issue writs of election to fill such vacancies: Provided , That the legislature of any State may empower the executive thereof to make temporary appointments until the people fill the vacancies by election, as the legislature may direct. The language is identical to the Seventeenth Amendment as eventually ratified, except for clause 2, "The times, places, and manner of holding elections for Senator shall be as prescribed in each State by the legislature thereof." Controversy over this provision delayed congressional proposal of the amendment for a full year. This clause would have removed reference to the Senate from Article I, Section 4, clause 1, of the Constitution, and would have had the effect of eliminating federal authority over the Senate elections process. It has been described by historians as "a 'race rider' which would deny to the federal government the authority to regulate the manner in which elections were conducted." Supporters of the clause asserted it guaranteed state sovereignty and restrained the power of the federal government, while opponents characterized it as an attack on the right of black Americans to vote as conferred by the Fifteenth Amendment, at least with respect to the Senate. On April 13, 1911, the House rejected an effort to strip clause 2 from H.J.Res. 39, and then moved immediately to approve the resolution with it intact. When the Senate took up the measure on May 15, Senator Joseph Bristow offered an amended version which did not include the elections control clause. The Senate debated Bristow's amendment for almost two months. The vote, when finally taken on June 12, resulted in a tie, which Vice President James Sherman broke by voting in favor of the Bristow amendment. The Senate then overwhelmingly approved the constitutional amendment itself by a vote of 64 to 24. What is perhaps most remarkable about deliberations over the Seventeenth Amendment in both chambers is how little was said of the vacancies clause. Senator Bristow's explanation of his purpose evinced little comment from other Members; he characterized his vacancy clause as exactly the language used in providing for the filling of vacancies which occur in the House of Representatives, with the exception that the word "of" is used in the first line for the word "from," which however, makes no material difference. Then my substitute provides that—["]The legislature of any State may empower the executive thereof to make temporary appointments until the people fill the vacancies by election as the legislature may direct.["] That is practically the same provision which now exists in the case of such a vacancy. The governor of the State may appoint a Senator until the legislature elects. My amendment provides that the legislature may empower the governor of the State to appoint a Senator to fill a vacancy until the election occurs, and he is directed by this amendment to "issue writs of election to fill such vacancies." That is, I use exactly the same language in directing the governor to call special elections for the election of Senator to fill vacancies that is used in the Constitution in directing him to issue writs of election to fill vacancies in the House of Representatives. A conference committee was appointed to resolve differences between the competing House and Senate versions; it met 16 times without reaching approval, while the Senate continued to insist on its version. Almost a year passed before the House receded from its version and accepted the amendment as passed by the Senate. The "clean" amendment was sent to the states, where it was ratified in record time: Connecticut became the 36 th state to approve, on April 8, 1913, and Secretary of State William Jennings Bryan declared the Seventeenth Amendment to have been duly ratified on May 31, 1913. Within a year of the Seventeenth Amendment's ratification, two precedents concerning Senate special elections and the power of governors to fill vacant seats by appointment were decided. In 1913, the governor of Maryland issued a writ of special election to fill a Senate vacancy. The election was held, and a Senator elected, but the governor had previously appointed a temporary replacement in 1912, six months before the Seventeenth Amendment was ratified. The right of the elected Senator to supplant the appointed one was challenged on the grounds that the governor had no legal right to issue the writ of election, because neither Congress nor the Maryland legislature had enacted legislation authorizing the special elections contemplated by the Seventeenth Amendment. The Senate debated the issue, rejected this argument, and seated the elected Senator. In the second case, the governor of Alabama sought to appoint an interim Senator to fill a vacancy created in 1913, after the Seventeenth Amendment had been ratified. The Alabama legislature had not yet passed legislation providing for gubernatorial appointments, as provided in clause 2 of the Amendment, and the Senate declined to seat the appointee on the grounds that the governor could not exercise the appointment power unless so authorized by state law. The Senate Historical Office maintains records for Senators appointed since 1913, beginning with Rienzi M. Johnston of Texas, although Senator Johnston's appointment on January 14, 1913, technically antedated the Seventeenth Amendment, which was declared to be ratified on May 31. At the time of this writing, April 9, 2018, the Senate's records currently identify 198 appointments to the office of U.S. Senator since that time, including, most recently, Senator Cindy Hyde-Smith, as cited previously in this report. This total includes 195 individuals, since 3 persons were appointed to fill Senate vacancies twice. Of this figure, 16 appointees have been women: 7 of these were the widows of incumbent Senators who agreed to serve until a successor could be elected; 2 were spouses of the governor who appointed them; and 1 was the daughter of the governor who appointed her. Three men were appointed to fill vacancies created by the death of their fathers. These Senate data exclude so-called "technical" resignations, a practice which ended in 1980. Prior to that year, technical resignations, which were generally considered a separate class, occurred when a retiring Senator resigned after the election of his or her successor, but before the expiration of the term. The Senator-elect would then be appointed to serve out the balance of the term by the state governor. The purpose here was to provide the Senator-elect with the benefits of two months of extra seniority. As noted above, this practice ended in 1980 when the major parties agreed that Senators-elect would no longer accrue seniority benefits through appointment as a result of technical resignations. Of the 194 Senators appointed prior to 2017, 118, or 60.8%, sought election, while the remainder served only until the special election. Sixty-two, or 52.5%, of those who pursued election were successful, while 56 were defeated, often in the primary election. Although complete data are not available, a study of Senators appointed to fill vacancies between 1945 and 1979 found an even lower success rate in primary elections. According to William D. Morris and Roger H. Marz, writing in the political science journal Publiu s, 41.7% of appointed Senators who sought election in their own right during this period were defeated in the subsequent special primary election. The electoral fate of appointed Senators has long been the subject of investigation and speculation. Scholars have noted that appointed Senators who have run for election in their own right have mixed electoral success, at best. Morris and Marz concluded that appointed senators are a special class, at least insofar as their reception by the voters is concerned.... [They] are only half as likely to be successful in the election process, and more than one-fifth of them do not even win the nomination of their own party.... [T]hough they are constitutionally and statutorially full members of the Senate in every formal sense of the body, their low survival rate in their first election suggests the mantle of office protecting "normal" incumbents does not fully cover the appointee. Following controversies that arose in connection with appointments to fill Senate vacancies in 2008 and 2009, particularly with respect to the Illinois Senate vacancy created by the election of Senator Barack H. Obama as President, proposals to eliminate or curtail gubernatorial power to fill Senate vacancies by appointment were introduced in the 111 th Congress and in a number of state legislatures. These proposals fell into two categories, legislative and constitutional. No bills or resolutions proposing similar legislation or constitutional amendments have been introduced to date in succeeding Congresses. H.R. 899 , the Ethical and Legal Elections for Congressional Transitions Act, was introduced by Representative Aaron Schock on February 4, 2009. This bill sought to provide for expedited special elections to fill Senate vacancies, and to assist states in meeting the expenses of special elections. It sought to avoid potential conflicts with the Seventeenth Amendment by authorizing the states to continue to provide for gubernatorial appointments, but it sought considerably shorter tenures for most appointed Senators. As a secondary issue, it addressed concerns of state and local governments related to the costs of planning and administration of special elections through a program of reimbursements. H.R. 899 would have provided that when the President of the U.S. Senate issued a certification that a vacancy existed in the Senate, a special election to fill the vacancy would be held not later than 90 days after the certification was issued; the election would be conducted in accordance with existing state laws; and a special election would not be held if the vacancy were certified within 90 days of the regularly scheduled election for the Senate seat in question, or during the period between the regularly scheduled election and the first day of the first session of the next Congress. H.R. 899 also provided a rule of construction (legally clarifying language) stating that nothing in the act would impair the constitutional authority of the several states to provide for temporary appointments to fill Senate vacancies, or the authority of appointed Senators between the time of their appointment and the special election. Further, it would have authorized the Election Assistance Commission to reimburse states for up to 50% of the costs incurred in connection with holding the special election. H.R. 899 was introduced on February 4, 2009, and was referred to the House Committee on House Administration on the same day, but no further action was taken on the bill. These two identical proposals sought to amend the Constitution to eliminate the states' authority to provide for temporary appointments to fill Senate vacancies. S.J.Res. 7 was introduced by Senator Russell D. Feingold on January 29, 2009, and was referred to the Senate Judiciary Committee, and subsequently to the Subcommittee on the Constitution. A companion measure, H.J.Res. 21 , was introduced by Representative David Dreier on February 11, 2009. The resolution was referred to the House Judiciary Committee and subsequently to the Subcommittee on the Constitution, Civil Rights, and Civil Liberties. The proposed amendments would have required that "no person shall be a Senator from a State unless such person has been elected by the people thereof" and further directed state governors to issue writs of election to fill Senate vacancies. S.J.Res. 7 and H.J.Res. 21 proposed a fundamental change in the constitutional procedures governing Senate vacancies by completely eliminating the state option to provide for temporary appointments incorporated in the Seventeenth Amendment. As one of the sponsors of the Senate version asserted, the proposed amendment reflected the view that "those who want to be a U.S. Senator should have to make their case to the people.... And the voters should choose them in the time-honored way that they choose the rest of the Congress of the United States." Conversely, opponents might have argued that the proposed amendments were introduced as a too-hasty response to specific events that were unlikely to be repeated, and that the appointment clause of the Seventeenth Amendment had functioned without incident for a century. On March 11, 2009, the two constitutional subcommittees, in the House, the Subcommittee on the Constitution, Civil Rights, and Civil Liberties and in the Senate, the Subcommittee on the Constitution, held a joint hearing on the measures, and on August 6, the Senate Subcommittee on the Constitution voted to approve S.J.Res. 7 and to report it to the full Committee on the Judiciary, but no further action was taken on either measure. According to the National Council of State Legislatures, bills affecting the governor's appointment authority as provided under the Seventeenth Amendment were introduced in 12 states during 2009, and in several more since that time. As a result of these initiatives, Connecticut and Rhode Island in 2012, and North Dakota in 2015 eliminated or limited the governor's authority to fill U.S. Senate vacancies by appointment, while Arkansas in 2017 confirmed the governor's appointment power and eliminated conflicting provisions between the state code and constitution. Conversely, in 2009, Massachusetts changed its requirement from filling vacancies only by election to providing for temporary appointment by the governor followed by a special election. In addition, as noted earlier in this report, North Carolina in 2013, and Maryland in 2016, enacted legislation that required appointments to fill Senate vacancies be from the same political party as the previous incumbent. Since ratification of the Seventeenth Amendment in 1913, most of the states, with few exceptions and little evident controversy, have empowered their governors to fill Senate vacancies by appointment until a permanent replacement can be elected. The controversies surrounding appointments to fill Senate vacancies that occurred in the context of the 2008 presidential election generated considerable interest, including media analyses and commentaries, and legislative and constitutional proposals for change on both the federal and state levels. Interest in a response on the federal level, including proposals to revise Senate vacancy procedures, appears to have receded—relevant bills and constitutional amendments introduced in the 111 th Congress did not progress beyond hearings, and no similar proposal has been offered since that time. In the states, Connecticut, Massachusetts, North Dakota, and Rhode Island took action between 2009 and 2015 to limit or eliminate their governors' role in filling Senate vacancies, but the National Conference of State Legislatures reports no further legislation since then. The only other recent changes in the states, action in Maryland and North Carolina to establish "same party" requirements for appointments to fill Senate vacancies, were arguably taken in the context of divided party control of the legislature and governorship in both states. Beyond these developments, recent actions suggest that the traditional pattern of Senate vacancies and appointments has reemerged: since 2009, 10 vacancies in the Senate have been filled by temporary appointments with little controversy as to the appointment process. | United States Senators serve a term of six years. Vacancies occur when an incumbent Senator leaves office prematurely for any reason; they may be caused by death or resignation of the incumbent, by expulsion or declination (refusal to serve), or by refusal of the Senate to seat a Senator-elect or -designate. Aside from the death or resignation of individual Senators, Senate vacancies often occur in connection with a change in presidential administrations, if an incumbent Senator is elected to executive office, or if a newly elected or reelected President nominates an incumbent Senator or Senators to serve in some executive branch position. The election of 2008 was noteworthy in that it led to four Senate vacancies as two Senators, Barack H. Obama of Illinois and Joseph R. Biden of Delaware, were elected President and Vice President, and two additional Senators, Hillary R. Clinton of New York and Ken Salazar of Colorado, were nominated for the positions of Secretaries of State and the Interior, respectively. Following the election of 2016, one vacancy was created by the nomination of Alabama Senator Jeff Sessions as Attorney General. Since that time, one additional vacancy has occurred and one has been announced, for a total of three since February 8, 2017. As noted above, Senator Jeff Sessions resigned from the Senate on February 8, 2017, to take office as Attorney General of the United States. The governor of Alabama appointed Luther Strange III to fill the vacancy until a successor was elected. Doug Jones was elected at the December 12, 2017, special election; he was sworn in on January 3, 2018, and will serve through the balance of the term, which expires in 2021. Senator Al Franken of Minnesota resigned from the Senate on January 2, 2018. On December 12, 2017, Minnesota Lieutenant Governor Tina Smith was appointed by Governor Mark Dayton to fill the vacancy. Senator Smith was sworn in on January 3, 2018. She will serve until a special election is held on November 6, 2018, to fill the seat for the balance of the term, which expires in 2021. Senator Thad Cochran of Mississippi resigned from the Senate on April 1, 2018. Governor Phil Bryant appointed Cindy Hyde-Smith to fill the vacancy. Senator Hyde-Smith was sworn in on April 9, 2018. She will serve until a nonpartisan special election contested by all qualified candidates is held on November 6. A majority of votes is required to elect. If no candidate wins a majority, the two who gained the most votes will contest a November 27 runoff. The winning candidate will serve for the balance of the term, which expires in 2021. Senator Hyde-Smith brings the number of women Senators to a record total of 23. The use of temporary appointments to fill Senate vacancies is an original provision of the U.S. Constitution, found in Article I, Section 3, clause 2. The current constitutional authority for temporary appointments to fill Senate vacancies derives from the Seventeenth Amendment, which provides for direct popular election of Senators, replacing election by state legislatures. It specifically directs state governors to "issue writs of election to fill such vacancies: Provided, that the legislature of any state may empower the executive thereof to make temporary appointment until the people fill the vacancies by election as the legislature may direct." Since ratification of the Seventeenth Amendment in 1913, the Senate records currently identify 198 appointments to fill vacancies in the office of U.S. Senator. During the period since ratification of the Seventeenth Amendment, most states have authorized their governors to fill Senate vacancies by temporary appointments. At present, in 35 states, these appointees serve until the next general election, when a permanent successor is elected to serve the balance of the term, or until the end of the term, whichever comes first. Ten states authorize gubernatorial appointment, but require an ad hoc special election to be called to fill the vacancy, which is usually conducted on an accelerated schedule, to minimize the length of time the seat is vacant. The remaining five states do not authorize their governors to fill a Senate vacancy by appointment. In these states, the vacancy must be filled by a special election, here again, usually conducted on an accelerated schedule. In one notable detail concerning the appointment process, six states require their governors to fill Senate vacancies with an appointee who is of the same political party as the prior incumbent. Following the emergence of controversies in connection with the Senate vacancy created by the resignation of Senator Barack Obama in 2008, several states eliminated or restricted their governors' authority to fill Senate vacancies by appointment, while both legislation and a constitutional amendment that would have required all Senate vacancies to be filled by special election were introduced in the 111th Congress. None of these measures reached the floor of either chamber, however, and no comparable measures have been introduced since that time. |
The U.S.-Peru Trade Promotion Agreement (PTPA) is a comprehensive trade agreement that eliminates tariffs and other barriers in goods and services trade between the United States and Peru. On December 7, 2005, the United States and Peru concluded negotiations on the agreement and, on January 6, 2006, President Bush notified the Congress of his intention to enter into a free trade agreement with Peru. The agreement was signed on April 12, 2006 by the U.S. Trade Representative and the Peruvian Minister of Foreign Trade and Tourism. On November 8, 2007, the House of Representatives passed (285-132) H.R. 3688 to implement the PTPA under the Trade Promotion Authority, which requires an expedited process with limited debate and an up or down vote. The Senate approved (77-18) legislation on December 4, 2007, and President Bush signed the implementing bill for the free trade agreement on December 14, 2007 ( P.L. 110-138 ). In Peru, the Peruvian Congress voted 79 to 14 to approve the agreement on June 28, 2006. On January 16, 2009, President Bush issued a proclamation to implement the U.S.-Peru Trade Promotion Agreement as of February 1, 2009. The PTPA negotiations began in May 2004, when the United States, Colombia, Peru, and Ecuador participated in the first round of negotiations for a U.S.-Andean free trade agreement (FTA). After thirteen rounds of talks, however, negotiators failed to reach an agreement. Peru continued negotiations alone with the United States and concluded the bilateral agreement in December 2005. Implementing legislation for the PTPA was considered by the U.S. Congress under Title XXI (Bipartisan Trade Promotion Authority Act of 2002) of the Trade Act of 2002 ( P.L. 107-210 ), which requires an expedited process with limited debate and an up or down vote. Trade Promotion Authority (TPA) procedures require the President to submit formally the agreement and implementing legislation to Congress after entering into an agreement. In early 2007, a number of Members of Congress indicated that some of the agreement's provisions would have to be strengthened to gain their approval, particularly relating to core labor standards. After several months of negotiation, Congress and the Administration reached an agreement on May 10, 2007 on a new bipartisan trade framework that calls for the inclusion of core labor and environmental standards in the text of pending and future trade agreements. On June 25, 2007, U.S. Trade Representative Susan Schwab announced that the United States reached an agreement with Peru on a number of legally binding amendments to the PTPA on labor, the environment, and other matters to reflect the bipartisan agreement of May 10. On June 27, 2007, Peru's unicameral Congress voted 70 to 38 in favor of the amendments to the PTPA. Several House Democratic leaders issued a press release on June 29, 2007, stating that the PTPA had potential to improve the standards of living in the United States and Peru, and that it reflects "... long-standing Democratic priorities with the inclusion of enforceable, internationally recognized labor rights and environmental standards." The press release, however, also stated that House Democratic leaders expected the Peruvian government to change their laws "... so these agreements can come into effect promptly thereafter", and that House Ways and Means Committee Chairman Charles Rangel would lead a bipartisan delegation of Members of Congress to Peru and Panama in August 2007 to consult with the two countries' legislatures and executive branches. The House Ways and Means Committee Chairman Charles B. Rangel and the House Trade Subcommittee Chairman Sander M. Levin issued a statement following President Bush's proclamation to implement the PTPA as of February 2009. The two Democratic leaders stated that, while the agreement was a positive step in the development of a new policy to spread the benefits of trade more broadly, the Peruvian Congress had passed legislation that included provisions "inconsistent with their commitments". They stated that they had made it clear to the U.S. Trade Representative (USTR) that those issues should be resolved prior to certification of the agreement. Other Members of Congress issued statements in support of the agreement, stating that it will remove trade barriers and open new markets for U.S. exports in goods and services. U.S. Trade Represenative Susan C. Schwab stated that the Bush Administration had worked closely with the Government of Peru to ensure that the obligations and responsibilities of each party had been met under the agreement. With a population of 29 million people, Peru is the fifth most populous country in Latin America, after Brazil, Mexico, Colombia, and Argentina. Peru's economy is relatively small compared to the U.S. economy (see Table 1 ). Peru's gross domestic product (GDP) in 2007 was $107 billion, about 0.8% of U.S. GDP ($13.8 trillion in 2007). Peru's economy has shown strong growth over the past five years, much of it fueled by strong domestic demand which boosted sectors such as construction and commerce. Real GDP growth was 7.7% in 2006 and 8.9% in 2007. Estimates for 2008 show a real GDP growth rate of 9.1%, but the economy is expected to slowdown in 2009 with a forecast real GDP growth rate of 3.1%. Peru's exports accounted for 28% of GDP in 2007, while imports accounted for 22%. The United States ranks first among Peru's export markets, though the share of Peru's exports that are headed to the United States has fallen since 2005. In 2007, the United States accounted for 19.0% of Peru's exports, down from 23.3% in 2006 and 30.4% in 2005. Though Peru's reliance on the United States as an export market is decreasing, any change in U.S. demand for Peruvian products could still have a noticeable effect on Peru's economy. The United States is Peru's leading trade partner. In 2007, 19% of Peru's exports went to the United States, and 18% of Peru's imports were supplied by the United States. China is Peru's second most significant trade partner, accounting for 11% of Peru's exports and 12% of Peru's imports. Other major trade partners for Peru are Brazil, Switzerland, Ecuador, and Japan. Peru accounts for 0.3% of total U.S. trade. Peru ranks 41 st among U.S. export markets ($3.8 billion in 2007) and 44 th as a source of U.S. imports ($5.2 billion in 2007). As shown in Table 2 , the dominant U.S. import item from Peru is copper (19% of U.S. imports from Peru in 2007), followed by petroleum and other oils and products (12% of total), and silver (8% of total). The leading U.S. export items are petroleum and other oils and products (13% of U.S. exports to Peru in 2007), wheat and meslin (4% of total), machinery parts and accessories (4% of total), and polymers of ethylene (4% of total). U.S. imports from Peru have been increasing significantly for over ten years. Since 1996, U.S. imports from Peru increased from $1.26 billion to $5.21 billion in 2007, a 234% increase. Between 1996 and 2007, the U.S. trade balance with Peru went from a surplus of $0.74 billion to a deficit of almost $3 billion in 2006 (see Figure 1 ). In 2007, U.S. exports to Peru increased 41.8% from $2.66 billion to $3.76 billion, while U.S. imports from Peru decreased 11.7% from $5.90 billion to $5.21 billion. Peru's export growth to the United States has helped economic growth and has also helped strengthen the Peruvian currency. Prior to the implementation of the PTPA, Peru applied tariffs in the 4% to 20% range to virtually all imports from the United States though the government consistently lowered tariff rates since the early 1990s. Peru's average applied rate was approximately 10%. The government also maintained a five percent "temporary" tariff surcharge on agricultural goods to protect the domestic industry. It had eliminated almost all non-tariff barriers, including subsidies, import licensing requirements, import prohibitions and quantitative restrictions. However, the government banned the imports of some products from the United States, including used clothing, used shoes, used tires, remanufactured goods, cars over five years old, and heavy trucks over eight years old. U.S. industry had been concerned about enforcement of Peru's intellectual property rights (IPR) laws, particularly with respect to the relatively weak penalties imposed on IPR violators. Peruvian law restricted foreign investment in the following way: majority ownership of broadcast media to Peruvian citizens; ownership of land or investment in natural resources within 50 kilometers of a border; and operation of national air and water transportation. Peru's laws also placed limits of up to 30% on a local company's employment of foreign workers. The United States currently extends duty-free treatment to imports from Peru under the Andean Trade Preference Act (ATPA), a regional trade preference program. The trade preferences program began under the Andean Trade Preference Act (ATPA; Title II of P.L. 102-182 ), enacted on December 4, 1991. ATPA authorized the President to grant duty-free treatment to certain products from the four Andean countries that met domestic content and other requirements. It was intended to promote economic growth in the Andean region and to encourage a shift away from dependence on illegal drugs by supporting legitimate economic activities. The Andean Trade Promotion and Drug Eradication Act (ATPDEA; Title XXXI of P.L. 107-210 ), enacted on August 6, 2002, reauthorized the ATPA preference program and expanded trade preferences to include additional products, including petroleum and petroleum products, certain footwear, tuna in flexible containers, and certain watches and leather products. ATPDEA also authorized the President to grant duty-free treatment to U.S. imports of certain apparel articles, if the articles met domestic content rules. On October 16, 2008, the 110th Congress enacted legislation to extend ATPA and ATPDEA trade preferences until December 31, 2009 for Colombia and Peru ( P.L. 110-436 ). In 2007, 58% of all U.S. imports from Peru received preferential duty treatment under ATPA, as amended by ATPDEA. The trade preference program contributed to a rapid increase in U.S. imports from Peru. Between 2002 and 2007, U.S. total imports from Peru increased by 167%, while imports under ATPA increased by 690%. In 2003, ATPDEA imports increased 235% and continued to rise until 2006 (see Table 3 ). ATPA imports from Peru decreased 6% in 2007. The rapid increase in import value after 2002 was partially due to an increase in the volume of imports caused by the trade preferences act, but rising prices of mineral and energy-related imports were also a major factor. A USITC report on the Impact of the Andean Trade Preference Act states that, the overall impact on the United States is small and would likely have minimal future effects on the U.S. economy because the share of imports from Peru is so small. The USITC report states that, according to the U.S. Embassy in Peru, the ATPA and ATPDEA have provided significant economic benefits to Peru, especially in the textiles, apparel and agricultural industries. The study reports that Peru's textile and apparel sector directly employed about 150,000 workers and indirectly employed 350,000 workers in 2004. Exports in these industries increased by 25% in 2004. Economic analysts in Peru attribute the growth in textile and apparel exports to the United States to the trade preferences granted by the ATPDEA. The USITC report states the Peru's agricultural sector has benefitted under the ATPDEA. Peru has become the world's largest exporter of asparagus and paprika. According to the Peruvian agricultural industry, investment representing the purchase of imported machinery and equipment for the agricultural sector rose 79% in 2004, after a decade of fluctuating investment levels. The USITC study reports that Peru's Ministry of Economy and Finance claimed that Peru's strong GDP growth rate was largely due to increased access to the U.S. market. The study reports that U.S. foreign direct investment (FDI) in ATPA or ATPDEA-related investments was significant, but that companies reported that they had limited their investments because of the trade preferences expiration dates. It stated that business leaders were concerned about whether the PTPA would be in place before ATPA benefits expired. U.S. foreign direct investment (FDI) in Peru on a historical-cost basis totaled $6.81 billion in 2007, an increase of 37% from 2006's level of $4.98 billion (see Table 4 ). The largest amount is in mining, which accounted for 68%, or $4.66 billion, of total U.S. FDI in Peru in 2007. The second largest amount, $465 million, is in manufacturing, followed by $153 million in finance (not including depository institutions). U.S. investors in Peru had a number of disputes with the Peruvian government in the past, which have mostly been resolved. Some of these involved alleged mistreatment by Peru's national tax authority. National treatment for foreign investors is guaranteed under Peru's 1993 constitution. Under the constitution, arbitration is available for disputes between foreign investors and the government of Peru, and several U.S. companies chose to pursue claims through arbitration. They complained that executive branch ministries, regulatory agencies, the tax agency and the judiciary lacked the resources, expertise and impartiality necessary to carry out their respective mandates. Through FTA negotiations, the U.S. government sought a range of protections with respect to the treatment of U.S. investors, as well as a guaranteed right for those investors to have recourse to international arbitration in the event of investment disputes. Peru's President Alan García was elected to his second term on June 4, 2006. President Garcia took office for a five-year term at the end of July 2006, replacing outgoing president, Alejandro Toledo. In spite of the recent economic growth, over half of Peruvians live in poverty and a large portion of the population is underemployed. Unemployment and underemployment levels total 64.5% nationwide. The economic sector in Peru with the highest employment is wholesale/retail trade and repair services, followed by manufacturing. Since taking office, President García has taken steps to assure the international financial community that he is running Peru as a moderate rather than as the leftist he had been in his early career. García's first presidency (1985-1990) was marked by hyper-inflation, increased poverty, and a crumbling infrastructure, which were largely caused by his unorthodox economic policies. By 1990, the last year of García's term, the rate of inflation exceeded 7,500%. During the 1980s, a violent guerrilla insurgency took place in the country. In the mid 1980s, the army was given responsibility for counter-insurgency operations, and widespread violations of human rights ensued. During the regime of former President Alberto Fujimori (1990-2000), the government led a major crackdown on terrorism, and implemented a radical economic reform program to control hyperinflation and bring economic stability to the country. President Fujimori's administration implemented measures to eliminate price controls and state subsidies, liberalize markets, and implement structural reforms. The program also included a wide-ranging privatization plan and a relaxation of foreign investment restrictions to help increase foreign investment. Existing labor laws were relaxed significantly during this time. Since 2001, however, Peru has made much progress in strengthening labor protections by implementing labor law reform and protecting workers' rights. President Alejandro Toledo (2001-2006) presided over a period in which Peru was one of the fastest growing economies in Latin America, largely due to growth in the mining and export sectors. President Toledo's administration could be characterized as one marked by public protests and a number of government scandals, but it was also responsible for having a broadly orthodox economic policy which helped control public spending and promote economic growth. Peru's GDP rate of growth increased from 0.2% in 2001 to 8.0% in 2006. President García has continued the pro-market economic policies of his predecessor, President Alejandro Toledo. Since initiating his political comeback in 2001, García has softened his populist rhetoric, and apologized for his earlier errors. He says he is now governing not as a leftist but as a moderate. Hoping to regain credibility with Peru's business sector and international financial institutions, he has pledged to maintain orthodox macro-economic policies. García has appointed a fiscal conservative as finance minister and cut the pay of government workers. He also has sought to reassure poor Peruvian citizens that he is addressing their needs by pledging austerity measures such as halving the Government Palace's annual spending and redirecting the funds to a rural irrigation project. García has embraced the PTPA in his efforts to strengthen the bilateral relationship with the United States and to fight poverty and inequality in Peru. Recognizing that a free trade agreement would not be sufficient to eliminate inequality, President García has initiated a number of internal reforms that would help spread benefits of free trade to the poorer regions of the country and reduce the level of poverty. Over half of Peru's population lives below the poverty line. Poverty is concentrated in rural and jungle areas, and among the indigenous population. The comprehensive free trade agreement would eliminate tariffs and other barriers to goods and services. This section summarizes several key provisions in the original agreement text as provided by the United States Trade Representative (USTR), and the legally binding amendments agreed upon by the United States and Peru in June 2007. The amendments reflect the bipartisan trade framework that was agreed upon by Congress and the Bush Administration on May 10, 2007. Upon implementation, the agreement would eliminate duties on 80% of U.S. exports of consumer and industrial products to Peru. An additional 7% of U.S. exports would receive duty-free treatment within five years of implementation. Remaining tariffs would be eliminated ten years after implementation. The PTPA would make the preferential duty treatment for U.S. imports from Peru under the ATPDEA permanent. In agricultural products, the agreement would grant duty-free treatment immediately to more than two-thirds of current U.S. farm exports to Peru. These products include high quality beef, cotton, wheat, soybeans, soybean meal and crude soybean oil, certain fruits and vegetables, and many processed food products. Tariffs on most remaining agricultural products would be phased out within 15 years, and all tariffs eliminated in 18 years. In textiles and apparel, products that meet the agreement's rules of origin requirements would receive duty-free treatment immediately. The rules of origin requirements are generally based on the yarn forward standard to encourage production and economic integration. A "de minimis" provision would allow limited amounts of specified third-country content to go into U.S. and Peruvian apparel to provide producers in both countries flexibility. A special textile safeguard would provide for temporary tariff relief if imports prove to be damaging to domestic producers. The agreement includes comprehensive rules of origin provisions that would ensure that only U.S. and Peruvian goods could benefit from the agreement. The agreement also includes customs procedures provisions, including requirements for transparency and efficiency, procedural certainty and fairness, information sharing, and special procedures for the release of express delivery shipments. In government procurement contracts, U.S. companies would be granted non-discriminatory rights to bid on contracts from Peruvian government ministries, agencies, and departments. These provisions would cover the purchases of most Peruvian central government entities and state-owned enterprises, including Peru's oil company and its public health insurance agency (a major purchaser of pharmaceuticals). In services trade, Peru would grant market access to U.S. firms in most services sectors, with very few exceptions. The affected services sectors would include telecommunications, financial services, distribution services, express delivery services, computer and related services, audiovisual and entertainment services, energy services, transport services, construction and engineering services, tourism, advertising, professional services (architects, engineers, accountants, etc.), and environmental services. In telecommunications services, the agreement would prevent local firms from having preferential access to telecommunications networks. All users of a network would be guaranteed reasonable and nondiscriminatory access to the network. Peru agreed to exceed its commitments made in the World Trade Organization (WTO), and to dismantle services and investment barriers that would include such measures as requiring U.S. firms to purchase local goods or to hire nationals rather than U.S. professionals. Market access to services would be supplemented by requirements for regulatory transparency. The financial services chapter of the agreement includes core obligations of nondiscrimination, most favored nation treatment, and additional provisions on transparency of domestic regulatory regimes. The agreement includes investment provisions intended to establish a secure predictable legal framework for U.S. investors operating in Peru. The agreement would grant investors the right to establish, acquire and operate investments in Peru on an equal footing with local investors and investors of other countries. The agreement draws from U.S. legal principles and practices that include due process protections and the right to receive a fair market value for property in the event of an expropriation. Protections for U.S. investments would be backed by a transparent, binding international arbitration mechanism. The agreement would provide intellectual property rights (IPR) protections for U.S. companies. The agreement's IPR protection provisions include protection for U.S. trademarks, copyrighted works in a digital economy, and patents and trade secrets. The agreement also provides for penalties on piracy and counterfeiting. The core obligations of the agreement, including labor and environmental provisions, are subject to dispute settlement provisions. These provisions include procedures for openness and transparency and emphasis on promoting compliance through consultation and trade-enhancing remedies. An enforcement mechanism includes monetary penalties to enforce commercial, labor, and environmental obligations of the trade agreement. The labor obligations are included in the core text of the agreement. The agreement would require parties to effectively enforce their own domestic labor laws. In the original text of the agreement, this was the only labor obligation that would be enforceable through the agreement's dispute settlement procedures, which have an enforcement mechanism that would include monetary penalties to enforce labor obligations. Under the amended agreement reflecting the May 2007 bipartisan trade framework, labor obligations would be subject to the same dispute settlement, same enforcement mechanisms, and same criteria for selection of enforcement mechanisms as all other obligations in the agreement. Failure to pay a monetary assessment could result in the suspension of trade benefits. The agreement states that emphasis would be placed on promoting compliance through consultation and trade-enhancing remedies. The agreement also includes procedural guarantees that would ensure that workers and employers would have fair, equitable, and transparent access to labor tribunals. The environmental obligations are included in the core text of the agreement. The agreement would require the United States and Peru to effectively enforce their own domestic environmental laws. This provision would be enforceable through the PTPA's dispute settlement procedures. The PTPA includes an environmental cooperation agreement that would provide a framework for undertaking environmental capacity building in Peru and establish an Environmental Cooperation Commission. The PTPA would require both countries to commit to establish high levels of environmental protection. The PTPA also includes provisions for recognizing the importance of protecting biodiversity and procedural guarantees to ensure environmental protection. The PTPA's environmental chapter includes provisions for creating a public participation process, benchmarking environmental cooperation activities by international organizations, and enhancing mutual supportiveness of multilateral environmental agreements. On June 25, 2007, the U.S. Ambassador to Peru J. Curtis Struble and Peruvian Foreign Commerce and Tourism Minister Mercedes Araoz signed amendments to the pending PTPA. The amendments are based on the agreement reached between the Bush Administration and Congress on May 10, 2007. The Administration stated that, because the new commitments would have to be "legally binding," they could not have been incorporated into the agreement as side letters. Some of the key amendments incorporated into the agreement include obligations related to five basic ILO labor rights, multilateral environmental agreements (MEAs), and pharmaceutical intellectual property rights (IPR). These provisions would be fully enforceable through the agreement's dispute settlement mechanism. The United States and Peru would be required to "adopt, maintain and enforce in their own laws and in practice" the five basic internationally-recognized labor standards, as stated in the 1998 ILO Declaration. These include 1) freedom of association; 2) the effective recognition of the right to collective bargaining; 3) the elimination of all forms of forced or compulsory labor; 4) the effective abolition of child labor and a prohibition on the worst forms of child labor; and 5) the elimination of discrimination in respect of employment and occupation. These obligations would refer only to the 1998 ILO Declaration on the Fundamental Principles and Rights at Work. Another change relates to labor law enforcement. Any decision made by a signatory on the distribution of enforcement resources would not be a reason for not complying with the labor provisions. Parties would not be allowed to derogate from labor obligations in a manner affecting trade or investment. Amendments to the PTPA would commit both parties to effectively enforce their own domestic environmental laws, and to adopt, maintain, and implement laws and all other measures to fulfill obligations under the seven covered multilateral environmental agreements (MEAs). All obligations in the environment chapter would be subject to the same dispute settlement procedures and enforcement mechanisms as all other obligations in the agreement. The environment chapter includes an Annex on Forest Sector Governance that addresses environmental and economic consequences of trade associated with illegal logging and illegal trade in wildlife. The Annex would require concrete steps for the two countries to enhance forest sector governance and promote legal trade in timber products. Additional amendments to the PTPA include provisions on generic medicines and government procurement, among others. Regarding the provisions on generic medicines, the trading partners would provide five years of data exclusivity for test data related to pharmaceuticals. If Peru relies on U.S. Federal Drug Administration (FDA) approval of a given drug, and meets certain conditions for expeditious approval of that drug in Peru, the data exclusivity period would expire at the same time that the exclusivity expired in the United States. These provisions would reportedly allow generic medicines to enter more quickly into the market in Peru. In government procurement, the amended provisions would allow U.S. state and federal governments to condition government contracts on the adherence to the give basis ILO labor standards. When fully implemented, the PTPA will likely have a have a small, but positive, net economic effect on the United States because of the relatively small size of Peru's economy in relation to the U.S. economy. In 2007, Peru had a nominal GDP of $107 billion, approximately 0.8% the size of the U.S. GDP of $13.8 trillion. Another reason the net effect would be expected to be small is that the value of U.S. trade with Peru is small when compared to overall U.S. trade. U.S. trade (imports plus exports) with Peru accounts for about 0.3% of total U.S. trade. U.S. imports from Peru account for 0.3% of total U.S. imports, and U.S. exports to Peru account for 0.3% of total U.S. exports. Most of the economy-wide trade effects of trade liberalization from the PTPA would be due to Peru's removal of tariff barriers and other trade restrictions. U.S. exporters have substantially larger tariff barriers on their exports to Peru than do Peruvian exporters on their exports to the United States. The USITC study on the potential effects of a PTPA, estimates that U.S. imports from Peru would increase by $439 million and U.S. exports to Peru would increase by $1.1 billion. The study also estimates that U.S. GDP would increase by over $2.1 billion (0.02%) as a result of the agreement. In terms of losses, the report estimates that three U.S. sectors, metals (mainly gold, copper, and aluminum), crops (such as cut flowers, live plants, and seeds), and paddy rice, would experience reductions in output, revenue, or employment of more than 0.10%. The PTPA is unlikely to affect the aggregate employment level in the United States, but it could impact jobs in specific industries. According to the USITC study, the largest U.S. employment gain (1%) is estimated to be in wheat production. Declines are estimated in metals (gold, copper, and aluminum), rice production, and miscellaneous crops (cut flowers, live plants and seeds) which could lose up to 0.2% of their employment, displaced by imports. Some labor groups argue that U.S. exports of basic grains could adversely affect the livelihoods of subsistence farmers in Peru, where agriculture is the main source of jobs. Another factor for consideration is the extent to which the PTPA would provide trade creation over trade diversion. One of the drawbacks to a bilateral free trade agreement is that it may result in trade diversion because it is not fully inclusive of all regional trading partners. Trade diversion results when a country enters into an FTA and then shifts the purchase of goods or services (imports) from a country that is not an FTA partner to a country that is an FTA partner but still a higher cost producer. In the case of the United States and Peru, for example, goods from the United States may replace Peru's lower-priced imports from other countries in Latin America. If this were to happen, the United States would now be the producer of that item, not because it produces the good more efficiently, but because it is receiving preferential access to the Peruvian market. The labor provisions have been among the more controversial in the negotiation of the agreement. Supporters of the agreement have argued that Peru has ratified all eight International Labor Organization (ILO) core labor standards; that a PTPA would reinforce Peru's labor reform measures of recent years ; and that PTPA provisions would go beyond labor protections in U.S. laws under the ATPA and the Generalized System of Preferences (GSP). Critics argue that, with enforceable ILO core labor standards in the language of the agreement, the main issues at this point are Peru's adoption of new labor laws and enforcement of labor law. A number of Members of Congress indicated early in 2007 that PTPA labor requirements would have to be strengthened for the agreement to be approved, stating that enforceable ILO core labor standards should be included in the text of the agreement. In March 2007, the Democratic leadership of the House Ways and Means Committee announced a set of trade principles (Democratic Trade Principles) that can "pave the way to re-establishing a bipartisan consensus on trade." These principles included a commitment that free trade agreement (FTA) signatory countries adopt basic ILO labor standards and agree to enforcement provisions for those standards in agreements. On May 10, 2007, after much negotiation, Congress and the Administration announced an agreement for a "New Trade Policy for America," which incorporated key Democratic priorities relating to labor and other issues. Key concepts in the new trade-labor policy include fully enforceable provisions that 1) incorporate ILO core labor standards as stated in the 1998 ILO Declaration on Fundamental Principles and Rights at Work (henceforth referred to as the ILO Declaration ); and 2) prohibit partner countries from weakening laws relating to ILO core labor standards in order to attract trade or investment. Before the new PTPA language was released, some observers noted that the United States has ratified only two ILO conventions, while Peru has ratified all eight. In addition, the U.S. has some laws that may not totally conform with language of ILO conventions. A possible example is some state laws which permit employment-without-pay for prisoners. Consequently, they express concern that including enforceable ILO core labor standards into trade agreements could subject the entire U.S. labor code to challenges by trading partners. This issue is addressed by language in the PTPA that (a) restricts the application of the PTPA provisions to trade-related matters; and (b) incorporates only the principles of the four basic ILO rights listed in the ILO Declaration and quoted on p. 4, footnote 2, rather than the detailed language of the specific eight conventions. Another of the controversial issues surrounding the PTPA is that of patent protection and access to medicines. Some organizations were concerned that the agreement's stronger protection of intellectual property rights (IPR), patents, and trade secrets could jeopardize access to medicines by poorer segments of the population. They argued that the agreement's provisions could delay the entry of generic drugs into the market in Peru and cause the price of medicines to rise. The primary issue related to patent protection and access to medicines involves the data exclusivity term. To bring a patented drug to market, a drug company must demonstrate through clinical trials that the drug is both safe and effective. Under U.S. law, the data used to establish these claims are protected from use by generic manufacturers to certify their own products for a period of five years from the time the patented drug is approved for use in a country's market. This protection refers the so-called data exclusivity term. The amendments to the text of the PTPA on data exclusivity would grant Peru the period of data protection to be concurrent with the term of protection provided in the United States, which could shorten the time line for allowing generic medicines into the Peruvian market. The original text of the agreement would have delayed the availability of generic pharmaceuticals in the Peruvian market for at least five years, even if the patent had already expired. In April 2005, Peru's Health Ministry released an evaluation of potential effects of a free trade agreement on access to medicines in Peru. The study stated that an agreement would affect generic brands of medicine in that many of these medicines would no longer be eligible to be branded as generic. A number of non-government organizations based in the United States and Latin America were also concerned that a PTPA would reduce access to essential medicines by the poor populations of Peru. They argued that the agreement's provisions far exceeded international standards established by the WTO. The pharmaceutical industry has denied claims that patents may prevent access to essential medicines in developing countries. According to industry representatives, very few medicines on the World Health Organization's list of essential medicines are patented. The International Federation of Pharmaceutical Manufacturers (IFPMA) and Associations report that 95% of essential medicines, including antiretrovirals for treating HIV/AIDS, are off-patent and can therefore be legally copied by generic manufacturers anywhere in the world. However, according to IFPMA, generic copies of these products are still not reaching the poorest populations of the world. The pharmaceutical industry believes that without patent protection, many of the innovative medicines that are saving lives would not be available. A major environmental issue surrounding a possible PTPA is related to U.S. imports of bigleaf mahogany and reports of illegal logging in Peru. Environmental groups are concerned that an agreement could lead to an increase in exports of illegal logged mahogany to the United States from Peru. The United States is the world's largest wood products consumer and one of the top importers of tropical hardwoods. Some environmentalists believe that U.S. demand for tropical timber from countries in Latin America may be a driving force for illegal logging. PTPA environmental provisions require each country to enforce domestic environmental laws and establish a policy mechanism to address public complaints that a party is not enforcing its environmental laws, whether or not the failure is trade-related. In early 2007, a number of Members of Congress emphasized that environmental provisions of the agreement needed to be strengthened. The May 10 Bipartisan Democratic Trade Principles stated that Peru should be required to adopt and enforce laws on logging Mahogany and that the United States should promote sustainable development and combat global warming by requiring countries to implement and enforce common Multilateral Environmental Agreements. These principles were incorporated into the agreement in the June 2007 amendments. Annex 18.3.4 of the amendment to Chapter 18, the environmental chapter, of the PTPA is devoted to forest sector governance and subject to the dispute settlement provisions of the agreement. The annex specifically mentions protection measures for mahogany within the norms established by the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). The annex includes a section on enforcement measures on forest sector governance, and provisions related to the harvest of and trade in timber products. The United States currently requires an export permit from Peru validating that mahogany entering the United States was harvested in a sustainable manner that is not detrimental to the species. Some argue, however, that Peruvian mahogany is nonetheless harvested illegally at times and that export permits provided by Peru have been granted without sufficient monitoring and assessment of harvesting practices. The Peruvian non-government organization, Native Federation of Madre de Dios (FENAMAD) recently teamed with the Natural Resource Defense Council to file a suit against the U.S. government and U.S. timber importers to the U.S. Court of International Trade stating that the government was authorizing trade in bigleaf mahogany from Peru without valid export permits. The court, however, rejected these claims and moved to dismiss the complaint stating a lack of jurisdiction. U.S. timber importers announced in a press release after the court's decision that they were pleased with the court decision and that the lawsuit was a "mischaracterization" of international trade regulations. Under the PTPA, there are more legal protections for U.S. investors in Peru which could potentially lead to a larger timber industry in Peru and greater harvesting. On the other hand, an agreement may increase awareness of the illegal logging issue and add mechanisms that may be used to increase protection. Critics of the PTPA environmental provisions, in the original text prior to the amendments, claimed that the provisions were weak and that illegal logging should be addressed specifically in the agreement. FENAMAD joined forces with U.S. environmental groups to urge Members of Congress to include specific provisions in the PTPA to prevent imports of illegally logged mahogany. Implementing legislation for a PTPA was considered by the U.S. Congress under Title XXI (Bipartisan Trade Promotion Authority Act of 2002) of the Trade Act of 2002 ( P.L. 107-210 ) on an expedited basis that is limited in debate and with no amendments. Gaining passage of a PTPA was a high priority for the government of Peru. Peruvian President Alan García Perez met with President Bush on at least two occasions to discuss the free trade agreement. After an April 2007 meeting, President García stated that he was in the United States to promote a free trade agreement with the United States. He said that "It is vital for our country. It is fundamental to continue this path of growth and social redistribution that we have started in my country." The Bush Administration was a strong supporter of the expansion of free trade with Peru and issued a statement in October 2006 that a PTPA would be mutually beneficial "in strengthening bilateral ties while leveling the trade playing field, spurring job creation, and reducing poverty and inequality". On July 9, 2007, President Bush reaffirmed his support for the agreement and called on Congress to approve the PTPA by the beginning of August 2007. House Democratic leaders expressed concerns in 2007 and early in 2009 regarding Peru's labor and environmental laws, with particular concern regarding workers rights to freely associate and collectively bargin. They believe that Peru's adoption of new labor laws and regulations in 2008 created loopholes to laws that had been passed by the Peruvian government in 2007 to strengthen worker rights. Other Members of Congress have expressed strong support for the PTPA and for the government of Peru in its efforts to strengthen laws and regulations on labor, environment, intellectual property. They stated that the implementation of the PTPA reflected over fourteen months of work between the U.S. and Peruvian governments to improve labor and environmental conditions in Peru. President Alan García met with Members of Congress on several occasions to emphasize the importance for Peru of strengthening trade relations with the United States in its efforts to fight poverty and strengthen equality among the Peruvian people. President García had stated that a considerable share of Peru's exports to the United States receives trade preferences under the ATPA and, without renewal or passage of a PTPA, many of Peru's exports to the United States would have faced higher duties. ATPA supporters maintain that the program has had a positive impact in the region by increasing investor confidence, creating thousands of jobs in alternative sectors, and preventing organized crime. Some Peruvian policymakers believe that maintaining confidence in the bilateral trade environment with the United States is key to the long-term stability of the region. In the United States, a number of groups, such as the AFL-CIO, Public Citizen, and American Friends Service Committee generally are skeptical of free trade agreements. They argue that, among other things, that the PTPA will erode protection for the environment and workers' rights in Peru. In general, such groups argue that FTAs tend to protect the rights and profits of multinational corporations and cost the U.S. economy jobs. Public Citizen issued a statement after the May 10 bipartisan agreement, saying that bipartisan agreement between Congress and the Administration did not go far enough in making changes to the PTPA in order to protect the rights of the people and that the FTAs with Peru and Panama would undermine access to essential services in these countries. According to the statement, the provisions on trade in services and foreign investment would place limits on the ability of the government to regulate essential services such as education, health services, and electric power distribution. Such limitations, according to Public Citizen, could potentially prevent the distribution of these services throughout the country. Much of the business community in the United States supports a U.S.-Peru FTA. The National Association of Manufacturers (NAM), for example, issued statements in support of the PTPA. After the Bush Administration's January 2009 proclamation to implement the PTPA, NAM issued a statement welcoming the implementation of the agreement. NAM "expressed satisfaction" that the agreement was to go into effect, stating that about 80% of Peru's tariffs on U.S. manufactured goods would disappear immediately after implementation and that the rest would follow in phases. The President of NAM stated that NAM would ask the Commerce Department to work with U.S. manufacturers to help U.S. companies take advantage of the newly-opened Peruvian market. | The U.S.-Peru Trade Promotion Agreement (PTPA) is a comprehensive trade agreement that, upon implementation, eliminates tariffs and other barriers in goods and services between the United States and Peru. The agreement was signed on April 12, 2006 by the U.S. Trade Representative and the Peruvian Minister of Foreign Trade and Tourism. On November 8, 2007, the U.S. House of Representatives passed (285-132) implementing legislation for the PTPA (H.R. 3688). The U.S. Senate approved (77-18) legislation on December 4, 2007. President Bush signed the implementing bill for the free trade agreement on December 14, 2007 (P.L. 110-138). In Peru, the Peruvian Congress voted 79 to 14 on June 28, 2006 to approve the agreement. On January 16, 2009, President Bush issued a proclamation to implement the U.S.-Peru Trade Promotion Agreement as of February 1, 2009. The PTPA will likely have a small net economic effect on the United States because U.S. trade with Peru accounts for a small percent of total U.S. trade. For Peru, the impact will be more significant because the United States is Peru's leading trade partner. In 2007, 19% of Peru's exports went to the United States, and 18% of Peru's imports were supplied by the United States. In that same year, Peru accounted for 0.3% of total U.S. trade. Peru ranks 41st among U.S. export markets and 44th as a source of U.S. imports. The dominant U.S. import item from Peru is copper followed by petroleum oils and related products. The leading U.S. export item to Peru is petroleum oils and related products, followed by wheat and meslin. Upon implementation, the PTPA will eliminate duties on 80% of U.S. exports of consumer and industrial products to Peru. An additional 7% of U.S. exports will receive duty-free treatment within five years of implementation. Remaining tariffs will be eliminated ten years after implementation. The PTPA will make the preferential duty treatment for selected U.S. imports from Peru permanent. The United States currently extends duty-free treatment to imports from Peru under the Andean Trade Preference Act (ATPA; Title II of P.L. 102-182), enacted on December 4, 1991 and reauthorized under the Andean Trade Promotion and Drug Eradication Act (ATPDEA; Title XXXI of P.L. 107-210). The preference program is scheduled to expire on December 31, 2009. The PTPA negotiations began in May 2004, when the United States, Colombia, Peru, and Ecuador participated in the first round of negotiations for a U.S.-Andean free trade agreement (FTA). When negotiators failed to reach an agreement, Peru continued negotiations with the United States on a bilateral basis and concluded the agreement in December 2005. Implementing legislation for the PTPA was considered by the U.S. Congress under Title XXI (Bipartisan Trade Promotion Authority Act of 2002) of the Trade Act of 2002 (P.L. 107-210), which requires an expedited process with limited debate and an up or down vote. In June 2007, the United States and Peru reached an agreement to a number of legally binding amendments to the PTPA that were subsequently approved by both countries on labor, the environment, and other matters. House Democratic leaders have stated that the PTPA has potential to improve the standards of living in the United States and Peru but they have expressed concerns about Peru's labor laws and the lack of protection for workers' rights in Peru, especially with regard to freedom of association. Other Members of Congress have expressed strong support for the PTPA and for the government of Peru in its efforts to strengthen laws and regulations on labor, environment, and intellectual property. This report will be updated as events warrant. |
The Congressional Review Act ("CRA" or the act) establishes a statutory procedure by which Congress can disapprove a regulation issued as a final rule by a federal agency. Disapproval under this procedure requires the enactment into law of a joint resolution, the text of which is specified by section 802(a) of the act (a "disapproval resolution"). In order to fall under the provisions of the act, this disapproval resolution must have the specified text, and also must be submitted in each chamber within a specified time period after the rule itself is transmitted to Congress. For a joint resolution that meets these requirements, the act makes available, for a specified period after the rule is transmitted and published in the Federal Register , an expedited procedure for its consideration in the Senate. This statutory procedure expedites action by making consideration of the disapproval resolution privileged, limiting debate, and prohibiting amendment. (Except in relation to final action to clear the measure for presentation to the President, the CRA presumes that the House will act on a disapproval resolution under its generally applicable rules.) If a disapproval resolution under the CRA is enacted into law, the disapproved rule becomes of no force and effect; even if it has already taken effect, the CRA specifies that it is to be treated as though it had never taken effect. In addition, if a rule is disapproved under the CRA, the issuing agency may not reissue the same or a substantially similar rule without subsequent statutory authorization from Congress. Under most circumstances, congressional disapproval under the CRA is difficult because the President is likely to veto any disapproval of a rule issued by his own administration, and in that case the disapproval can become law only if both houses can override the veto. This obstacle, however, may be mitigated in cases in which the disapproval resolution is presented, not to the President under whom the rule was issued, but to his successor, perhaps especially one of a different political party. The CRA potentially facilitates action in such situations by explicitly establishing procedures for a new Congress to disapprove rules issued near the end of the preceding Congress. This report briefly describes the CRA provisions for disapproval of rules issued in a preceding Congress and considers their implications for congressional action at the beginning of a new presidential administration. In particular, however, it considers to what extent, and by what means, it may be feasible for Congress to act, under these circumstances, to disapprove potentially large numbers of rules. The CRA makes such action more difficult by requiring that each resolution under the act may provide for the disapproval only of a single rule. This report discusses some procedural means by which this difficulty might be addressed. To be eligible for action under the CRA, a disapproval resolution must be submitted within 60 days after Congress receives the rule in question, not counting days on which either house is in a recess for more than three days within a session (sometimes called the "initiation period"). The Senate may use the expedited procedure provided by the CRA to consider a disapproval resolution at any time during the 60 days on which the Senate actually meets in session following the receipt of the rule (or following its publication in the Federal Register , if so published after the rule is received). Except for this "action period" in the Senate, the CRA places no time limit on congressional action pursuant to the act. If a resolution is submitted during the required period, it could be enacted at any time within the same Congress, and would still have the effects specified by the act. If Senate consideration occurs when the expedited procedure is no longer available, however, the disapproval could be filibustered or amended in that chamber. If amended, it would no longer have the text required by the act, and so would not automatically have the additional effects specified by the act. If a rule is received near the end of a Congress, Congress may adjourn sine die before the periods for initiation of the disapproval and for expedited Senate action are concluded. Under these conditions, opponents of the rule may find it impracticable to submit a disapproval resolution and secure action on it under the CRA during the abbreviated time remaining. The following Congress also might find use of the CRA to disapprove the rule unfeasible. Any previously submitted disapproval resolution (like every other legislative measure) would have died with the expiration of the previous Congress. The language of the CRA could be read as permitting the periods for submitting a disapproval resolution and for expedited Senate action thereon to extend into a new Congress, but even if this interpretation is accepted, the time remaining for action in the new Congress might also be too short to make feasible the use of the act to disapprove the rule. The CRA provides for these situations by establishing that, for any rule transmitted near the end of a session, statutory periods for submitting disapproval resolutions and for Senate action thereon begin anew in the following session. This provision applies to any rule transmitted on or after either the 60 th day of session in the Senate, or the 60 th legislative day in the House, before the sine die adjournment of a session. For any rule transmitted during this "carryover period" in either chamber, the act makes available, in the following session, a new period of 60 days (not counting recesses) for submitting disapproval resolutions in each chamber, and a new period of 60 days of session for Senate action on the resolution. These new periods begin, for each chamber, on the 15 th day of session in that chamber after the new session convenes. At the start of new Presidential and congressional terms, especially during transitions in party control when the incoming Congress and President are of a party different from that of the outgoing President, the likelihood may be especially great for congressional interest in disapproving rules that were issued during the "carryover period" in the final session of the previous Congress. Once the 110 th Congress reached its final sine die adjournment, it became possible to ascertain that rules transmitted after May 15, 2008 (the 60 th legislative day before the sine die adjournment of the House), will be subject to disapproval under the CRA in the early months of the 111 th Congress. Many rules published by the Bush Administration after that date have been spoken of as potential candidates for such action. The possibility of congressional action to disapprove a potentially large number of these rules raises the prospect that consideration of the respective disapproval resolutions could occupy a large portion of the early agenda of Congress. The expedited procedure established for the Senate by the CRA permits the Senate to take up a disapproval resolution by a non-debatable motion, limits debate on the disapproval resolution itself to 10 hours, and allows a simple majority to reduce this time by a non-debatable motion. Even if this motion is persistently applied, nevertheless, significant time in the consideration of a series of disapproval resolutions might be consumed, not only in debate, but also by roll call votes (on such questions as proceeding to consider the measure and reducing the time for debate, as well as on adoption of the resolution). In the House, similarly, although the time for consideration of any measure always either is limited, or can be limited by majority vote (for example, by adoption of a special rule), significant time might also be consumed not only in debate, but also in roll call votes (such as on ordering the previous question on each special rule and adoption of each special rule itself, as well as on adoption of each disapproval resolution). Although these conditions would not normally present a severe obstacle to consideration of any single disapproval resolution, they might collectively render impracticable the consideration of any significant number of them. One suggested means of overcoming these difficulties has been to consolidate, or "bundle," a group of disapprovals into a single joint resolution (or bill) that could be considered and disposed of by each house, as a unit, in a single proceeding. Consolidated consideration and voting on a single measure could readily enable either chamber to address an entire list of rules in substantially less time than might be consumed by a series of separate resolutions disapproving the same rules. A related approach might be to include provisions disapproving regulations in a measure with the principal purpose of addressing other issues, such as a bill reauthorizing activities of the agency issuing the regulations. This approach might be used with particular facility in the Senate, where no general rule requires amendments to address the same subject as the underlying legislation. For example, a provision disapproving a regulation might be inserted in a bill carrying appropriations for the implementing agency, if the chamber in which the measure was being considered was willing to waive its rule against including provisions changing permanent law in an appropriations bill ("legislation in an appropriations bill"). Finally, the implementation of a regulation could be forestalled by including in a bill carrying appropriations for the implementing agency a prohibition against the expenditure of any funds in the bill for the purpose, known as a limitation, as long as the provision did not prescribe new duties or authorities for the agency. In general, however, a limitation is treated as a legislative provision unless its effect is limited to the funds in the bill. Because this type of action would not disapprove or repeal the regulation, preventing its implementation by this means would require a similar limitation to be included again in each subsequent bill appropriating funds for the agency. Enactment of a measure disapproving a regulation in any of these forms could undoubtedly prevent the regulation from taking effect (or remaining in effect), inasmuch as Congress, in general, always retains the ability to override regulations by action under its general legislative powers. The text prescribed by section 802(a) of the act for a disapproval resolution includes a directive that "such rule shall have no force or effect." If each provision disapproving a regulation that was included in a measure followed this prescribed text, the quoted phrase would no doubt suffice to vitiate the effectiveness of the respective rule. Section 802(a) of the CRA, however, specifies that, for purposes of its congressional disapproval procedure: the term 'joint resolution' means only a joint resolution introduced in the period beginning on the date when [Congress receives the rule, as described earlier] and ending 60 days thereafter (excluding days either House of Congress is adjourned for more than 3 days during a session of Congress), the matter after the resolving clause of which is as follows: 'That Congress disapproves the rule submitted by the _____ relating to _____, and such rule shall have no force or effect.' (The blank spaces being appropriately filled in). This provision sets three conditions that a measure must meet to be covered by the act: it must take the form of a joint resolution, it must be submitted within the required time period, and it must have the specified text. Any broader measure that included provisions disapproving regulations, including a consolidated measure consisting solely of such provisions, would not meet the third part of this requirement even if it was a joint resolution and was submitted during the required period. Even if each section of the measure conformed to the text prescribed by section 802(a), the text of the measure as a whole would fail to match that required for a disapproval resolution. Accordingly, the measure would presumably be held not to qualify as a "joint resolution" described by section 802(a). On these grounds, a consolidated measure consisting of the text of several disapproval resolutions (or any broader measure including such disapproval provisions) would presumably be ineligible for consideration in the Senate under the expedited procedure established by the CRA for a covered disapproval resolution. Enactment of the measure, in addition, presumably would not bring about the statutory consequences the CRA makes automatic for a covered disapproval resolution. If the disapproval provisions in the measure included only the text prescribed by the act, the explicit language of those provisions would presumably suffice to take out of effect the regulations identified therein. Without the inclusion of additional specific language, however, enactment of these provisions presumably would not take the regulations out of effect retroactively, nor would it disable the issuing agency from re-submitting a substantially similar rule, as the CRA prescribes for disapproval resolutions enacted pursuant to its provisions. Although it appears that a joint resolution "bundling" several disapproval provisions into a single measure could not have standing as a disapproval resolution under the CRA, it may be possible to frame such a measure in a form that would allow it to accomplish effects similar to those intended by the CRA with respect to multiple rules. Inasmuch as the consolidated measure would presumably not fall under the CRA in the first place, the drafting of the individual sections would not have to conform to the requirements of section 802(a). Instead, each section could include language specifying that the rule being disapproved not only cease to have force and effect, but also (where appropriate) be treated as if it had never taken effect. Language could also be included directing that the respective issuing agency be precluded from issuing a substantially similar regulation in the absence of subsequent statutory authority. Alternatively, each section disapproving a rule could be couched in terms conforming to section 802(b), and the measure could include additional provisions specifying that each section disapproving a rule was to have force and effect as if enacted as a separate disapproval resolution under the CRA. A provision of this sort would presumably suffice to permit the measure to achieve the desired effects even if it were introduced outside the period prescribed by section 802(b). In addition, given that a consolidated measure would in any case not be subject to consideration under the CRA, its use might also give Congress more latitude in framing its individual provisions. For example, the text required by the CRA permits disapproval under the act only of a single regulation in its entirety. Acting outside the requirements of the CRA, Congress could provide for the disapproval only of the specific parts of a proposed regulation to which it objected, or could include language replacing or otherwise modifying certain provisions of the regulation. Further, inasmuch as consideration of a consolidated joint resolution of disapproval would not be covered by the CRA to begin with, either chamber could consider and adopt amendments to the measure without incurring any additional consequences for violating CRA requirements. As long as the measure still contained provisions specifying that the effects of the disapproval provisions were to include retroactive vitiation and prohibition on proposing a similar rule, its lack of the form required by the CRA would not prevent its enactment from having the same effects as provided by the CRA. A consolidated measure that lacked the form prescribed by the CRA also would not be eligible for consideration under the terms provided by the CRA, including the statutory expedited procedures for Senate consideration and the automatic procedures to facilitate clearance for Presidential action. In contrast to the considerations described in the preceding section, this difficulty could not be overcome by including appropriate provisions in the consolidated measure (unless, of course, the measure were to be converted into the form required by the statute in the first place). Otherwise, the measure could be considered as provided by the statute only if the chambers separately took action to provide that consideration occur under procedures corresponding to those of the statute. The Senate might be able to achieve this result only by unanimous consent; the House might do so by adopting a special rule. In the Senate, a consolidated disapproval measure would presumably suffer from ineligibility for consideration under the statutory expedited procedure, by reason of its failure to satisfy the requirements of section 802(a). Presumably, as a result, the Senate would have to choose between considering either (1) a consolidated measure under its regular procedures or (2) a series of individual disapproval resolutions, each under the expedited procedures of the CRA (or, perhaps, both). Although the Senate could determine to consider a specific consolidated measure under limitations on debate and amendment comparable to those of the CRA, it could do so only by unanimous consent. To the extent that components of the measure might be highly controversial, this consent would likely prove unobtainable. On the other hand, inasmuch as a consolidated measure would, in any case, be ineligible for the expedited procedure of the act, the 60-day period during which the act makes that procedure available would be no constraint on the timing of Senate action thereon. If a consolidated measure were considered under the general rules of the Senate, it would be subject to amendment, including amendments that were non-germane or otherwise inconsistent with the objectives of the CRA. In addition, if the consolidated measure were considered under the general rules, opponents might attempt to prevent action by extended debate on the measure or on a motion to proceed to its consideration, or by other parliamentary means. In that case the Senate might be able to reach a vote on passage only if cloture could be invoked. Under these conditions, action on a consolidated measure might become feasible if its components could be compiled in such a way as to attract sufficient support to permit cloture to be invoked on the package. Composing such a package might require omitting disapproval proposals for certain rules on which Senators might place high importance. Supporters of the package might also have to protect it by securing the rejection of any amendments that would make cloture harder to obtain. Assuming sufficient support to invoke cloture, nevertheless, action on the consolidated measure might permit the Senate to dispose, in a relatively limited time, of a significant number of disapproval proposals. It might then become practicable for the Senate also to disapprove at least a limited number of additional rules by means of separate disapproval resolutions. These resolutions could be stated and submitted in a way that met the requirements of section 802(a), so that each would be eligible for consideration under the statutory expedited procedure, including the non-debatable motion to proceed, the prohibition on amendment, the limit on debate, and the possibility of reducing that time limit by majority vote on a non-debatable motion. Persistent use of this latter motion, in particular, might enable consideration of a significant number of individual resolutions. Careful consideration would no doubt still be required about how many resolutions could feasibly be considered in this way, and which ones might be best worth taking up. In the House, where the CRA prescribes no expedited procedure, the general rules of the chamber might be used in such a way as to facilitate action to disapprove a large number of rules. Two circumstances might make such action easier here than in the Senate. First, the general rules of the House always entail limits on debate and amendment or permit their imposition by a voting majority. Second, inasmuch as the CRA provides no expedited procedure for the House anyway, the House would lose no procedural advantage by considering a consolidated measure that failed to comport with the requirements of section 802(a). One approach might be for the House to consider a consolidated measure that comprised sections each of which disapproved a rule in the terms required by section 802(a)), and that also contained language providing that each disapproval section would have the same effects as if separately enacted under the CRA. Even if the disapproval provisions did not conform to the requirements of section 802(a), it still might be possible to provide that each section had the effect of a CRA disapproval resolution. In its consideration of such a vehicle, the House might preserve the intent of the statutory mechanism by adopting a special rule that prohibited amendment to the text of any section, but permitted amendments that would only strike a section, or that would only add a section reflecting the text required for a disapproval resolution. This way of proceeding would preserve the ability of the House to make individual decisions on which regulations to disapprove. An alternative approach would be for the House to consider a single special rule providing for consideration of a series of separate disapproval resolutions with a strict time limit and a prohibition against amendment for each. The special rule might even provide for a single consolidated period of debate on all the covered disapproval resolutions, although a separate vote on adoption of each resolution would presumably be required, so as to preserve the opportunity for a motion to recommit required by House rules. In this way, the House would still retain the opportunity to reject any individual disapproval resolution. It might still be possible, as well, to provide that additional resolutions meeting the requirements of section 802(a) could be considered if offered from the floor during consideration of the series of resolutions. For individual disapproval resolutions under the CRA, section 802(f) of the CRA provides that if one chamber considers a disapproval resolution when it has already received a companion from the other, then the final vote in the receiving chamber occurs on the companion measure. For this reason, in any case in which both houses, pursuant to the CRA, pass individual resolutions disapproving the same rule, no problem need arise at the stage of bicameral agreement. If either chamber initially acts on a consolidated disapproval resolution, however, difficulties might arise in the other chamber. Even if the other chamber also acts initially on an identical consolidated measure, the statutory mechanism for automatic clearance of a single measure for Presidential action would not be available. In both chambers, however, it is common in such cases to follow passage of its own measure with agreement, often by unanimous consent or other routine means, to the identical measure already received from the other. If the consolidated measures initially adopted in two chambers differ in content, on the other hand, the chamber acting second will normally pass the received measure only after amending it with the text of its own measure. Although this action often also occurs routinely, the subsequent clearance of a final measure for presentation to the President in these cases requires action to resolve differences between the two versions, either by conference or through an exchange of amendments. This action would have to take place under the general rules of both houses, and could result in delay or deadlock. A third possibility is that the chamber acting second might take up, from the outset, the consolidated measure received from the other. In this case, however, insufficient support may exist in the second chamber to adopt the package in the same form as passed the first. The receiving chamber may prove able to adopt the measure received only with amendments, in which case action to resolve differences between the two versions would become necessary. These difficulties might be most notable for the Senate in dealing with a consolidated measure received from the House, for any successful disposition of the House measure might require marshalling the support of a supermajority to invoke cloture. For this reason, if action through a consolidated measure is contemplated, House consideration of a measure originating in the Senate might prove more practicable. The House might more readily be able at least to pass a version of the Senate measure that could become the basis for a resolution of differences. Additional complications could arise if certain regulations are disapproved by one chamber in a consolidated measure and by the other in separate resolutions under the CRA. Such situations might most readily be resolved through action by the chamber that adopted the consolidated measure. This chamber might be able to provide that, upon passage of its own measure, if any disapproval resolution already received from the other corresponds to a provision of the consolidated measure, it be deemed to have passed the received resolution, or that it be in order immediately to consider and pass that resolution without debate. The same chamber might also provide that any disapproval resolution subsequently received, and corresponding to a provision of the consolidated measure, be deemed passed by the receiving chamber when received. If both chambers entered such an order, it could ensure the completion of congressional action on any disapproval resolution adopted by one chamber for a rule disapproved by the other in a consolidated measure. It might then be possible to resolve the status of any disapprovals included in both consolidated measures through ordinary processes of resolving differences between the two measures. In the House, it might be possible to provide for these proceedings through the terms of a special rule for considering the consolidated measure, but in the Senate unanimous consent would presumably be required. In addition, if the House transmitted numerous separate disapproval resolutions to the Senate, the Senate might have more difficulty than the House in limiting the time required for action sufficiently to enable it to act on all the measures received. For these reasons, action by the House on individual disapproval resolutions of the Senate might be found easier than action by the Senate on disapproval resolutions of the House. It might accordingly become important for advocates of disapprovals to consider to what extent initial action by the Senate on individual disapproval resolutions under the expedited procedure would carry the greatest promise of success. In principle, a chamber that initially acted to disapprove rules in a consolidated measure might also facilitate action in the other chamber by directing that each component of the consolidated measure be engrossed as a separate joint resolution of disapproval before being transmitted to the other. If each of these separately engrossed joint resolutions had the text required by section 802(a) and originated during the period required by that section, it might be possible for it to be regarded as satisfying the requirements for a disapproval resolution under the CRA, so that it could be eligible for the expedited procedure in the Senate, automatic clearance for presentation to the President, and the additional effects of enactment prescribed by the statute. In either chamber, however, it appears that separate engrossment of provisions in this way might be feasible only by unanimous consent. In the House, a special rule providing for separate engrossment would apparently be out of order as precluding a proper motion to recommit with respect to each of the separately engrossed measures. The same objection would evidently apply against another form of special rule that might have been taken as a means to an equivalent result, a "self-executing" rule providing that its own adoption would also adopt an entire group of separate disapproval resolutions. | The Congressional Review Act (CRA) establishes expedited procedures for Congress to disapprove regulations issued by Federal agencies. Disapproval under these procedures requires enactment of a joint resolution that has a specified text and is submitted within 60 days (excluding recesses) after Congress receives the regulation. For these disapproval resolutions, the act provides expedited procedures for Senate consideration and to clear the measure for Presidential action. If the resolution becomes law, the rule not only becomes of no force and effect, but is treated as if it had never taken effect, and the issuing agency may issue no "substantially similar" rule without subsequent authorization by law. If vetoed, a disapproval resolution can become law only if Congress overrides the veto. For regulations submitted 60 or fewer session days before a sine die adjournment, however, the CRA provides a further 60-day period for submitting disapproval regulations, starting on the 15th session day of the next session. Interest has arisen in using the CRA in this way in the 111th Congress to disapprove regulations issued late in the Bush Administration. Using the CRA in this way for numerous regulations, however, could consume large amounts of floor time. The question has accordingly been raised whether the CRA permits multiple disapproval resolutions to be "bundled," or consolidated into a single measure. Congress could always overturn regulations through a consolidated measure under its general legislative powers. Even if such a consolidated measure was submitted during the required time period, however, it would not have the text required by the CRA, which permits the statement only of a single disapproval. If enacted, as a result, it would not have the special effects for which the act provides. A consolidated measure, nevertheless, could include provisions specifying that the component disapproval provisions have the same effects as if they were separate disapproval resolutions enacted pursuant to the CRA. Any consolidated measure also would not be eligible for the expedited procedures provided in the CRA. In the Senate, as a result, its approval might be possible only by constructing it to include provisions that could attract sufficient support to invoke cloture. If the Senate could dispose of some disapprovals in this way, moreover, it might be able to deal with others through individual disapproval resolutions under the expedited procedure, especially by persistent use of its provisions for limiting debate by majority vote. In the House, a special rule could limit debate and amendment of a consolidated measure. Alternatively, a single special rule might provide for limited and consolidated debate on a group of individual disapproval resolutions. House rules protecting the motion to recommit would require final action on each resolution to be separate. If each chamber agreed to some disapprovals in a consolidated measure and others in separate resolutions under the CRA, the two chambers would have to resolve differences between the consolidated measures under their general rules. Either chamber might also provide for routine passage, when received, of any separate disapproval resolution of the other that corresponded to a provision in its own consolidated measure. The House might provide for this treatment of Senate disapproval resolutions, through a provision in its special rule for considering its consolidated measure, more easily than could the Senate for those of the House. No update of this report is planned. |
The "farm bill" is an omnibus bill which reauthorizes dozens of agriculture and agriculture-related statutes and their programs approximately every five years. Since 1973, the farm bill has included the Supplemental Nutrition Assistance Program (SNAP) (formerly, Food Stamp Program), and has come to include certain other nutrition programs administered by the U.S. Department of Agriculture's Food and Nutrition Service (USDA-FNS). Many programs reauthorized by the Food, Conservation and Energy Act of 2008 (or "2008 farm bill"; P.L. 110-246 ), expired at the end of FY2012 (September 30, 2012)—although many continued on the basis of appropriations action. The American Taxpayer Relief Act of 2012 ( P.L. 112-240 , enacted on January 2, 2013) included an extension of the 2008 farm bill through September 30, 2013. This report focuses on the Nutrition title (Title IV) of the 2012 farm bill proposals included in the 112 th Congress's Senate-passed bill (Agriculture Reform, Food, and Jobs Act of 2012; S. 3240 ) and House Committee-reported bill (Federal Agriculture Reform and Risk Management Act of 2012; H.R. 6083 ). These were five-year reauthorization proposals, and, while the 113 th Congress must "start from scratch," it is expected that these actions during 2012 will influence the farm bill formulation during the current Congress. This report's introduction includes a legislative history of the 112 th Congress's farm bill actions as well as a budget-oriented overview. Subsequent sections will take a closer look at the bills' proposed changes to SNAP. The report also discusses the two bills' changes to The Emergency Food Assistance Program, Commodity Supplemental Food Program, commodity foods in schools, and additional farm bill nutrition assistance programs and policies. For general background on the USDA-FNS programs, consult CRS Report R42353, Domestic Food Assistance: Summary of Programs , by [author name scrubbed] and [author name scrubbed]; as well as CRS Report R42505, Supplemental Nutrition Assistance Program (SNAP): A Primer on Eligibility and Benefits , by [author name scrubbed]. While this report focuses on the five-year proposals in S. 3240 and H.R. 6083 from the 112 th Congress, the text box below summarizes the impact of the P.L. 112-240 extension on the domestic food assistance programs. On April 26, 2012, the Senate Committee on Agriculture, Nutrition and Forestry marked up the Chair's mark of the 2012 farm bill, Agriculture Reform, Food, and Jobs Act of 2012, S. 3240 . One Title IV amendment to the Chair's mark was added, and the bill passed by a 16-5 voice vote. The Senate passed S. 3240 on June 21, 2012 by a vote of 65-34; four Title IV amendments were added during the Senate floor consideration. The Senate Committee reported the bill on August 28, 2012 in S.Rept. 112-203 . On July 9, 2012, House Committee on Agriculture Chairman Lucas together with Ranking Member Peterson introduced a Chair's mark of their 2012 farm bill, Federal Agriculture Reform and Risk Management Act of 2012, H.R. 6083 . On July 11, 2012, the House Committee on Agriculture considered 23 amendments to the Nutrition title and adopted 9 amendments. H.R. 6083 passed the committee on July 12, 2012 by a vote of 35-11. On September 13, 2012, the House Committee reported the bill ( H.Rept. 112-669 ), incorporating the amendments from the July markup. The 112 th Congress ended without the House-reported bill ever being brought to the floor of the House for a vote. From a budget standpoint, the largest difference between the Senate-passed and House Committee bills' Nutrition titles was their forecasted SNAP spending; this is due largely to the House Committee-reported bill's restrictions to SNAP " Categorical Eligibility ." Table 1 displays each of the bill's cost estimates by the Congressional Budget Office (CBO) broken down by policy. These policies are discussed later in the report. CBO cost estimates compared farm bill nutrition spending under its current law baseline to the policies proposed in S. 3240 and H.R. 6083 . The most frequently cited numbers are CBO's estimates for the bills' entire Nutrition title as well as the bills' SNAP proposals—a subset of the Nutrition title. Please note: it is expected that the cost estimates displayed in Table 1 will change to reflect CBO's January 2013 baseline and possibly updated participation data. For S. 3240 , CBO estimated that if enacted, the bill's Nutrition title—which contains SNAP and non-SNAP proposals—would have resulted in a net reduction in spending of $4.0 billion over 10 years. The SNAP provisions alone are estimated to reduce spending by $4.5 billion over 10 years. (The Title's total CBO cost estimate results in fewer estimated savings than SNAP alone because the title estimate includes the effect of non-SNAP proposals that are estimated to spend rather than save.) For H.R. 6083 , CBO estimated that if enacted, the bill's Nutrition title—which contains SNAP and non-SNAP proposals—would have resulted in a net reduction in spending of approximately $16.1 billion. The SNAP provisions alone are estimated to reduce spending by $16.5 billion over 10 years. (As in S. 3240 , the Title's total CBO cost estimate results in fewer estimated savings than SNAP alone because the title estimate includes the effect of non-SNAP proposals that are estimated to spend rather than save.) Of the programs in Title IV, SNAP (as food stamps was renamed in the 2008 farm bill) accounts for the largest amount of federal funding and also serves the largest number of households. In fact, the vast majority of the current farm bill's spending is for SNAP—nearly 78% based on current CBO baseline projections. SNAP is an open-ended appropriated entitlement and program benefits are 100% federally funded. Further, SNAP participation ebbs and flows in relation to the nation's economy. Section 18(a) of the Food and Nutrition Act (codified at 7 U.S.C. 2027(a)) authorized appropriations for SNAP through September 30, 2012, the end of FY2012. P.L. 112-240 extended this authorization through September 30, 2013. Although SNAP is an open-ended mandatory entitlement program, it is also an appropriated entitlement in that not only must households and agencies be eligible for the funds, but the available funding is subject to the appropriations process. This appropriated entitlement status also means that SNAP and the programs funded through the SNAP account can be extended even if the farm bill is not reauthorized or the farm bill is not extended. Authority for appropriations for SNAP also affects other programs as appropriations to the SNAP account also fund certain other domestic food assistance programs that are authorized in the Food and Nutrition Act, including the mandatory entitlement commodity purchases for The Emergency Food Assistance Program (TEFAP). Both S. 3240 (Section 4012) and H.R. 6083 (Section 4020) would have extended the authorization of appropriations for SNAP until September 30, 2017, the end of FY2017. Both Senate-passed and House Committee-reported bills included changes to SNAP eligibility. The House-reported bill included more extensive changes expected to affect how states administer SNAP. Federal law provides the basic eligibility rules for SNAP, including limits for income and resources. There are two basic pathways to gain financial eligibility for SNAP: (1) having income and resources below specified levels set out in federal SNAP law; and (2) being "categorically," or automatically, eligible based on eligibility and receipt of benefits from other specified low-income assistance programs. Under traditional categorical eligibility, a SNAP applicant household is eligible for SNAP when every member receives Temporary Assistance for Needy Families (TANF) cash assistance, Supplemental Security Income (SSI), or state-funded general assistance cash benefits. Under current law, states must—at minimum—administer traditional categorical eligibility. As of May 2012, five states make this minimum choice. However, states also have the option to adopt so called "broad-based" categorical eligibility. Under this option, in addition to the programs listed under "Traditional," households that receive any TANF-funded benefit may be deemed eligible for SNAP benefits, if certain income conditions are met. Per USDA regulation, the TANF-funded benefit (cash or non-cash) must be for households at or below 200% of the federal poverty line. As of May 2012, 43 states had chosen to implement broad-based categorical eligibility in addition to traditional. Since few if any of the non-cash TANF-funded benefits (e.g., other forms of assistance like child care assistance or a brochure advertising a human services hotline) require a test of assets, this option often means that applicants' assets are not checked. For further explanation of SNAP eligibility, categorical eligibility, and the details of states' choices on this topic, please see CRS Report R42054, The Supplemental Nutrition Assistance Program: Categorical Eligibility , by [author name scrubbed] and [author name scrubbed]. S. 3240 would not have changed the current categorical eligibility options. H.R. 6083 (Section 4004), as reported, would have repealed "broad-based categorical eligibility," and limited categorical eligibility to SNAP applicants that receive TANF cash assistance, SSI, or state-funded general assistance cash benefits. As shown in Table 1 , CBO estimated that this change will result in approximately $11.5 billion in savings. This estimate included the savings from reducing participation in SNAP (CBO estimates that about 1.8 million people per year, on average, would lose benefits if they were subject to SNAP's income and asset tests) as well as savings from an estimated 280,000 children who would have lost eligibility for free school meals. This is because these households would have been directly certified for free lunch and breakfast through the National School Lunch Program and School Breakfast Program due to household participation in SNAP, but once ineligible for SNAP, CBO assumed the household would qualify for reduced-price meals instead. For the most part, college students (attending higher education courses half-time or more) between ages 18 and 50 are ineligible for SNAP. A student enrolled in an institution of higher education more than half-time is only eligible for SNAP benefits if the individual is (1) under 18 years old or age 50 or older; (2) disabled; (3) employed at least 20 hours per week or participates in a work-study program during the school year; (4) a parent (in some circumstances); (5) receiving TANF cash assistance benefits; or (6) enrolled in school because of participation in certain programs. One of the program enrollment exceptions is a "SNAP Employment and Training" program. Under current law, there is no provision that specifically addresses lottery or gambling winners ; however, the SNAP program's means tests [listed in Section 5 of the Food and Nutrition Act and noted in the above " Categorical Eligibility " section] would appear to limit the increase in income or wealth that would be associated with significant winnings. Both S. 3240 (Section 4003, 4004) and H.R. 6083 (Section 4007, 4008) would have made identical changes regarding post-secondary students and gambling winnings. Regarding post-secondary students, the bills add the requirement that those students enrolled in post-secondary institutions as a requirement of participation in "SNAP Employment and Training," must be enrolled in certain employment-oriented training to qualify for SNAP; specifically, this would include certain career and technical education, remedial courses, basic adult education, literacy, or English as a second language. For gambling and lottery winnings, the bills would create more specific rules that would make households that receive "substantial lottery or gambling winnings" (as determined by USDA) ineligible for SNAP until the household meets the SNAP resources (assets) and income eligibility limits. State SNAP agencies would be required to establish agreements with the state gaming agency in order to make determinations of winnings. The Senate Committee's report on S. 3240 ( S.Rept. 112-203 ) cites a May 2011 lottery winner's participation in SNAP, describing that, while the bill intends to prohibit such cases in the future, the Committee "does not intend to increase the administrative burden on states by instituting extensive oversight of private or charitable gaming activities, such as those that occur at senior centers, churches, private homes or other non-commercial gaming. Further, it is not the intent of the Committee that the Secretary be required to impose statutory requirements that may otherwise be waived under State option in this Act. The Committee encourages the Secretary to evaluate the criteria for substantial winnings in a manner that does not produce an outcome that increases poverty." Becoming eligible for SNAP is only one part of the application process. Once deemed eligible, a household's benefits are calculated based on the household's size, income, and SNAP-deductible expenses. A household's net income is determined by subtracting from the household's gross income, certain specified expenses and figures. In addition to a standard deduction (available to all households), there are deductions to account for the specific circumstances of a household. Examples of SNAP deductions are the excess shelter deduction (a figure intended to account for variations in the cost of living) and—for households that include the elderly and disabled—an excess medical expenses deduction (a figure intended to account for variations in a household's health costs). Once eligible, 30% of the household's net income is subtracted from USDA's monthly maximum benefit (for household size) to determine the monthly benefit. As summarized below, the Senate-passed and House Committee-reported bills, for the most part, would have maintained current federal law on SNAP benefit calculation; however, both bills would have changed the role of LIHEAP in SNAP benefit calculation (specifically, the significance of LIHEAP in the excess shelter deduction). The House Committee-reported bill also included a specification for the excess medical expenses deduction. Under current law, 7 U.S.C. 2014(e)(6)(C), a SNAP household can use a Low Income Home Energy Assistance Program (LIHEAP, the federal program that provides assistance with paying utility bills) payment to document that the household has incurred heating and cooling costs. Further, current law finds that a LIHEAP payment in any amount will serve this purpose. The documentation of LIHEAP receipt triggers a standard utility allowance (SUA), a state-specific figure based on average utility costs that enters into the SNAP benefit calculation equation. Unless the household is already receiving the maximum SNAP benefit, a household's monthly benefit can increase if the SUA calculation results in an excess shelter deduction. In addition to current law, current practice also affects the interaction between these benefit programs. While virtually all SNAP states consider LIHEAP in their calculation, according to a June 2012 survey by USDA-FNS, approximately 16 states have implemented the so-called "Heat and Eat" policy. "Heat and Eat" is a phrase that the low-income and anti-hunger advocacy community has used to describe state and program policies that leverage nominal (as little as $1) LIHEAP payments into an increase in households' SNAP benefits that is larger than the initial LIHEAP payment. Both S. 3240 (Section 4002) and H.R. 6083 (Section 4006) would have made identical changes to the treatment of LIHEAP benefits. Under these proposals, only LIHEAP payments above $10 per year would have conferred this potential benefit calculation advantage. Payments of $10 or less would have no longer entitled a household to earn a "standard utility allowance" (SUA) during the benefit calculation process. If a household received $10 or less in LIHEAP assistance, households would have had to present alternate documentation of utility costs in order to have utilities factored into calculating their excess shelter deduction. In addition to estimating the reduced spending shown in Table 1 , CBO also estimated the number of households that would be affected and by how much. CBO estimated that nearly 500,000 households each year would have had their SNAP benefits reduced by an average of $90 per month. Section 5(e) of the Food and Nutrition Act, 7 U.S.C. 2014(e)(5), specifies the parameters for an excess medical expense deduction. Households that contain an elderly or disabled member are eligible to have this deduction included in their net income (where applicable) and benefit calculation processes. It has been reported that certain states were including a household's medical marijuana expenses to determine a household's excess shelter deduction. In a July 10, 2012 memorandum to regional directors, FNS "reaffirmed its longstanding policy that a household may not use the SNAP medical deduction for the cost of any substance considered illegal under Federal law," and went on to say that, "States that currently allow for the deduction of medical marijuana must cease this practice immediately and make any necessary corrections to their State policy manuals and instructions. Cases that cannot be readily identified must be corrected at the time of recertification or periodic report, whichever is sooner. States that are not in compliance may face penalties for any overissuance of SNAP benefits." H.R. 6083 (Section 4005) would have required USDA to promulgate regulations to ensure that medical marijuana is not treated as a medical expense in the calculation of the excess medical expenses deduction. The Senate-passed bill did not include a proposal in this area. Unlike some other federal income maintenance programs, SNAP does not provide households cash benefits. Instead, participating households are provided benefits on an electronic benefit transfer (EBT) card which participants may only redeem for SNAP-eligible foods at authorized retailers . The Senate-passed and House Committee-reported bills would have changed (1) the process of authorizing retailers (" Retailer Authorization and Equipment "), (2) using technology for EBT transactions (" Methods of Redemption "), and (3) specific types of retailers that may accept SNAP (" Specific Retailers "). The bills also included resources and policies intended to further prevent the illegal use of benefits (" Trafficking "). SNAP benefits can be accepted only by authorized retailers. Among other application requirements, USDA authorization of a retailer is based on the retailer's inventory and sales. The Food and Nutrition Act defines a retail food store, and includes within that definition an establishment that either (1) offers, on a continuous basis, a variety of foods in each of four staple food categories [defined in 7 U.S.C. 2012(r)(1)], including perishable foods in at least two of the categories, or (2) has over 50% of its sales in staple foods. While the authority exists to consider the nature and extent of the food business conducted, there is currently no statutory policy tying a retailer's sales of non-food items (e.g., alcohol and tobacco) to its authorization. Currently, an electronic benefit transfer (EBT) point-of-sale machine can be provided by the state agency to the retailer at no cost to the retailer. At their own cost, many retailers choose to purchase credit card machines that also accept EBT. (Typically, retailers that accept credit and debit cards pay for a machine that accepts these cards as well as EBT machines). Although SNAP has transitioned to being fully EBT, and paper coupons ("food stamps") are no longer offered, the authority still exists to accept manual SNAP vouchers. Some small retailers use these rather than acquire an EBT machine. Currently there are no statutory requirements regarding unique terminal identification numbers for EBT machines. Both S. 3240 (Section 4005(a)-(d)) and H.R. 6083 (Section 4001(a)-(d)) would have made nearly identical changes to retailer authorization and equipment. Both bills would have amended SNAP's definition of retail food store in two ways. First, the bills would have required SNAP retailers that are authorized, based on their inventory of staple foods, to carry perishable foods in at least three (rather than two) of the staple food categories. Second, the bills would have prohibited the authorization of retail food stores which have at least 45% of their total sales in specific SNAP-ineligible items - alcoholic beverages, tobacco, and hot foods or hot food products ready for immediate consumption (other than those authorized in the restaurant option, discussed later in this report). The bills would have given USDA the authority "to consider whether the applicant is located in an area with significantly limited access to food" in its authorization of stores, and the bills would have made an exception to the 45% requirement if USDA determines that the participation of the retailer is "required for the effective and efficient operation of the supplemental nutrition assistance program." The bills also would have changed the policy around EBT equipment and the related topic of manual vouchers . The bills would have shifted the costs of EBT machinery to retailers. Both bills also would have barred states from issuing manual SNAP vouchers or allowing retailers to accept manual vouchers unless USDA makes a determination that circumstances or categories of retailers warrant use of manual vouchers. Both bills would have required EBT service providers to provide for and maintain "unique terminal identification number information"; this was intended to assist USDA in tracking and preventing fraudulent transactions. The House-reported bill alone included further details for the "unique termination identification number information" provision, requiring USDA to "consider existing commercial practices for other point-of-sale debit transactions" and prohibiting USDA from issuing a regulation earlier than two years from the bills' enactment. Typically, government funding provides only wired EBT machines. There are currently no explicit provisions in the authorizing statute regarding redemption of SNAP benefits via wireless EBT machinery for redemption nor for online SNAP transactions. Advocates have asked for technological accommodations for farmers' markets and other direct-to-consumer venues. From FY2012 appropriated resources, USDA used $4 million to expand EBT point of sale devices at farmers' markets. Currently, using a SNAP EBT card to make an online purchase is neither allowed nor technologically feasible. A number of regulations would need to be rewritten or waived to allow redemption via the Internet. S. 3240 (Section 4007) contained demonstration projects for mobile and online redemption, whereas H.R. 6083 (Section 4010) only contained the mobile demonstration project. The Senate bill would have required, depending on results of an authorized demonstration project, USDA to authorize retailers that conduct EBT transactions using mobile technologies (defined as "electronic means other than wired point of sale devices"), if retailers met certain requirements. The demonstration project and report would need to be completed by July 1, 2015. USDA would then authorize wireless retailers beginning January 1, 2016, unless USDA reports to congressional committees of jurisdiction that it determines that authorization should not be implemented. Similar to the mobile technologies provision, the bill included a similar statutory authorization for USDA to authorize retailers to accept benefits over the Internet, contingent upon results of a demonstration project and a report to Congress. For the House Committee-reported bill, the mobile technologies provision was similar to the Senate bill except the language appears to limit the authority to a USDA pilot/demonstration on mobile technologies and does not give USDA authority to continue such redemptions after the end of the pilot. The H.R. 6083 provision did not set a date for the mobile technologies report to Congress. The House-reported bill did not include any provisions authorizing retailers to accept benefits via the Internet. Shares in a Community Supported Agriculture (CSA) establishment are not a SNAP-eligible purchase. In a CSA, a farmer or community garden grows food for a group of local residents—members, shareholders, or subscribers—who pledge support to a farm at the beginning of each year by agreeing to cover a portion of the farm's expected costs and risks. In return, the members receive shares of the farm's production during the growing season. For the most part, SNAP benefits are not redeemable at restaurants, as the benefits are not redeemable for hot, prepared foods. However, states may choose to operate restaurant meals programs , allowing homeless, disabled, or elderly households to redeem SNAP benefits at restaurants that offer concessional prices. States contract with restaurants, and USDA authorizes them as SNAP retailers. FY2010 redemption data indicate that approximately $20 million (or 0.03% of SNAP benefits) were redeemed at "meal delivery/private restaurants." Currently, non-profit grocery delivery services for the elderly and disabled are not defined as a "retail food store" that can accept SNAP benefits. Such establishments must negotiate waivers with USDA in order to accept SNAP benefits. Under various authorities and waivers other retailers may conduct deliveries to SNAP participants, but fees may not be paid with SNAP benefits. Both S. 3240 (Section 4008) and H.R. 6083 (Section 4011) would have made SNAP benefits redeemable for shares of Community-Supported Agriculture (CSA). For restaurant meal programs, both S. 3240 (Section 4009) and H.R. 6083 (Section 4012) would have created added responsibilities for state agencies, private establishments, and USDA before restaurants would be able to participate in a restaurant meals program. For restaurants that have contracted with the state to accept SNAP benefits before this provision is enacted, the restaurant would be able to continue to accept SNAP without meeting the additional requirements for no more than 180 days. In addition to the above changes, H.R. 6083 (Section 4002) alone would have added to the definition of a retail food store the term "governmental and non-profit food purchasing and delivery service[s]" that serve the elderly and disabled, emphasizing that delivery fees are not to be paid with SNAP. This bill would have required USDA regulations to include certain protections and limitations. Trafficking is the sale of SNAP benefits for cash or for ineligible items. Trafficking is illegal and enforced by USDA-FNS using a number of methods. The Food and Nutrition Act includes penalties for retailers and participants engaged in trafficking; penalties include fines and imprisonment. An analysis of trafficking during the 2006-2008 period estimated that the trafficking rate is one cent per SNAP dollar. Current law authorizes civil penalties and SNAP disqualification penalties for retailers that engage in SNAP trafficking (the sale of SNAP benefits for money or ineligible items). USDA enforces those penalties through a variety of activities and funds from the SNAP account. Approximately $8 million each year was obligated for retailer integrity and trafficking in FY2010, FY2011, and FY2012. Some have argued that increasing the monitoring and penalties around lost-EBT-card replacement could eliminate this source of potential trafficking, and FNS has recently proposed a rule in this regard. Currently, the only mention of replacement cards in the authorizing statute is where the law states that state agencies may collect a fee for replacement of an EBT card by reducing the monthly allotment of the participating household. Both S. 3240 (Section 4016) and H.R. 6083 (Section 4025) would have changed replacement card policy and provided additional funds for efforts to fight trafficking; however, the bills differ in the amount of dedicated funding they would provide. S. 3240 would have provided USDA $18.5 million annually "for FY2013 and each fiscal year thereafter" in additional mandatory funding to track and prevent SNAP trafficking. H.R. 6083 is similar to the Senate-passed bill except that the House-reported bill would have provided USDA $5 million annually in additional mandatory funding to track and prevent SNAP trafficking. Both bills would have added additional statutory measures regarding "the purposeful loss of cards." USDA would be able to require a state agency to decline a request for a replacement card unless the household provides an explanation for the loss of the card. The bills' provisions specified that USDA must include protections for vulnerable individuals (homeless, disabled, victims of crimes) and must assure that certain procedures occur and that procedures are consistent with participants' existing due process protections. In order to participate in SNAP, federal law imposes certain work-related requirements and also exempts certain individuals from those requirements. If an individual is not working already and is not exempt from the work requirements, he or she must, at least, register for work and accept suitable job offers. Individuals may be required to do more if their state SNAP agency requires them to fulfill some type of work, job search, or training obligation. Federal law requires SNAP agencies to operate an Employment and Training (E&T) program of the state's design for work registrants whom states designate. State SNAP agencies may require all work registrants to participate in one or more components of their program, or limit participation by further exempting additional categories and individuals for whom participation is judged impracticable or not cost effective. States may also make E&T activities open only to participants who volunteer to participate. Program components can include any or all of the following activities: supervised job search or training for job search, workfare (work-for-benefits), work experience or training programs, education programs to improve basic skills, or any other employment or training activity approved by USDA-FNS. In sum, states have a great deal of flexibility in administering their E&T programs. Since the 2002 farm bill, ( P.L. 107-171 ), SNAP E&T has been financed using several streams of federal funds. The federal government funds SNAP E&T in 4 ways: (1) $90 million in mandatory funds that are allocated and reallocated to states based on a formula, (2) $20 million in mandatory funding allocated to states that pledge to provide E&T to all able-bodied adults without dependents (ABAWDs), (3) open-ended matching funds for states' administrative costs for E&T, and (4) open-ended matching funds for states' reimbursement of E&T participants' dependent care and transportation costs. Program requirements, activities, and uptake of these funds vary by state. Since December 2005, certain appropriations laws have reduced the mandatory $90 million in E&T funding through changes in mandatory program spending (CHIMPs). With the exception of FY2009 which contained no E&T rescission, certain appropriations laws for FY2006 through FY2012 annually rescinded from $10.5 to $15 million from the $90 million in funds. P.L. 112-240 's farm bill extension continued the FY2012 appropriations change, and reduced the $90 million funding to $79 million. H.R. 6083 (Section 4014, 4018, 4019) contained several policies that would have altered SNAP's authorizing statute with regard to the E&T program. S. 3240 would not have made any changes to SNAP E&T. The House Committee's bill would have continued the FY2012 appropriations' ( P.L. 112-55 ) "CHIMP" of SNAP Employment and Training funding, reducing the $90 million source of mandatory funding (Section 16(h)(1)(a)(A) of the Food and Nutrition Act of 2008) to $79 million in mandatory funding for FY2013-FY2017. The bill would have established additional monitoring, performance measures, and reporting requirements for SNAP E&T. For USDA evaluations and studies, the bill would also have mandated the cooperation of "states, state agencies, local agencies, institutions, facilities such as data consortiums, and contractors" participating in Food and Nutrition Act programs. Note: As discussed earlier, the P.L. 112-240 farm bill extension also extended the $79 million for FY2013. State agencies are currently eligible for, in total, $48 million per year in performance awards. These grant awards are provided to states for performance accomplishments in payment accuracy, program access index (a proxy measure for the share of eligible people who participate in SNAP), application timeliness, and best negative (improper denial) error rate. The 2002 farm bill ( P.L. 107-171 ) established this system of performance awards and expanded the performance system to include measures other than payment accuracy rates (i.e., error rates). From FY2003 through FY2011, 52 of the 53 state agencies received bonus awards at least once. Only Connecticut has never received a high performance bonus. There is currently no requirement that these performance awards be reinvested in SNAP. As part of SNAP's quality control system, states are also subject to fiscal penalties for poor performance. Although the system has changed a number of times, under the 2002 farm bill revision, sanctions are only assessed against states with above-threshold rates of error for two consecutive years. S. 3240 (Section 4011) would have required states to reinvest bonus payments into the state's SNAP program. H.R. 6083 (Section 4016) would have entirely repealed the authority to issue performance awards and the related $48 million per year in mandatory funding. The SNAP quality control system measures the accuracy of the eligibility and benefits calculation in SNAP. The American Recovery and Reinvestment Act of 2009 temporarily changed the definition of a quality control error by raising the threshold for an acceptable error from $25 to $50 (i.e., SNAP errors lower than $50 would not "count" as errors in the quality control system). USDA further extended the $50 threshold via regulation in November 2011. S. 3240 (Section 4010) and H.R. 6083 (Section 4027) both would have reduced the error tolerance level to $25, but the House-reported bill also would annually adjust the level for inflation. S. 3240 would have set $25 as the threshold level for reporting SNAP errors in the quality control system. The House-reported bill was similar to the Senate-passed bill, except it would have set the $25 threshold only for FY2013 and then would have adjusted the threshold for inflation based on the growth of the cost of the thrifty food plan. Formerly SNAP Nutrition Education or "SNAP-Ed," this program provides formula grant funding for states to provide programs for SNAP (and other domestic food assistance program) participants as well as other low-income households. With these funds, "[s]tate agencies may implement a nutrition education and obesity prevention program for eligible individuals that promotes healthy food choices consistent with the most recent Dietary Guidelines for Americans." Both S. 3240 (Section 4015) and H.R. 6083 (Section 4024) identically amended the Nutrition Education and Obesity Prevention Grants so that funds may also be used for programs that promote physical activity. Note: As discussed earlier, the P.L. 112-240 farm bill extension also made changes to the funding of this program, reducing FY2013 funding by $110 million. Section 11(t) of the Food and Nutrition Act authorizes USDA to spend $5 million on grants to states for improving the application process, eligibility determination, and access to SNAP. H.R. 6083 (Section 4024) would have repealed this grant program. S. 3240 makes no changes. SNAP allows certain legal immigrants to participate in the program. Many noncitizens are barred—eligibility is extended only to permanent residents legally present in the United States for at least five years, legal immigrant children (under 18), the elderly and disabled who were legally resident before August 1996, refugees and asylees, veterans and others with a military connection, those with a substantial history of work covered under the Social Security system, and certain other limited groups of aliens. The U.S. Citizenship and Immigration Services (USCIS) operates a computer-based immigration verification system, which they refer to as Systematic Alien Verification for Entitlements (SAVE) Program. Under current law and regulation, states must verify noncitizens' immigration status, but do not have to use the SAVE Program. According to July 2012 information from USCIS, all but four SNAP state agencies have a memorandum of agreement with the SAVE system. H.R. 6083 (Section 4013) would have required all SNAP agencies to verify immigration status using the SAVE system. S. 3240 did not contain changes. States are required to match SNAP and Social Security Administration data to assure that deceased individuals do not receive SNAP benefits. Also, households are prohibited from receiving benefits in multiple states simultaneously. Under current law, administrative costs for operating the SNAP program are funded equally by state and federal funds (i.e., 50% federal matching rates). H.R. 6083 (Section 4029) would have required states to submit annual reports demonstrating that the agency has not provided benefits to deceased individuals or to households simultaneously receiving benefits in another state. Penalty for noncompliance would have been a 50% reduction in the federal share of administrative costs. The Senate-passed bill did not contain this reporting requirement. In recent years, authorizing laws of Temporary Assistance for Needy Families, child welfare, and Unemployment Insurance have been amended to include data exchange standards and use common reporting mechanisms to prevent fraud, improve program access, and save federal dollars. H.R. 6083 (Section 4015) would have amended SNAP law to include data standardization and exchange requirements. This language was not included in the Senate-passed bill. "Programs in Lieu of SNAP" refers to the related programs operated by entities that do not operate SNAP or which are offered as an alternative to SNAP. Puerto Rico, American Samoa, and the Northern Mariana Islands do not participate in the SNAP program. Instead they receive a nutrition assistance block grant, under which they administer a nutrition assistance program with service delivery unique to each territory. Indian tribal organizations may choose to operate the Food Distribution Program on Indian Reservations (FDPIR), instead of having the state offer regular food stamp benefits; the full cost of benefits and most administrative expenses are covered by the federal government. The FDPIR provides an alternative to SNAP for participating Indian Reservations by delivering a household food package, which includes specific foods, as opposed to SNAP's electronic benefit transfer benefits that are redeemable at authorized retailers. Funding for FDPIR is included within the SNAP account. The Section 18(a) authority to fund and operate SNAP also serves to continue FDPIR operations. The Food and Nutrition Act includes an authority to fund a local foods pilot program to incorporate local and traditional foods in the FDPIR program. That particular authority expired September 30, 2012, and then was extended by P.L. 112-240 . Both S. 3240 (Section 4001, 4012) and H.R. 6083 (Section 4003, 4020) would have continued to authorize FDPIR and would have reauthorized the local foods pilot program. Funding for FDPIR is included within the account for SNAP. By authorizing the appropriations in Section 18(a) of the Food and Nutrition Act (see " SNAP Authorization and Appropriations "), the bills would continue operations for the program in general. Further, both bills would have reauthorized the local foods pilot program through the end of FY2017. Guam and the Virgin Islands participate in SNAP, but the Commonwealth of the Northern Mariana Islands (CNMI), Puerto Rico, and American Samoa do not. In the Food and Nutrition Act of 2008, American Samoa and Puerto Rico are given mandatory funds for nutrition assistance block grants. CNMI receives a block grant that is negotiated with USDA. Generally speaking, the block grants offer flexibility to the administering territory, but also mean that they have limited funding amounts. While SNAP is an open-ended entitlement, the nutrition assistance block grants of the territories grow at the rates of inflation (measured by the Thrifty Food Plan). The 2008 farm bill authorized and funded a study of the feasibility of including Puerto Rico in SNAP; the study was completed and published in June 2010. In the case of Puerto Rico's administration of its block grant, the territory currently has sufficient flexibility to provide some food assistance benefits in the form of SNAP. One of the feasibility study's findings on "Projected Administration Changes" was: Like SNAP, NAP [Puerto Rico's food assistance program] distributes benefits on an EBT debit card. However, unlike SNAP, up to 25 percent of the monthly benefit may be redeemed for cash. Although the cash is designated for eligible food items, it is widely acknowledged that participants use at least some of their allotted cash for non-food essentials, such as medicine and hygiene products. It is difficult to determine what the full impact of a completely non-cash allotment would be on Puerto Rico retailers and participants. Because the current cash allotment is the sole or primary source of cash income for many participants, it is clear that families would need to find other ways to pay for essential non-food items. H.R. 6083 (Section 4021) would have amended Puerto Rico's block grant so that Puerto Rico would no longer be permitted to use its block grant funding to provide benefits in the form of cash. Puerto Rico would have to provide benefits only in EBT form. For the Commonwealth of the Northern Mariana Islands, H.R. 6083 (Section 4028) would have authorized and provide $1 million in both FY2013 and FY2014 for a feasibility study of CNMI's capacity to administer a SNAP pilot. The bill also would authorize and provide administrative and technical assistance funds to support the pilot depending upon the feasibility study's findings ($13.5 million in FY2015, $8.5 million in each of FY2016 and FY2017). S. 3240 would have made no changes to these territories' programs. USDA commodity foods are foods purchased by the USDA for distribution to USDA nutrition programs. They are not necessarily specific types of food; the catalog of commodity foods is a wide variety of fruit, vegetable, livestock, dairy—fresh, frozen, and processed foods. The 2012 farm bill provisions in this section of the report are those which relate to programs that distribute USDA commodity foods. The USDA Food and Nutrition Service programs that include USDA commodity foods are The Emergency Food Assistance Program (TEFAP), Commodity Supplemental Food Program (CSFP), National School Lunch Program (NSLP), Summer Food Service Program (SFSP), and Child and Adult Care Food Program (CACFP). Many of these programs distribute "entitlement commodities" (an amount of USDA foods to which grantees are entitled by law) as well as "bonus commodities" (USDA food purchases based on requests from the agricultural producer community). TEFAP, the main USDA-FNS program that supports emergency feeding organizations, currently receives federal government resources in several ways. Congress provides mandatory funding for the purchase of "entitlement commodity" foods that are distributed to emergency feeding organizations (e.g., food banks and food pantries) in addition to discretionary funding for organizations' administrative costs. TEFAP also receives bonus commodity donations from USDA when the Department exercises its purchasing authority in response to requests from the agricultural industry for surplus removal or price support. In current law, the TEFAP's mandatory funding for "entitlement commodities" included an immediate infusion of $50 million in FY2008, $250 million for TEFAP commodities for FY2009, and for each of FY2010, FY2011, and FY2012, $250 million adjusted for food-price inflation. This mandatory entitlement funding is currently only available to be spent over a one-year period; emergency feeding organizations must expend their entitlement-commodity allocations in the same fiscal year. In addition, current law authorizes to be appropriated up to $100 million for TEFAP administrative and distribution costs. P.L. 112-240 extended TEFAP law through September 30, 2013. Both S. 3240 (Section 4014) and H.R. 6083 (Section 4023) would have increased mandatory funding for TEFAP, but the bills proposed to do so in differing amounts and with different approaches. The Senate bill would have increased the mandatory funding amounts that are indexed to inflation by $174 million over 10 years. The majority of the funding increase would have been in the first four years—an increase of $28 million in FY2013, $44 million in FY2014, $24 million in FY2015, and $18 million in FY2016. The Senate bill would have added $10 million in FY2017 and every following fiscal year. S. 3240 also would have required funding for TEFAP to be available for two-year periods. While the Senate-passed statutory language would not have changed bonus commodity purchasing for this program, the Senate's Committee Report (S.Rept. 112-203) language does say, "The Committee encourages the Secretary to utilize existing authority to make additional purchases for use at food banks in times of high need when funds are available within the existing budget to accommodate additional commodity purchasing." The House Committee bill would have increased funding by $129 million over five years and $270 million over 10 years (according to CBO) . The House-reported bill would not have made annual commodity funding available for a two-year period. CSFP is a food package program where specific foods are delivered to a household. Under current law, income-eligible pregnant and post-partum women, infants, children, and the elderly (defined as 60 years or older) are eligible to participate in CSFP. Such women, infants, and children would also be eligible for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), but current law limits dual participation in WIC and CSFP. According to FY2011 USDA-FNS data, 97% of CSFP participants were elderly. Both S. 3240 (Section 4101-4102) and H.R. 6083 (Section 4101-4102) would have extended the authorities for USDA to purchase commodity foods for and otherwise operate CSFP. In addition, both bills would have limited eligibility for CSFP to income-eligible elderly. Enrolled women, infants, and children (who are disqualified by this new provision) would have been allowed to participate until their certification period expires. In addition to USDA commodity foods purchased and distributed for TEFAP and CSFP, child-serving institutions that participate in the National School Lunch Program (NSLP), Summer Food Service Program (SFSP), and Child and Adult Care Food Program (CACFP) also receive assistance in the form of USDA commodity foods (in addition to per-meal cash reimbursements). While typically changes to the programs' authorizing statutes, Russell National School Lunch Act and Child Nutrition Act, fall under the jurisdiction of the Senate Committee on Agriculture, Nutrition, and Forestry and the House Committee on Education and the Workforce, the policies pertaining to USDA commodity food procurement are in the jurisdiction of both the Senate Committee on Agriculture, Nutrition, and Forestry and the House Committee on Agriculture. The Senate-passed and House-reported bills contained various policies that would have impacted the USDA foods served in school meal programs (National School Lunch Program and National School Breakfast Program). In FY2011, approximately 10% of the federal assistance for school meal programs was in the form of donations of USDA commodity purchased foods. This includes "entitlement commodities," the food amounts to which a school is entitled based on the number of meals served; as well as "bonus commodities," which are based on USDA purchases under its agricultural surplus and price support authorities. Schools redeem National School Lunch Program commodity "entitlement" food assistance (the amount of which is based on a per-meal rate ) from USDA's offerings . Some stakeholders have been interested in assuring that entitlement commodity assistance can instead be used for local purchases instead of USDA foods. The policies and related S. 3240 and H.R. 6083 proposed changes discussed below pertain to USDA food purchases for schools. In addition to the minimum ($200 million-a-year) acquisitions required by the 2002 farm bill, USDA is required to purchase additional fruits, vegetables, and tree nuts for use in domestic nutrition assistance programs using Section 32 funds. The added purchases required are: $190 million (FY2008), $193 million (FY2009), $199 million (FY2010), $203 million (FY2011), and $206 million (FY2012 and each year thereafter). Of this money for additional purchases, at least $50 million annually is required for USDA fresh fruit and vegetable acquisitions for schools. (The Department of Defense Fresh Fruit and Vegetable Program ("DoD Fresh") is one of the ways this is accomplished). P.L. 112-240 's farm bill extension continued the $206 million level for FY2013 and the $50 million carve out. Both S. 3240 (Section 4201) and H.R. 6083 (Section 4204) would have extended the additional fruit and vegetable purchases including the $50 million carve-out for fresh fruit and vegetable purchases. "Farm to school" programs broadly refer to "efforts to serve regionally and locally produced food in school cafeterias," with a focus on enhancing child nutrition and providing healthier meals as part of the NSLP and other child nutrition programs. The goals of these efforts include increasing fruit and vegetable consumption among students, supporting local farmers and rural communities, and providing nutrition and agriculture education to school districts and farmers. School garden programs also build on this concept. Among the other goals of "farm to school" programs are those highlighted by the National Farm to School Network: "connect schools (K-12) and local farms with the objectives of serving healthy meals in school cafeterias, improving student nutrition, providing agriculture, health and nutrition education opportunities, and supporting local and regional farmers." Currently the federal government's role in encouraging "farm to school" efforts has been limited to a dedicated competitive grant program and changing federal procurement law to allow geographic preference to enter into schools' procurement of foods. However, the majority of funding for school meal programs is in the form of per-meal cash reimbursements to schools; states, school districts, and schools can use these funds, so long as they are compliant with federal, state, and local procurement law, to purchase local products. For more discussion on "farm to school" resources, issues, and funding, please see CRS Report R42155, The Role of Local Food Systems in U.S. Farm Policy , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. S. 3240 (Section 4209) and H.R. 6083 (Section 4205) proposed different approaches for supporting "farm to school" efforts. S. 3240 would have amended the Russell National School Lunch Act to require USDA to conduct demonstration projects "to facilitate the purchase of unprocessed and minimally processed locally grown and locally raised agricultural products" for schools that participate in the National School Lunch and School Breakfast Programs. The House-reported bill would have allowed USDA to permit school food authorities with "low annual commodity entitlement values" to substitute local foods entirely or partially instead of USDA provided foods. The House's committee report language describes these schools as "small rural schools." It also would give USDA discretion to establish "cost-neutral" farm to school demonstration projects at up to 10 school food authorities. The House-reported bill would also have created a pilot project that would allow 5 states to use the entitlement commodity funding received through the National School Lunch Program that they would use to buy fresh fruit and vegetables from the "DoD Fresh" program to instead use it towards the states' own sourcing of local produce. The 2008 farm bill authorized a pilot project—and provided $4 million in FY2009 - for purchasing whole grain products for the National School Lunch Program and School Breakfast Program and for evaluating the project. USDA used the funding to purchase, distribute, and evaluate the acceptability of whole grain tortillas and pancakes. S. 3240 (Section 4204, 4207) contained an extension to the whole grain project and would have created a new pulse crop pilot program. H.R. 6083 contains neither. The Senate-passed bill would have renewed mandatory funding for the Whole Grain Pilot and evaluation, providing $10 million available over two years (FY2013 and FY2014.) The bill would also have added a new authority for purchasing pulse crop products for the school meals programs, but it would not have funded the project, instead it would have provided a discretionary funding authorization ("authorized to be appropriated") of $10 million for the program. The House-reported bill contained neither the whole grain nor pulse crop programs. Authority expired at the end of FY2012 for USDA to enter into reprocessing agreements with private companies for the purpose of processing commodity foods for donation and distribution to nutrition programs. USDA, through a pilot project, contracted with processors to provide processed foods to schools and continued to hold title to those foods during processing. P.L. 112-240 's farm bill extension renewed this authority through the end of FY2013. Both S. 3240 (Section 4103) and H.R. 6083 (Section 4104) would have extended USDA's authority to contract with private processors for bonus commodity foods through FY2017. In addition, the House-reported bill included a provision that would explicitly authorize USDA to contract with a processor and retain title to those foods during processing. The 2008 farm bill permanently authorized and funded the Fresh Fruit and Vegetable Program, sometimes referred to as the "snack" program. First begun as a pilot project, the program is now available in 50 states. It provides formula grant funding to states, which the states provide to elementary schools that meet certain need-based criteria to purchase fresh fruit and vegetable snacks for the school's students. Since the 2008 farm bill, the program has explicitly restricted these snacks to fresh fruits and vegetables. Schools may not serve frozen, canned, dried fruits and vegetables with this federal funding. Companies that produce frozen, canned, and dried fruits and vegetables have been advocating for a change to this fresh limitation. H.R. 6083 (Section 4203) would have changed the name of the program to "Fruit and Vegetable Program," and would allow purchase and provision of frozen, canned, dried fruits and vegetables. The Senate-passed bill would have made no changes to the program. SFMNP provides formula grants to participating states, who then use the funds to run programs that provide redeemable benefits for those 60 years of age and older to redeem at area farmers' markets. After a period of operating as a USDA pilot project, the 2002 farm bill established the program, and the 2008 farm bill both continued the program and funded it with mandatory money from the Commodity Credit Corporation. For FY2008-FY2012, the program received $20.6 million in funding per year. The program's authority and $20.6 million funding expired after September 30, 2012, and then was extended by P.L. 112-240 's farm bill extension. S. 3240 (Section 4202) and H.R. 6083 (Section 4201) would have extended the program and provided mandatory funding of $20.6 million from CCC funds for each year, FY2013-FY2017; however, H.R. 6083 would have made several additional changes. First, it would have struck "Senior" from the program name and expanded the program purpose to "low-income seniors and low-income families that are determined to be nutritionally at risk." Second, it would have added a discretionary authorization for additional funds, so that funds may be appropriated beyond the $20.6 million. The 2008 farm bill created the Hunger-Free Communities Grant Program. It authorized to be appropriated such sums as are necessary through FY2012 for two types of matching grants (1) to food program service providers and nonprofits for collaborative efforts to assess community hunger problems and to achieve "hunger-free communities," and (2) to emergency feeding organizations for infrastructure development. Any appropriated funding was to be divided equally between these two grant initiatives, and the federal matching percentage is limited to 80%. P.L. 112-240 's farm bill extension extended the discretionary authority for the Hunger-Free Community Grants, which had expired after September 30, 2012. Related to the Senate-passed changes to the grant program that are discussed below, the 2008 farm bill also authorized pilot projects designed to improve the health status of participants, including a mandatory provision of $20 million for "point of purchase incentive" projects. (USDA has since implemented the Healthy Incentives Pilot in Hampden County, MA.) SNAP bonus incentive programs currently operate in many jurisdictions, but these incentive programs do not receive federal funds for the incentives provided. The bonus incentive programs allow SNAP participants to redeem their benefits for more than "money on the dollar." For example, a participant may exchange $3 of benefits for a $6 voucher to redeem at the market. USDA-FNS, however, requires that the bonus funds be non-federal dollars. Prior to 2010, markets had to apply to FNS for a waiver of the rules through the state SNAP agency. Early in 2010, USDA-FNS allowed farmers' markets that secured nonfederal bonus incentive funding to be eligible through a blanket waiver, so markets now just report to a USDA-FNS field office that they are conducting a bonus incentive program. S. 3240 (Section 4205) would have extended, amended, and added mandatory funds to the Hunger-Free Communities Grants for Bonus Incentive Projects. H.R. 6083 (Section 4104) would not have reauthorized the Hunger-Free Communities Grants. The Senate-passed bill would have amended the Hunger-Free Community Grant Program. It would have deleted the authority for grants for infrastructure development and have added authority for a second category of "incentive grants" for projects that incentivize SNAP participants to buy fruits and vegetables. The federal cost share would be limited to 50%. For the incentive grants, the bill would provide $100 million in mandatory funding over five years. For the remaining Hunger-Free Communities Grant authorities, the bill would have retained the discretionary authority but limit it to $5 million per year; it also calls this subset of grants "collaborative" grants. While the House-reported bill would not have extended the Hunger-Free Communities grants, it would have provided some added funding for bonus incentive-like projects using a different legislative approach (discussed below). Since the 1996 farm bill (P.L. 104-127), the Food and Nutrition Act (formerly, Food Stamp Act) has permanently authorized a grant program for eligible nonprofit organizations, in order to improve community access to food. Infrastructure projects are an eligible use of these funds. Grants require 50% in matching funds. The 2008 farm bill had provided $5 million annually in mandatory funding for this purpose. The annual $5 million in mandatory funding is included in USDA-FNS's SNAP appropriation, but FNS transfers the funds to USDA's National Institute of Food and Agriculture (NIFA). NIFA administers this competitive grant program. S. 3240 (Section 4013) would have increased funding for Community Food Projects and amended the types of projects that may be funded. H.R. 6083 (Section 4022) also would have increased funding and included a carve-out for bonus incentives. The Senate-passed bill would have eliminated the Community Food Projects grant funding for infrastructure improvement and development projects. The bill would have doubled mandatory funding for Community Food Projects to a total of $10 million annually from FY2013 through FY2017. The House-reported bill would not have made any changes to the eligible organizations or purposes for grant funds. The House-reported bill would have increased funding for Community Food Projects to a total of $15 million annually and carved out $5 million of these funds for projects to encourage low-income households to purchase fruits and vegetables. The bill targeted incentives to "low-income individuals" and does not specify SNAP participation. Currently, the Administration manages a "Healthy Food Financing Initiative" (HFFI) by requesting appropriations for several existing statutory authorities in order to provide grants and tax credits to support development of food retailers in underserved communities. Programs involved in the effort are administered by USDA, HHS, and Treasury. For FY2012, Congress provided no funding for USDA for this initiative but did appropriate related funds for the Department of the Treasury and HHS. S. 3240 (Section 4206) included authorization for a Healthy Food Financing Initiative; the House-reported bill did not include this program. The Senate-passed bill would have authorized up to $125 million to be appropriated for a "Healthy Food Financing Initiative" to remain available until expended. USDA is authorized to approve a community development financial institution as "national fund manager" that would administer these funds by supporting food retail projects that would "expand or preserve access to staple foods [as defined within S. 3240]" and accept SNAP benefits. Although USDA would select the national fund manager, S. 3240 would keep HHS and Treasury as partners in administering the HFFI program. The Dietary Guidelines for Americans are jointly published by USDA and the Department of Health and Human Services. The Guidelines provide advice pertaining to people two years and older about how good dietary habits can promote health and reduce risk for major chronic diseases. Every five years, the two departments charter a committee to review the peer-reviewed, published science on diet and health and develop a report of its recommendations for the next edition of the Guidelines. S. 3240 (Section 4208) would have required that the Dietary Guidelines for Americans include specifications for pregnant women and children under the age of two years, by no later than the 2020 edition. The House-reported bill did not include these changes. Both Senate-passed and House-reported bills would have repealed the authority to operate a Nutrition Information and Awareness Pilot Program . This discretionary authority had not been funded or utilized in recent years. | Many provisions of the 2008 farm bill (P.L. 110-246) expired on September 30, 2012. On January 2, 2013, President Obama signed the American Taxpayer Relief Act (P.L. 112-240), which included an extension of the 2008 farm bill through September 30, 2013. This report focuses on the Nutrition title (Title IV) of the 2012 farm bill proposals included in the 112th Congress's Senate-passed bill (Agriculture Reform, Food, and Jobs Act of 2012; S. 3240) and House Committee-reported bill (Federal Agriculture Reform and Risk Management Act of 2012; H.R. 6083). These were five-year reauthorization proposals, and, while the 113th Congress must "start from scratch," it is expected that these actions during 2012 will influence the farm bill formulation during the current Congress. Title IV of both S. 3240 and H.R. 6083 would have largely maintained the nutrition program policies and discretionary and mandatory funding that are contained in the Food and Nutrition Act of 2008 and other nutrition program authorizing statutes. Many provisions in the two bills were the same, but the bills also differed in a number of ways, most notably provisions related to the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps). The Congressional Budget Office (CBO) estimated total 10-year budget savings of $4.0 billion in the Senate-passed bill and $16.1 billion in the House-reported bill. SNAP policies constituted the bulk of Title IV of the 112th Congress's farm bill proposals, with notable differences between the Senate-passed and House-reported bills. SNAP provisions in both bills would have changed authorization requirements for retailers and some of the rules that govern participants' and retailers' redemption of SNAP benefits. Both bills would have provided additional mandatory funding for reducing SNAP trafficking (the sale of SNAP benefits for cash or ineligible goods), although the Senate bill proposed a larger amount. In terms of a household's eligibility for SNAP and the calculation of monthly benefit amounts, both bills would have identically reduced the impact of a household's receipt of Low-Income Home Energy Assistance Program (LIHEAP) benefits affecting the household's SNAP benefit calculation. The House Committee bill also would have restricted categorical eligibility, a policy most responsible for the difference between the nutrition title cost estimates. The House committee-reported bill also would have repealed state performance bonuses, clarified the consideration of medical marijuana expenses, and made several other administrative changes. The House committee-reported bill would also have made changes to the nutrition assistance provided to the Commonwealth of the Northern Mariana Islands and Puerto Rico. Both bills would have increased mandatory funding for The Emergency Food Assistance Program (TEFAP, a major source of federal support for emergency feeding organizations), the Senate by $174 million over 10 years, and the House Agriculture Committee by $245 million over 10 years. Both bills would have limited eligibility for the Commodity Supplemental Food Program (CSFP) to low-income elderly participants, phasing out eligibility for low-income pregnant and post-partum women, infants, and children. Within the child nutrition programs, the Senate bill would have provided authorization and funding to continue a whole grain pilot program and authorization to begin a pulse crops pilot program. In contrast, the House committee-reported bill would not have included these pilots and would have eliminated the "fresh" requirement in the Fresh Fruit and Vegetable Program, which provides such snacks in elementary schools. Both bills would have provided additional authorizations for "farm to school" efforts to bring local agricultural products into school cafeterias. Both bills proposed increases for Community Food Projects grants (the Senate by $5 million each year and the House Agriculture Committee by $10 million); H.R. 6083 also would have carved out $5 million of these grants each year for projects that encourage low-income households to purchase fruits and vegetables. The Senate bill would have added discretionary authority for a Healthy Food Financing Initiative, a financing mechanism to sustain and create food retail opportunities in communities that lack access to healthy food; and would have provided $100 million (over five years) in mandatory funding for Hunger-Free Communities Incentive Grants, which would fund programs that provide incentives for SNAP participants' purchase of fruits and vegetables; neither of these programs had been included in the House committee's bill. |
Public concern and confusion regarding the proper respect shown to the United States flag has given rise to many questions on the law relating to the flag's handling, display, and use. Both the state governments and the federal government have enacted legislation on this subject. On the national level the Federal Flag Code provides uniform guidelines for the display of and respect shown to the flag. In addition to the Code, Congress has by statute designated the national anthem and set out the proper conduct during its presentation. The Code is designed "for the use of such civilian groups or organizations as may not be required to conform with regulations promulgated by one or more executive departments" of the federal government. Thus, the Flag Code does not prescribe any penalties for non-compliance nor does it include enforcement provisions; rather the Code functions simply as a guide to be voluntarily followed by civilians and civilian groups. The Federal Flag Code does not purport to cover all possible situations. Although the Code empowers the President of the United States to alter, modify, repeal, or prescribe additional rules regarding the flag, no federal agency has the authority to issue "official" rulings legally binding on civilians or civilian groups. Consequently, different interpretations of various provisions of the Code may continue to be made. The Flag Code itself, however, suggests a general rule by which practices involving the flag may be fairly tested: "No disrespect should be shown to the flag of the United States of America." Therefore, actions not specifically included in the Code may be deemed acceptable as long as proper respect is shown. In addition to the Flag Code, a separate provision contained in the Federal Criminal Code established criminal penalties for certain treatment of the flag. Prior to 1989, this provision provided criminal penalties for certain acts of desecration to the flag. In response to the Supreme Court decision in Texas v. Johnson (which held that anti-desecration statutes are unconstitutional if aimed at suppressing one type of expression), Congress enacted the Flag Protection Act of 1989 to provide criminal penalties for certain acts which violate the physical integrity of the flag. This law imposed a fine and/or up to one year in prison for knowingly mutilating, defacing, physically defiling, maintaining on the floor, or trampling upon any flag of the United States. In 1990, however, the Supreme Court held that the Flag Protection Act was unconstitutional as applied to a burning of the flag in a public protest. On June 22, 1942, President Franklin D. Roosevelt approved House Joint Resolution 303 codifying the existing customs and rules governing the display and use of the flag of the United States by civilians. Amendments were approved on December 22 nd of that year. The law included provisions of the code adopted by the National Flag Conference, held in Washington, D.C. on June 14, 1923, with certain amendments and additions. The Code was reenacted, with minor amendments, as part of the Bicentennial celebration. In the 105 th Congress, the Flag Code was removed from title 36 of the United States Code and re-codified as part of title 4. The Pledge of Allegiance to the Flag: "I pledge allegiance to the Flag of the United States of America, and to the Republic for which it stands, one Nation under God, indivisible, with liberty and justice for all.", should be rendered by standing at attention facing the flag with the right hand over the heart. When not in uniform men should remove any non-religious headdress with their right hand and hold it at the left shoulder, the hand being over the heart. Persons in uniform should remain silent, face the flag, and render the military salute. The following codification of existing rules and customs pertaining to the display and use of the flag of the United States of America is established for the use of such civilians or civilian groups or organizations as may not be required to conform with regulations promulgated by one or more executive departments of the Government of the United States. The flag of the United States for the purpose of this chapter shall be defined according to Sections 1 and 2 of Title 4 and Executive Order 10834 issued pursuant thereto. (a) It is the universal custom to display the flag only from sunrise to sunset on buildings and on stationary flagstaffs in the open. However, when a patriotic effect is desired, the flag may be displayed 24 hours a day if properly illuminated during the hours of darkness. (b) The flag should be hoisted briskly and lowered ceremoniously. (c) The flag should not be displayed on days when the weather is inclement, except when an all-weather flag is displayed. (d) The flag should be displayed on all days, especially on New Year's Day, January 1; Inauguration Day, January 20; Martin Luther King Jr.'s birthday, the third Monday in January; Lincoln's Birthday, February 12; Washington's Birthday, third Monday in February; Easter Sunday (variable); Mother's Day, second Sunday in May; Armed Forces Day, third Saturday in May; Memorial Day (half-staff until noon), the last Monday in May; Flag Day, June 14; Independence Day, July 4; National Korean War Veterans Armistice Day, July 27; Labor Day, first Monday in September; Constitution Day, September 17; Columbus Day, second Monday in October; Navy Day, October 27; Veterans Day, November 11; Thanksgiving Day, fourth Thursday in November; Christmas Day, December 25; and such other days as may be proclaimed by the President of the United States; the birthdays of States (date of admission); and on State holidays. (e) The flag should be displayed daily on or near the main administration building of every public institution. (f) The flag should be displayed in or near every polling place on election days. (g) The flag should be displayed during school days in or near every schoolhouse. The flag, when carried in a procession with another flag or flags, should be either on the marching right; that is, the flag's own right, or, if there is a line of other flags, in front of the center of that line. (a) The flag should not be displayed on a float in a parade except from a staff, or as provided in subsection (i) of this section. (b) The flag should not be draped over the hood, top, sides, or back of a vehicle or of a railroad train or a boat. When the flag is displayed on a motorcar, the staff should be fixed firmly to the chassis or clamped to the right fender. (c) No other flag or pennant should be placed above or, if on the same level, to the right of the flag of the United States of America, except during church services conducted by naval chaplains at sea, when the church pennant may be flown above the flag during church services for the personnel of the Navy. No person shall display the flag of the United Nations or any other national or international flag equal, above, or in a position of superior prominence or honor to or in place of the flag of the United States or any Territory or possession thereof: Provided, That nothing in this section shall make unlawful the continuance of the practice heretofore followed of displaying the flag of the United Nations in a position of superior prominence or honor, and other national flags in positions of equal prominence or honor, with that of the flag of the United States at the headquarters of the United Nations. (d) The flag of the United States of America, when it is displayed with another flag against a wall from crossed staffs, should be on the right, the flag's own right, and its staff should be in front of the staff of the other flag. (e) The flag of the United States of America should be at the center and at the highest point of the group when a number of flags of States or localities or pennants of societies are grouped and displayed from staffs. (f) When flags of States, cities, or localities, or pennants of societies are flown on the same halyard with the flag of the United States, the latter should always be at the peak. When the flags are flown from adjacent staffs, the flag of the United States should be hoisted first and lowered last. No such flag or pennant may be placed above the flag of the United States or to the United States flag's right. (g) When flags of two or more nations are displayed, they are to be flown from separate staffs of the same height. The flags should be of approximately equal size. International usage forbids the display of the flag of one nation above that of another nation in time of peace. (h) When the flag of the United States is displayed from a staff projecting horizontally or at an angle from the window sill, balcony, or front of a building, the union of the flag should be placed at the peak of the staff unless the flag is at half-staff. When the flag is suspended over a sidewalk from a rope extending from a house to a pole at the edge of the sidewalk, the flag should be hoisted out, union first, from the building. (i) When displayed either horizontally or vertically against a wall, the union should be uppermost and to the flag's own right, that is, to the observer's left. When displayed in a window, the flag should be displayed in the same way, with the union or blue field to the left of the observer in the street. (j) When the flag is displayed over the middle of the street, it should be suspended vertically with the union to the north in an east and west street or to the east in a north and south street. (k) When used on a speaker's platform, the flag, if displayed flat, should be displayed above and behind the speaker. When displayed from a staff in a church or public auditorium, the flag of the United States of America should hold the position of superior prominence, in advance of the audience, and in the position of honor at the clergyman's or speaker's right as he faces the audience. Any other flag so displayed should be placed on the left of the clergyman or speaker or to the right of the audience. (l) The flag should form a distinctive feature of the ceremony of unveiling a statue or monument, but it should never be used as the covering for the statue or monument. (m) The flag, when flown at half-staff, should be first hoisted to the peak for an instant and then lowered to the half-staff position. The flag should be again raised to the peak before it is lowered for the day. On Memorial Day, the flag should be displayed at half-staff until noon only, then raised to the top of the staff. By order of the President, the flag shall be flown at half-staff upon the death of principal figures of the United States Government and the Governor of a state, territory, or possession, as a mark of respect to their memory. In the event of the death of other officials or foreign dignitaries, the flag is to be displayed at half-staff according to Presidential instructions or orders, or in accordance with recognized customs or practices not inconsistent with law. In the event of the death of a present or former official of the government of any state, territory, or possession of the United States or the death of a member of the Armed Forces from any State, territory, or possession of the United States, the Governor of that State, territory, or possession may proclaim that the National flag shall be flown at half-staff, and the same authority is provided to the Mayor of the District of Columbia with respect to present or former officials of the District of Columbia and members of the Armed Forces from the District of Columbia. When the Governor of a State, territory, or possession, or the Mayor of the District of Columbia, issues a proclamation under the preceding sentence that the National flag be flown at half-staff in that State, territory, or possession or in the District of Columbia because of the death of a member of the Armed Forces, the National flag flown at any Federal installation or facility in the area covered by that proclamation shall be flown at half-staff consistent with that proclamation. The flag shall be flown at half-staff thirty days from the death of the President or a former President; ten days from the day of death of the Vice-President, the Chief Justice or a retired Chief Justice of the United States or the Speaker of the House of Representatives; from the day of death until interment of an Associate Justice of the Supreme Court, a Secretary of an executive or military department, a former Vice-President, or the Governor of a state, territory, or possession; and on the day of death and the following day for a Member of Congress. The flag shall be flown at half-staff on Peace Officers Memorial Day, unless that day is also Armed Forces Day. As used in this subsection— (1) The term "half-staff" means the position of the flag when it is one-half the distance between the top and bottom of the staff; (2) the term "executive or military department" means any agency listed under Sections 101 and 102 of Title 5, United States Code; and (3) the term "Member of Congress" means a Senator, a Representative, a Delegate, or the Resident Commissioner from Puerto Rico. (n) When the flag is used to cover a casket, it should be so placed that the union is at the head and over the left shoulder. The flag should not be lowered into the grave or allowed to touch the ground. (o) When the flag is suspended across a corridor or lobby in a building with only one main entrance, it should be suspended vertically with the union of the flag to the observer's left upon entering. If the building has more than one main entrance, the flag should be suspended vertically near the center of the corridor or lobby with the union to the north, when entrances are to the east and west or to the east when entrances are to the north and south. If there are entrances in more than two directions, the union should be to the east. No disrespect should be shown to the flag of the United States of America; the flag should not be dipped to any person or thing. Regimental colors, state flags, and organization or institutional flags are to be dipped as a mark of honor. (a) The flag should never be displayed with union down, except as a signal of dire distress in instances of extreme danger to life or property. (b) The flag should never touch anything beneath it, such as the ground, the floor, water, or merchandise. (c) The flag should never be carried flat or horizontally, but always aloft and free. (d) The flag should never be used as wearing apparel, bedding, or drapery. It should never be festooned, drawn back, nor up, in folds, but always allowed to fall free. Bunting of blue, white, and red, always arranged with the blue above, the white in the middle, and the red below, should be used for covering a speaker's desk, draping in front of the platform, and for a decoration in general. (e) The flag should never be fastened, displayed, used, or stored in such a manner as to permit it to be easily torn, soiled, or damaged in any way. (f) The flag should never be used as a covering for a ceiling. (g) The flag should never have placed upon it, nor on any part of it, nor attached to it any mark, insignia, letter, word, figure, design, picture, or drawing of any nature. (h) The flag should never be used as a receptacle for receiving, holding, carrying, or delivering anything. (i) The flag should never be used for advertising purposes in any manner whatsoever. It should not be embroidered on such articles as cushions or handkerchiefs and the like, printed or otherwise impressed on paper napkins or boxes or anything that is designed for temporary use and discard. Advertising signs should not be fastened to a staff or halyard from which the flag is flown. (j) No part of the flag should ever be used as a costume or athletic uniform. However, a flag patch may be affixed to the uniform of military personnel, firemen, policemen, and members of patriotic organizations. The flag represents a living country and is itself considered a living thing. Therefore, the lapel flag pin being a replica, should be worn on the left lapel near the heart. (k) The flag, when it is in such condition that it is no longer a fitting emblem for display, should be destroyed in a dignified way, preferably by burning. During the ceremony of hoisting or lowering the flag or when the flag is passing in a parade or in review, all persons present in uniform should render the military salute. Members of the Armed Forces and veterans who are present but not in uniform may render the military salute. All other persons present should face the flag and stand at attention with the right hand over the heart, or if applicable, remove their headdress with their right hand and hold it at the left shoulder, the hand being over the heart. Citizens of other countries present should stand at attention. All such conduct toward the flag in a moving column should be rendered at the moment the flag passes. Any rule or custom pertaining to the display of the flag of the United States of America, set forth herein, may be altered, modified, or repealed, or additional rules with respect thereto may be prescribed, by the Commander-in-Chief of the Armed Forces of the United States, whenever he deems it to be appropriate or desirable; and any such alteration or additional rule shall be set forth in a proclamation. (a) Designation.—The composition consisting of the words and music known as the Star-Spangled Banner is the national anthem. (b) Conduct During Playing.—During a rendition of the national anthem— (1) when the flag is displayed— (A) individuals in uniform should give the military salute at the first note of the anthem and maintain that position until last note; (B) members of the Armed Forces and veterans who are present but not in uniform may render the military salute in the manner provided for individuals in uniform; and (C) all other persons present should face the flag and stand at attention with their right hand over the heart, and men not in uniform, if applicable, should remove their headdress with their right hand and hold it at the left shoulder, the hand being over the heart; and (2) when the flag is not displayed, all present should face toward the music and act in the same manner they would if the flag were displayed.. The Pledge of Allegiance is set forth in 4 U.S.C. § 4. In 1954, Congress added to the "Pledge of Allegiance" the phrase "under God" after "nation." Questions about the "Pledge of Allegiance" usually involve practices and requirements of local and state statutes mandating participation in the recitation of the "Pledge" in some manner (e.g., flag salute and pledge, standing quietly, standing at attention) in schools. Provisions involving compulsory participation in "Pledge" activities are usually attacked as violations of the free speech clause of the First Amendment or the free exercise of religion clause. In 1943, the Supreme Court held that a state-required compulsory flag salute-Pledge of Allegiance violated the First Amendment rights of members of the Jehovah's Witnesses religious group. In 2002, a three-judge panel of the Ninth Circuit had held both the 1954 federal statute adding the words "under God" to the Pledge of Allegiance and a California school district policy requiring teachers to lead willing school children in reciting the pledge each school day to violate the Establishment Clause of the First Amendment. A subsequent modification eliminated the holding regarding the federal statute but retained the ruling holding that the California statute coerces children into participating in a religious exercise. The Supreme Court, on Flag Day 2004, reversed the Ninth Circuit, finding that Newdow lacked standing to challenge the school district's policy. The Flag Code is a codification of customs and rules established for the use of certain civilians and civilian groups. No penalty or punishment is specified in the Flag Code for display of the flag of the United States in a manner other than as suggested. Cases which have construed the former 36 U.S.C. § 175 have concluded that the Flag Code does not proscribe conduct, but is merely declaratory and advisory. There is no absolute prohibition in federal law on flying the flag 24 hours a day. The Flag Code states: It is the universal custom to display the flag only from sunrise to sunset on buildings and on stationary flagstaffs in the open. However, when a patriotic effect is desired, the flag may be displayed 24 hours a day if properly illuminated during hours of darkness. There are eight sites in the United States where the flag is flown day and night under specific legal authority: Fort McHenry National Monument, Baltimore, Maryland; Flag House Square, Baltimore, Maryland; the United States Marine Corps Iwo Jima Memorial, Arlington, Virginia; Lexington, Massachusetts; the White House; the Washington Monument; United States Customs ports of entry; and Valley Forge State Park, Pennsylvania. The reports that accompanied these official acts indicate that the specific authority was intended only as a form of tribute to certain historic sites rather than as exceptions to the general rule of the Code. As a matter of custom, and without specific statutory or official authorization, the flag is flown at night at many other sites, including the United States Capitol. It would seem that display of the flag in a respectful manner with appropriate lighting does not violate the spirit of the Flag Code since the dignity accorded to the flag is preserved by lighting that prevents its being enveloped in darkness. The Flag Code states: The flag should not be displayed on days when the weather is inclement, except when an all weather flag is displayed. The language of this section reflects the now-popular use of flags made of synthetic fabrics that can withstand unfavorable weather conditions. It is not considered disrespectful to fly such a flag even during prolonged periods of inclement weather. However, since the section speaks in terms of "days when the weather is inclement," it apparently does not contemplate that on an otherwise fair day, the flag should be lowered during brief periods of precipitation. The Flag Code sets out detailed instructions on flying the flag at half-staff on Memorial Day and as a mark of respect to the memory of certain recently deceased public officials. This section embodies the substance of Presidential Proclamation No. 3044, entitled "Display of Flag at Half-Staff Upon Death of Certain Officials and Former Officials." The section provides that the President shall order the flag flown at half-staff for stipulated periods "upon the death of principal figures of the United States Government and the Governor of a state, territory, or possession." After the death of other officials or foreign dignitaries, the flag may be flown at half-staff according to presidential instructions or in accordance with recognized custom not inconsistent with law. In addition, the governor of a state, territory, or possession, or the mayor of the District of Columbia, may direct that the national flag be flown at half-staff, in the event of the death of a present or former official of the respective government or in the event of the death of a member of the Armed Forces from that jurisdiction. Presidents also have ordered the flag to be flown at half-staff on the death of leading citizens, not covered by law, as a mark of official tribute to their service to the United States. Martin Luther King, Jr. is among those who have been so honored. Again, the provisions of the Flag Code on flying the flag at half-staff are, like all the Code's provisions, a guide only. They do not apply, as a matter of law, to the display of the flag at half-staff by private individuals and organizations. No federal restrictions or court decisions are known that limit such an individual's lowering his own flag or that make such display alone a form of desecration. The Flag Code is silent as to ornaments (finials) for flagstaffs. We know of no law or regulation which restricts the use of a finial on the staff. The eagle finial is used not only by the President, the Vice-President, and many other federal agencies, but also by many civilian organizations and private citizens. The selection of the type finial used is a matter of preference of the individual or organization. The placing of a fringe on the flag is optional with the person or organization, and no act of Congress or Executive Order either requires or prohibits the practice. Fringe is used on indoor flags only, as fringe on flags used outdoors would deteriorate rapidly. The fringe on a flag is considered an "honorable enrichment only" and its official use by the Army dates from 1895. A 1925 Attorney General's Opinion states: The fringe does not appear to be regarded as an integral part of the flag, and its presence cannot be said to constitute an unauthorized addition to the design prescribed by statute. An external fringe is to be distinguished from letters, words, or emblematic designs printed or superimposed upon the body of the flag itself. Under the law, such additions might be open to objection as unauthorized; but the same is not necessarily true of the fringe. The Flag Code states: The flag, when it is in such condition that it is no longer a fitting emblem for display, should be destroyed in a dignified way, preferably by burning. The act is silent on procedures for burning a flag. It would seem that any procedure which is in good taste and shows no disrespect to the flag would be appropriate. The Flag Protection Act of 1989, struck down albeit on grounds unrelated to this specific point, prohibited inter alia "knowingly" burning of a flag of the United States, but excepted from prohibition "any conduct consisting of disposal of a flag when it has become worn or soiled." The Flag Code sets out rules for position and manner of display of the flag in 4 U.S.C. § 7. The question as to the propriety of flying the flag of another nation at an equal level with that of the flag of the U.S. is not clear from the face of the statute. Section 7 contains two subsections on point and these provisions appear to be contradictory. Subsection 7(c) states: (c) No other flag or pennant should be placed above or, if on the same level, to the right of the flag of the United States of America, except during church services conducted by naval chaplains at sea, when the church pennant may be flown above the flag during church services for the personnel of the Navy. No person shall display the flag of the United Nations or any other national or international flag equal, above, or in a position of superior prominence or honor to or in place of the flag of the United States or any Territory or possession thereof: Provided, That nothing in this section shall make unlawful the continuance of the practice heretofore followed of displaying the flag of the United Nations in a position of superior prominence or honor, and other national flags in positions of equal prominence or honor, with that of the flag of the United States at the headquarters of the United Nations. Subsection 7(g) states: (g) When flags of two or more nations are displayed, they are to be flown from separate staffs of the same height. The flags should be of approximately equal size. International usage forbids the display of the flag of one nation above that of another nation in time of peace. The wording of § 7(g) is identical to that of the original Flag Code enacted in 1942. The second sentence of § 7(c) prohibiting flying international flags equal in height to the flag of the United States was not in the original Flag Code. This provision was added in 1953. The legislative history of this amendment clearly states that is purpose was to "make it an offense against the United States to display the flag of the United Nations or any other national or international flag equal to, above, or in a position of superior prominence or honor to, or in place of, the flag of the United States at any place within the United States or any possession or territory thereof,...." The only exception recognized is at the headquarters of the United Nations. When a statute contains apparently contradictory provisions, the rules of statutory construction first mandate an attempt to interpret the provisions so both can be given effect. If this proves futile, the usual rule is to give effect to the latest in time. The reasoning is that this represents the most recent statement of the will of the legislature. Following this second rule of construction would lead to the conclusion that flying a flag of another nation at the same height as the flag of the United States may not be proper etiquette under the Federal Flag Code, but this creates no right of action in private individuals. When the United States flag is displayed with the flags of states of the union or municipalities and not with the flags of other nations, the federal flag, which represents all states, should be flown above and at the center of the other flags. Where there is only one flag pole, the federal flag should be displayed above state or municipal flags. The Flag Code addresses the impropriety of using the flag as an article of personal adornment, a design on items of temporary use, and item of clothing. The evident purpose of these suggested restraints is to limit the commercial or common usage of the flag and, thus, maintain its dignity. The 1976 amendments to the Code recognized the wearing of a flag patch or pin on the left side (near the heart) of uniforms of military personnel, firemen, policemen, and members of patriotic organizations. The Code also states that the flag should never be used for advertising purposes in any manner whatsoever. While wearing the colors may be in poor taste and offensive to many, it is important to remember that the Flag Code is intended as a guide to be followed on a purely voluntary basis to insure proper respect for the flag. It is, at least, questionable whether statutes placing civil or criminal penalties on the wearing of clothing bearing or resembling a flag could be constitutionally enforced in light of Supreme Court decisions in the area of flag desecration. In the past, the Supreme Court has held that states may restrict use of pictures of the flag on commercial products. There is a federal criminal prohibition on the use of the flag for advertising purposes in the District of Columbia. While commercial speech does not receive the full protection of the First Amendment, the status of these statutes and cases can not be taken for granted in light of Eichman and Johnson . Questions on size and dimensions usually arise in the context of the display of huge flags. The Flag Code is silent on recommendations for proper flag size and dimensions. Regulations governing size and dimensions and other requirements for flags authorized for federal executive agencies can be found in Executive Order No. 10834. These regulations provide that the length of the flag should be 1.9 times the width. The Freedom to Display the American Flag Act of 2005 prohibits a condominium, cooperative, or real estate management association from adopting or enforcing any policy or agreement that would restrict or prevent a member of the association from displaying the flag in accordance with the Federal Flag Code on residential property to which the member has a separate ownership interest. The Secretary of the Department of Veterans' Affairs is required to supply a United States flag to drape the casket of each deceased veteran. The Secretary may not procure any flag for this purpose that is not wholly produced in the United States. The Secretary may only waive this requirement if he determines that the requirement cannot be reasonably met or that compliance with the requirement would not be in the national interest of the United States. In the case of such determination, the Secretary is required to submit to Congress written notice not later than 30 days after the date on which such determination is made. A flag shall be considered to be wholly produced in the United States only if the materials and components of the flag are entirely grown, manufactured, or created in the United States; the processing (including spinning, weaving, dyeing, and finishing) of such materials and components is entirely performed in the United States; and the manufacture and assembling of such materials and components into the flag is entirely performed in the United States. | This report presents, verbatim, the United States "Flag Code" as found in Title 4 of the United States Code and the section of Title 36 which designates the Star-Spangled Banner as the national anthem and provides instructions on how to display the flag during its rendition. The "Flag Code" includes instruction and rules on such topics as the pledge of allegiance, display and use of the flag by civilians, time and occasions for display, position and manner of display, and how to show respect for the flag. The "Code" also grants to the President the authority to modify the rules governing the flag. The report also addresses several of the frequently asked questions concerning the flag. The subject matter of these questions includes the pledge of allegiance and the court decisions concerning it, the nature of the codifications of customs concerning the flag in the "Flag Code," display of the flag 24 hours a day, flying the flag in bad weather, flying the flag at half-staff, ornaments on the flag, destruction of worn flags, display of the U.S. flag with flags of other nations or of states, commercial use of the flag, size and proportion of the flag, restrictions upon display of the flag by real estate associations, and the country of origin of flags used on the caskets of veterans. |
In December 2008, the United States and Russia signed a protocol aimed at resolving various emerging trade issues between the two countries in order to continue U.S. livestock and poultry exports to Russia through the end of 2009. By December 2009, however, Russia had escalated these trade issues in a series of actions that threatened to effectively shut out U.S. livestock and poultry exports. These actions, in part, followed on Russia's threats throughout 2008 and 2009 regarding its concerns about antimicrobial use in U.S. meat production. Efforts to resolve these issues were making progress in early 2010. Foreign sales are a critical source of income for the U.S. meat and poultry industries. Russia has become an important, and expanding, market. It purchased more than $1.2 billion in U.S. meat and poultry in 2008, more than double the amount purchased a decade earlier ( Table 1 ). In 2008, Russia was the single largest export market for U.S. poultry products, with exports valued at more than $820 million (about 18% of total U.S. poultry exports). Russia was also among the leading export markets for U.S. pork and beef products, valued at $330 million and nearly $70 million, respectively. Each of these export categories had also experienced strong growth in the Russian market ( Table 1 ). Russia was among the countries to ban U.S. beef imports after the December 2003 discovery of a cow in the United States with bovine spongiform encephalopathy (BSE, or mad cow disease), but it not had been a major purchaser of such products before then. Russia is again accepting U.S. beef and veal, with imports in 2008 nearing pre-2003 levels. Agriculture has been a sensitive part of the economy throughout Russian (and Soviet) history. Its political importance far outweighs its share of the Russian economy (5.2% of Russian GDP in 2009). Agriculture has been severely affected by the transition to a market economy, as much as, or more than, any other economic sector. According to one estimate, agricultural production has declined about 40% in volume since 1991, with much of the decline occurring in livestock production. Russia is not competitive in global markets for red meats and poultry, and its domestic production has not kept pace with consumption as incomes rise. In recent years, imports have accounted for half or more of Russian poultry consumption, even though government policies have attempted to encourage domestic production. On January 30, 2010, for example, the Russian President signed a new Food Security Doctrine outlining the country's agricultural production and policy goals. Among other things it sets minimum self-sufficiency (i.e., domestic source) targets for various commodity groups. For meat and meat products, the document sets a target of at least 85%, although no deadline for meeting this target was established. Russia has been one of the major world importers in recent years of meat and poultry products. Imports have accounted for roughly 30% of pork consumption, and roughly 40% of both poultry and beef/veal. Some analysts conclude that this domestic situation underlies Russian actions that periodically have constrained the country's imports of poultry and meat products. The Russian federal government has been under pressure from regional and local governments and from factions within the Russian parliament to protect agriculture from further erosion and to provide time and resources to permit it to become competitive. One major trade constraint was Russia's imposition, in early 2003, of new import quotas on poultry, and of tariff-rate quotas (TRQs) on beef and pork, affecting not only the United States but other exporting countries. At that time, Russia's poultry quotas threatened what had become an important market for U.S. producers. Although sales of U.S. pork and beef to Russia accounted for a relatively smaller share of total exports, U.S. industry officials contended that the new pork and beef TRQs would effectively block any future U.S. growth. In 2005 the United States and Russia signed an agreement that set quota levels for Russian imports of U.S. poultry, pork, and beef products through 2009. In 2008, under the agreement, the United States had 901,400 MT or 74% of Russia's worldwide quota of 1,211,600 MT for poultry. The U.S. allocation for pork was 49,800 MT or 10% of Russia's 2008 worldwide TRQ (493,500 MT), and for beef was 18,300 MT or 18% of Russia's 2008 global TRQ (445,000 MT; Table 2 ). Quota levels for 2009 were adjusted in a protocol to the 2005 agreement that lowered the 2009 quota for poultry but raised the TRQ for pork. For 2009, the United States had 750,000 MT or 79% of Russia's global poultry quota (952,000 MT); the U.S. allocation for pork was 100,000 MT or 19% of Russia's global pork TRQ (531,900 MT). The beef TRQ was virtually unchanged ( Table 2 ). Russia's import tariff for poultry products under quota is about 25%. Under the beef and pork TRQ, the in-quota tariff is 15%. Russia's out-of quota tariffs on beef and pork imports are prohibitive at 60%-80%, depending on the product. In December 2009, media reports first indicated that Russia has reduced its 2010 global import quotas for pork and poultry below 2009 quota levels. Within these global totals, 2010 quota levels for U.S. pork are more than 40% lower than the previous year, at 57,500 MT in 2010 compared to 100,000 MT in 2009. Quota allocations for U.S. poultry are 600,000 MT in 2010, down from 750,000 MT in 2009. U.S. quota allocations reportedly are to be reduced even further in both 2011 and 2012. Russia's beef import quotas, both global and for the United States, reportedly increased above 2009 levels, from 450,000 MT to 560,000 MT, and from 18,500 MT to 21,700 MT, respectively, for 2010. Russia periodically has imposed sanitary and phytosanitary (SPS) measures that have impeded U.S. meat and poultry imports in recent years. For example, in March 2002, Russia announced a ban on U.S. poultry imports because of the possible presence of avian influenza in the United States. U.S. officials countered that the ban was not scientifically defensible and was discriminatory. Months of negotiations ensued, extending into 2003, when the two sides announced a resolution to the dispute. Nonetheless, U.S. meat and poultry exporters remain wary that Russia could continue to raise safety concerns as a reason to impose future import bans. Exporter concerns were reawakened in June 2008 when Russia announced it would block U.S. poultry imports by prohibiting the use of chlorine in antimicrobial washes to kill surface pathogens on poultry, a common U.S. industry practice (discussed in the section " Poultry Products "). The Office of the U.S. Trade Representative (USTR) reported in March 2010: Russia's SPS standards are extremely prescriptive with detailed requirements for facilities and production processes. Russia has attempted to impose these requirements on trading partners by accepting imports only from facilities that are certified as complying with Russian requirements. Since these requirements are not always based on science or consistent with international recommendations or guidelines, this has created difficulties for U.S. exporters of a range of products. With regard to livestock products, the report noted, "Russia requests certification that the United States is free from various livestock diseases even when there is no risk of transmission from the product in question." In 2003, when Russia announced the imposition of quotas and TRQs for meat and poultry, the United States and other meat-exporting WTO member countries expressed stiff opposition, claiming that the restrictions would slow the process of Russia's accession to the World Trade Organization (WTO). The United States and others specifically argued that Russia was violating the "standstill" principle, under which countries applying for WTO membership are to refrain from imposing new trade restrictions during the accession process. Russia countered that it was imposing the restrictions to protect its domestic meat producers from import surges, a right that is enjoyed by WTO members. As noted earlier, in June 2005 the United States and Russia signed an agreement on livestock and poultry trade, which set the U.S. share of Russia's worldwide quota for poultry, and its share of the TRQs for pork and beef, through the end of calendar 2009 ( Table 2 ). The "2005 U.S.-Russia Agreement on Trade in Certain Types of Poultry, Beef, and Pork" also set rules for the allocation of veterinary permits and import licenses necessary to ship products to Russia, and established mechanisms for resolving trade-related problems, including sanitary issues. In November 2006, the United States and Russia reached a bilateral market access agreement associated with Russia's request to join the WTO. The agreement provided for phased reductions in Russia's tariffs for a range of U.S. export sectors, including agricultural products. These commitments would come into force upon Russia's accession to the WTO. The agreement allowed the United States to address a broad number of sensitive issues in its economic relations with Russia, although it did not accomplish all of the original U.S. objectives. With regard to agriculture, the U.S.-Russia 2006 bilateral market access agreement, or side letters, committed Russia to: permitting the immediate resumption of imports of de-boned beef, bone-in beef, and beef by-products from cattle younger than 30 months and allowing imports of beef and beef by-products from cattle of all ages, once the United States received a positive evaluation as a beef producer from the World Organization for Animal Health; accepting safety certifications by the U.S. Department of Agriculture's Food Safety Inspection Service (FSIS) of pork and poultry slaughter, processing, and cold storage facilities to export products to Russia, along with procedures to expedite the certification process; accepting U.S. freezing treatments as an adequate measure to prevent trichinae infestation in pork to be sold for retail sale as well as for further processing (Russia previously had only allowed frozen pork to be imported for further processing); and continuing to apply until 2009 the provisions of the 2005 U.S.-Russia bilateral agreement on meat that established tariff-rate quotas, including in- and over-quota tariff rates, and to conduct bilateral negotiations on the treatment of meat imports after the agreement expires. In December 2008, the U.S. Trade Representative (USTR) announced that the United States and Russia had signed a protocol to the 2005 agreement that was aimed at continuing U.S. poultry, pork, and beef exports there through the end of 2009. The protocol adjusted previously set 2009 quota levels for poultry and pork, but did not address other issues affecting U.S.-Russia livestock and poultry trade. The protocol to the 2005 agreement followed several months of uncertainty after Russia blocked meat exports from several U.S. meat processing companies, as discussed in the following section. Russian officials also signaled that they might reduce U.S. permits to import poultry and pork under that country's quota system. Russian Prime Minister Putin further indicated that the country might suspend several trade agreements reached during its WTO accession negotiations, including those covering pork TRQs as well as poultry quotas. Putin reportedly said that, under the agreements, Russia had not received anything in return of benefit to the economy, including agriculture. Any suspensions could be reversed once Russia joined the WTO, he added. Despite these agreements, throughout 2008, 2009, and early 2010, a number of issues continued to plague U.S.-Russian livestock and poultry trade relations. For example, according to the USTR report, in October 2008 Russia's official veterinary service announced "that it no longer recognized USDA's authority to inspect and relist [meat and poultry] plants that completed corrective actions." This announcement contradicts a key provision in the 2006 agreements that Russia would accept U.S. safety certifications. By December 2009, Russia had escalated these trade issues in a series of actions that threatened to effectively shut out U.S. livestock and poultry exports to Russia. Information on current requirements for U.S. livestock and poultry exports to Russia is available from USDA. Among the concerns were Russia's delisting of major U.S. livestock and poultry processors that had been eligible for import (and were importing) into Russia, and Russia's implementation of a ban prohibiting the use of chlorine in antimicrobial washes to kill surface pathogens on poultry. As noted, Russia already has further reduced its import quotas and TRQs for U.S. livestock and poultry exports. Russia continued to cite food safety concerns, including but not limited to its findings of antimicrobial residues (legal in the United States) and the use of chlorine rinses on U.S. meat exports. Many U.S. market analysts viewed the delisting of U.S. plants as a precursor to additional actions regarding allowable import quotas for U.S. meat that could further constrain U.S. livestock and poultry exports to Russia. A discussion of these issues specifically as they relate to U.S. pork and poultry products follows. During this time Russia identified several U.S. pork processing companies as ineligible to export products to Russia. Throughout 2008 and 2009, Russia has refused imports of meat products from several European countries and from several U.S. plants—including plants owned by Tyson Foods Inc. and a unit of Smithfield Foods—because trace amounts of tetracycline and oxytetracycline were found in some of the pork tested. By January 2010, nearly 30 U.S. plants had been delisted as ineligible for export to Russia; this was regarded by the U.S. pork industry as a "full market closure." Some further point out that Russia's perceived "zero tolerance" regarding antimicrobial use is the most restrictive among all U.S. trading partners. In addition, for most of 2009, Russia was among other U.S. trading partner countries that initiated H1N1-related import restrictions on U.S. pork or pork products, following initial reports about influenza virus in April 2009. Russia's restrictions covered fresh/frozen poultry meat, pork, and beef from animals raised or slaughtered in most U.S. states, as well as from certain slaughtering facilities. Trade suspensions were limited to uncooked pork and pork products; heat-treated (not less than 80° Celsius for not less than 30 minutes) meat and poultry products were allowed. Russia eventually lifted its H1N1-related import restrictions on pork products from all countries in mid-October 2009. In early March 2010, the United States and Russia announced they had reached a new agreement intended to reopen the Russian market to U.S. pork and pork products. The agreement follows a series of negotiations leading "to the development of a new veterinary certificate to ensure that pork exports from the United States meet specific Russian microbiological and tetracycline-group antibiotic residue requirements." Under the agreement, U.S. plants that want to export to Russia must apply for approval with USDA's Agricultural Marketing Service (AMS), which, with USDA's Food Safety and Inspection Service (FSIS), has developed an export verification (EV) for pork that is aimed at meeting specific Russian requirements. AMS EV programs first gained widespread attention when such a program was established several years ago to gain re-entry to the lucrative Japanese beef market, after U.S. exporters were blocked due to concerns about BSE (bovine spongiform encephalopathy, or "mad cow disease") in a U.S. cow. By late March 2010, reports in the trade press were that USDA had approved most U.S. plants' EV programs, and that Russia had lifted its ban on most of these suppliers. However, "[b]efore we start exporting, we need written confirmation of these verbal statements.... We're waiting for the process to be completed and everything to be documented," a U.S. Meat Export Federation official was quoted as saying. Starting in late August 2008, Russia announced a ban on poultry shipments from 16 U.S. establishments, effective September 1, 2008. (Three other establishments had been delisted on August 6, bringing the total to 19, the number widely reported in the press.) The bans followed a round of joint U.S.-Russian plant inspections in late July and early August 2008 that uncovered what the Russians claimed were a number of safety problems. Many plants had not corrected problems found in earlier visits, they stated, adding that another 29 plants could also lose their eligibility. Again, in March 2009, Russia temporarily suspended poultry imports from three U.S. processing plants because antibiotic residues were found in poultry from these plants. The Russian Veterinary and Phytosanitary Service (VPSS) claimed that tested products from the delisted plants showed higher levels of antibiotics and arsenic than Russia allows. One of the primary reasons VPSS cited for suspending the first group of U.S. processing plants in 2008 was an inability to visit U.S. poultry farms, although the U.S.-Russia poultry agreement provides for no such visits, according to the USA Poultry and Egg Export Council. The council acknowledged that U.S. commercial producers administer small amounts of antibiotics and trace amounts of arsenic-containing compounds for animal health reasons, but stated that they were within established tolerances. In June 2008, Russia's Chief Medical Officer signed a resolution potentially affecting virtually all U.S. poultry imports by prohibiting the use of chlorine in antimicrobial washes to kill surface pathogens on poultry, a common U.S. industry practice. That rule would set the maximum chlorine level at no higher than the hygienic requirements for drinking water. Initially, the rule was set to be implemented on January 1, 2009. In late July 2008, U.S. and Russian poultry industry leaders reportedly forged a position whereby Russia would not enforce the antimicrobial rule and would extend the expiring poultry quota allocations beyond 2009, but at reduced levels. The ban on chlorine rinses was postponed for one year. However, Russian health and safety officials continued to threaten to enforce the ban on chlorine treatments, referring to such treatments as outdated technologies. Russia's ban went into effect on January 1, 2010, banning poultry imports treated with chlorine washes from all exporting countries, including the United States. As noted above, since pathogen reduction rinses are commonplace in U.S. poultry production, this action was expected to effectively ban all U.S. poultry exports to Russia. Other acceptable alternative practices and technologies, such as treating birds with cold air or acid sprays, would be allowed for import. The United States and Russia have been negotiating the terms of this new restriction. By late March 2010, the trade press was reporting further progress toward a settlement of the dispute. For example, U.S. negotiators reportedly presented their Russian counterparts with a list of 17 different types of safe and suitable anti-microbial treatments, with the hope that the Russians would deem a number of them acceptable alternatives. Another point of discussion was whether Russia would permit a transition period for plants to convert to one of these alternatives. The United States has had a longstanding similar trade dispute with the EU since the EU first banned the use of antimicrobial rinses or pathogen reduction treatments (PRTs) on poultry, effectively shutting out U.S. poultry exports. Members of Congress with important poultry and meat industry constituents have been closely monitoring events and ongoing negotiations between the United States and Russia to resolve these trade disputes. Several have weighed in with their concerns in communications with the Administration. For example, the Chair and the ranking Republican on the Senate Agriculture Committee sent a January 15, 2010, letter to the President urging him "to fully engage all Administration resources to address these agricultural trade issues, especially with respect to U.S. exports of pork, poultry, and beef." Other Members of Congress have proposed alternative measures to address these types of issues. In particular, in response to the most recent developments regarding antibiotic residues and chlorine rinses, Representative Slaughter has recommended that the United States take more proactive steps and consider legislation that she has introduced in H.R. 1549 (Preservation of Antibiotics for Medical Treatment Act of 2009, PAMTA). This bill aims to curtail the use of certain medically significant antibiotics in animal production, similar to legislation enacted in other countries. A similar bill has been introduced in the Senate ( S. 619 ) by Senator Reid (for Senator Kennedy). For more information on H.R. 1549 and S. 619 , see CRS Report R40739, Antibiotic Use in Agriculture: Background and Legislation . | In December 2008, the United States and Russia signed a protocol aimed at resolving various emerging trade issues between the two countries in order to continue U.S. livestock and poultry exports to Russia through the end of 2009. By December 2009, however, Russia had escalated these trade issues in a series of actions that threatened to shut out U.S. livestock and poultry exports. These actions, in part, followed on Russia's statements throughout 2008 and 2009 regarding its concerns about antimicrobial use in U.S. meat production. Russia has continued to cite various food safety concerns, including concerns about antimicrobial residues and the use of chlorine rinses on U.S. meat exports, and identified several U.S. poultry and meat processing companies as ineligible to export meat to Russia. In 2008 and again in 2009, Russia announced that it was banning poultry imports from several U.S. establishments due to safety concerns. In addition, throughout 2008 and 2009, Russia refused imports of pork products from several U.S. plants because trace amounts of antibiotics were found in some of the meat tested. As part of these actions, Russian officials signaled that U.S. permits to import poultry and pork under that country's quota system might be restricted. (Russia also banned pork products for most of 2009 from several countries, including the United States, following reports about the H1N1 influenza virus in April 2009.) In December 2009, Russia announced that it would implement its previously proposed ban on poultry imports treated with chlorine washes from all exporting countries, effective January 1, 2010. This action was expected to effectively ban all U.S. poultry exports to Russia, since pathogen reduction rinses are commonplace in U.S. poultry production. (A similar European Union (EU) prohibition has kept U.S. chicken out of the EU since 1997.) By late March 2010, trade reports were indicating that a potential resolution of the poultry dispute might be close. The delistings, as of late 2009, of virtually all U.S. pork plants that exported to Russia (purported to be mainly due to concerns about findings of trace amounts of antimicrobials on pork) was reportedly resolved earlier in March. Also in December 2009, reports emerged that Russia would reduce its 2010 import quotas for U.S. pork and poultry below 2009 quota levels. Russia's import quotas for U.S. beef, however, would be increased above 2009 levels. Quota allocations for U.S. pork and poultry are expected to be reduced even further in both 2011 and 2012. Many U.S. producers believe that Russia's food safety restrictions, including those regarding antimicrobial use, are not science-based, but are instead intended to protect and promote Russia's own growing domestic pork and poultry production. Some further point out that Russia's perceived "zero tolerance" regarding antimicrobial use is the most restrictive among all U.S. trading partners. For U.S. poultry and meat producers, the economic stakes of Russian import actions are significant. In 2008, Russia was the single largest export market for U.S. poultry products, with exports valued at more than $820 million (about 18% of total U.S. poultry exports). Russia was also among the leading export markets for U.S. pork and beef products, valued at $330 million and nearly $70 million, respectively. All these export products had also experienced strong growth in the Russian market. Members of Congress with important poultry and meat industry constituents have been monitoring events and ongoing negotiations between the United States and Russia to resolve these disputes. |
Recent developments in China's banking system may have important implications for relations with the United States. Some observers assert that the Chinese government is directing Chinese banks to make investments or provide credit as part of a policy to secure access to strategically important natural resources. Another group of researchers maintain that China's lending practices are providing Chinese companies with an unfair advantage in global markets. Other analysts are concerned that the inefficiencies of the lending practices of Chinese banks may be feeding speculative bubbles in China's real estate and stock markets and/or creating a growing pool of non-performing loans (NPFs) that could precipitate an economic crisis in China that could affect the United States. China's economic reforms have increased the role its banks are playing in the nation's economy and the government's economic policy. To match the nation's macroeconomic changes, the Chinese government has begun the process of transforming its banking sector from a government-directed system to a more commercially-driven system, characterized in part by market-based allocation mechanisms. At present, China's banks operate in a hybrid world in which they are at times encouraged to make decisions based on commercial considerations, and at other times expected to abide by government directives. The transitional state of China's banking system has given rise to several concerns about the implications for China's financial system, China's economy, as well as the global economy. First, some U.S. banks interested in competing in China's domestic market think that Chinese banks are provided an unfair advantage under the current regulatory regime, and that China has not fulfilled its obligations under its World Trade Organization (WTO) accession agreement to open its financial market to foreign competition. Second, it is unclear to what extent China's banks operate based on commercial considerations and to what extent they are vehicles by which the Chinese government advances its political and/or economic agenda. Third, some observers question the efficiency and solvency of China's banking system, given the manner in which it appears to be allocating credit. Fourth, other observers maintain that the Chinese government is utilizing its banks to subsidize key companies and industries to enhance their competitiveness on the global market. This report begins with a summary of the current status of China's banking sector and the government's banking regulatory system. It then addresses each of the four concerns listed above, with a focus on the implications for U.S. relations with China. The report concludes with a discussion of the main implications for Congress. Prior to the beginning of China's economic reforms in 1978, the Chinese banking system was largely government-owned and isolated from the global economy. China's banks were generally subservient to the requirements of China's central planned economy. A gradual process of change has created a banking system in China with multiple categories of institutions and agencies, operating in separated markets with generally clearly delineated functions. One of the main objectives of China's banking reforms has been to create incentives for its financial institutions to behave more like competitive, commercial entities. Competition between these financial institutions and agencies is usually limited to those performing similar functions, but cross function rivalries do exist. However, China's banks have not been granted complete autonomy, and are frequently required to comply with government directives with serious implications for their profitability and in some cases, their solvency. Several categories of banks operate in China, with different ownership structures and serving different functions. The first category includes wholly state-owned banks. The second category consists of "equitized" commercial banks—banks that were previously wholly state-owned, but were transformed into joint-stock companies, in which the Chinese central government is usually the largest stockholder. The third category encompasses a variety of local banks, with provincial or municipal governments as major stockholders. A fourth category is composed of Chinese joint-stock commercial banks that were created after the start of China's banking reforms and with comparatively low levels of government ownership. Below is a discussion of the main characteristics of each category, including the names of the major banks in each category. A more complete list of Chinese banks by type is provided at the end of this report (see the Appendix ). In addition to the legal banks, China also has an unknown number of illegal banking operations, or "underground banks," that accept deposits and offer loans to individuals and businesses (see " Underground Banks "). China's banking sector was previously dominated by four wholly state-owned policy banks—the Agricultural Bank of China (ABC), the Bank of China (BOC), China Construction Bank (CCB), and the Industrial and Commercial Bank of China (ICBC). In addition, there were several other smaller wholly state-owned policy banks, such as Bank of Communications, China Development Bank (also known as the State Development Bank of China), the Export Import Bank of China (China Exim Bank), and Huaxia Bank. Starting in 2005, China began transforming the wholly state-owned banks into joint-stock corporations, a process it calls "equitization" (see section on " Equitized Banks "), that were to operate as commercial banks. As a result, only three wholly-state owned banks remain in China—the Agricultural Development Bank of China, China Development Bank and China Exim Bank. China Development Bank is reportedly to be equitized sometime in the near future, but plans for its initial public offering (IPO) have been on hold for over two years. There are no reported plans to equitize the Agricultural Development Bank of China or China Exim Bank. Each of the three remaining state-owned banks have a distinct mission. The main mission of Agricultural Development Bank of China (中国农业发展银行, or ADBC) is to support the development of agriculture and rural areas in China. China Development Bank (国家开发银行, or CDB) traditionally was responsible for raising funds for large infrastructure projects, but over the last few years, the CDB has begun to diversify its portfolio of investments as part of its transition into a commercial bank. The main purpose of China Exim Bank (中国进出口银行) is to provide financial services to promote Chinese exports (particularly of high-tech and new-tech products) and facilitate the import of technologically advanced machinery and equipment. All three banks have a board of directors and senior officers, appointed by China's cabinet, the State Council. All three state-owned commercial banks report directly to the State Council, and frequently rely on the State Council's directives in establishing their operational priorities. Five of the previously state-owned policy banks have been transformed into joint-stock companies, with different categories of shareholders, and are supposedly operating as commercial banks. For four of the five equitized banks the majority of the shares are non-tradable shares held by the People's Bank of China (PBOC), the Ministry of Finance (MOF), or other government entities, raising questions about their degree of separation from government control (see Table 1 ). In addition, some of the non-tradable shares are held by foreign banks. Tradable shares of the equitized banks—typically representing only a fraction of the total equity of the bank—are sold on China's two stock markets (Shanghai and Shenzhen) to Chinese investment funds, qualified foreign institutional investors (QFIIs), and private Chinese investors, and on the Hong Kong Stock Exchange to overseas investors. Previously, when they were wholly state-owned, the equitized commercial banks had assigned financial responsibilities. After their conversion to joint-stock companies, the banks have diversified their financial services to include corporate and personal financial services. The equitized commercial banks are also investing overseas. The intent of equitizating the state-owned commercial banks was to create the space and the incentives for the officers of each bank to operate it as a for-profit commercial bank with less interference from China's central government. Each of the equitized banks has a board of directors and senior officers, who are generally appointed in some fashion by the central government. Results to date have been mixed, but the equitized commercial banks are among the most dynamic and innovative financial institutions in China. Because of their size, the five equitized commercial banks continue to dominate China's banking sector. The category of local banks includes a variety of financial institutions. The largest category is commonly known as "city commercial banks." Over the years, some provincial and municipal governments established their own banks (such as Guangdong Development Bank and Shanghai Pudong Development Bank). These banks were wholly-owned by the local government and were used by the local government to handle locally developed projects and programs. Since the turn of the century, they have been gradually transformed into joint-stock companies where the local government is often the largest shareholder. As of 2009, an average of 18.5% of the shares of city commercial banks were owned by local governments. The majority of the shares were owned by other Chinese banks or corporations, foreign banks, and a restricted amount by bank employees and private investors. According to the CBRC's most recent annual report, there were 147 "city commercial banks" in China as of the end of 2010. The Appendix provides a partial list of China's city commercial banks taken from the CBRC's web page. Because of their smaller size, these city commercial banks struggle to compete with the larger state-owned policy banks and the equitized banks. However, due to their past ties to the local government, the city commercial banks often benefit by being chosen by the local government to handle the province's or city's finances or manage the government's pensions funds and other government-related accounts. In addition, the city commercial banks often are better able to assess the credit-worthiness of local companies. Competition with the larger equitized banks and private commercial banks has made some of city commercial banks among the most innovative financial institutions in China. Local banks also include village and township banks, rural commercial banks, rural cooperative banks, and rural credit cooperatives. Starting in 2004, the Chinese government began the process of transforming the rural credit cooperatives into joint-stock companies. The CBRC launched a three-year plan in 2009 to open nearly 1,300 new rural financial institutions, including over 1,000 rural banks, by the end of 2011. In September 2010, the CBRC announced that domestic banks could buy 100% of existing rural credit cooperatives, and private and foreign investors could purchase up to 20%. As of the end of 2010, there were 349 village and township banks, 85 rural commercial banks, 223 rural cooperative banks, and 2,646 rural credit cooperatives in China. By and large, the various rural financial institutions only provide services to China's rural population. There are two types of "private" commercial banks in China—12 Chinese-owned joint-stock commercial banks and a growing number of foreign-owned banks. The largest and best-known Chinese joint-stock commercial bank is China Minsheng Bank (中国民生银行). China Minsheng Bank was established in Beijing in 1996, and was the first joint-stock commercial bank in which the majority of the shares were owned by nongovernmental entities. As of June 2008, China Minsheng Bank had 29 branches distributed across China. According to CBRC, 37 wholly foreign-owned banks, plus two foreign joint-venture banks and one wholly foreign-owned finance companies, had incorporated in China as of the end of 2010 with a combined total of 270 branches or subsidiaries (see Table 2 ). In addition, 90 foreign banks had chosen to open branches of their home bank in China. As a result, 360 separate foreign banking establishments were operating in China by the end of 2010 in 45 cities and 27 provinces across the country. The combined assets of these institutions was valued at $1.74 trillion yuan (approximately $274 billion), or 1.83% of total banking assets in China. According to a June 2010 PriceWaterhouseCoopers study of foreign banks in China, the emerging product range available in China, including RMB bonds, is making local incorporation more attractive. However, local incorporation is expensive; a foreign bank that wishes to incorporate in China must have a minimum registered capital in China of 1 billion yuan ($157 million) plus an additional 100 million yuan ($14.6 million) for each branch. In addition, new regulations issued by the CBRC require locally incorporated banks to maintain a 75% loan-to-deposit ratio by the end of 2011. A variety of entities operate illegally in China as underground banks (地下钱庄), also know as "shadow banking." Some of China's credit guarantee agencies have moved beyond their intended purpose to effectively become banks, taking deposits and providing loans (see "Credit Guarantee Agencies" sidebar). Similarly, some investment brokers and private fund managers in China have used their available capital to provide illegal commercial and personal loans. In addition, some pawn shops are providing illegal banking services to people and businesses unable or unwilling to use the legal banking system. China's underground banks have emerged for several reasons. Some people choose to deposit their funds with the underground banks because they offer higher deposit rates than legal banks. Other people may use the underground banks to conceal their wealth from authorities. Some businesses, particularly small and medium-sized companies, may apply for loans from underground banks because they cannot obtain a loan from legal banks or the approval process takes too long. While the underground banks provide access to credit to individuals and businesses with little or no chance of being approved for a loan by a legal bank, the credit comes at a cost. Interest rates on loans provided by China's underground banks are often 10% per month or higher. As a result, borrowers tend to use the underground banks mainly for short-term loans in order to avoid substantial interest charges. Another cost of doing business with underground banks is dealing with their sometimes unorthodox methods to obtain overdue loan payments, such as kidnapping family members. China's Ministry of Finance and the State Administration of Foreign Exchange (SAFE) have been cracking down on underground banks primarily because they are seen as a major conduit for the illegal flow of overseas capital into China. Since 2002, the Chinese authorities have shut down over 500 underground banks, with over 100 cases involving more than 200 billion yuan ($31 billion) in illegal funds. While officially outside of China's banking system, the potential importance of underground banks was made apparent in early October, when the network of private financing in the city of Wenzhou in Zhejiang Province threatened to collapse and possibly precipitate a regional credit crisis. According to one report, a central bank survey of Wenzhou found that about 60% of local businesses and most households had loans with the city's underground banks. Unable to service their debts, a number of private business owners fled the city, leaving behind unpaid workers and outstanding bills. According to some accounts, some of the funding for Wenzhou's underground banks came from commercial loans obtained by local businesses from legitimate commercial banks. The mounting defaults on the underground loans raised the risk that these businesses would be unable to service their loans to the commercial banks. The Wenzhou underground banking crisis was considered sufficiently important that Premier Wen Jiabao, PBOC Governor Zhou Xiaochuan, and Finance Minister Xie Xuren visited the city to assess the situation. Preliminary results indicated that the prevalence of underground financing was unusually high in Wenzhou, and that the local credit crisis posed no serious threat to China's banking system. However, following the officials' visit, the CBRC announced that it was looking into ways to curb the use of underground banks. Although the Chinese banking system contains a variety of types of banks, its market is dominated by the five equitized banks (see Table 3 ). Just under half of the total assets in China's banking sector are owned by these five banks—Agricultural Bank of China (ABC), Bank of China (BOC), Bank of Communications, China Construction Bank (CCB), and Industrial and Commercial Bank of China (ICBC)—providing each bank with a significant share of the overall market. The 12 joint-stock commercial banks are the second largest group, with 15.6% of the market, which gives each of the 12 banks a small, but notable portion of the market. The 147 city commercial banks have 8.2% of banking assets. Except in some of China's more economically advanced cities, these banks play a minor role in the national financial markets. The over 3,300 rural financial institutions have the third largest share of the market (11.2%), but the holdings of each individual institution are extremely small. Under China's current banking regulatory system, four key entities report to China's ruling State Council (中华人民共和国国务院), each with its own distinct area of responsibility. China's central bank is the People's Bank of China (PBOC), which is responsible for formulating and implementing China's monetary policy. The PBOC and the China Banking Regulatory Commission (CBRC) effectively oversee the operations of all banking institutions in China. The Ministry of Finance (MoF) is responsible for China's fiscal policies and the central government's budget. The State Administration of Foreign Exchange (SAFE) is responsible for the supervision and monitoring of foreign exchange transactions in China, as well as the management of the government's foreign exchange reserves. Below is a short description of each of these four entities. Following the creation of the People's Republic of China in 1949, the new Chinese government nationalized all the banks under the People's Bank of China (中国人民银行), or the PBOC. Between 1949 and 1978, the PBOC was administratively under the authority of the Ministry of Finance. In 1979, the PBOC became a separate entity, reporting directly to the State Council. In addition, the banking functions of the PBOC were transferred over to three state-owned policy banks—the Agricultural Bank of China (中国农业银行, or ABC), the Bank of China (中国银行, or BOC), and the People's Construction Bank of China (中国人民建设银行, or PCBC), which was later renamed China Construction Bank (中国建设银行, or CCB). A fourth state-owned policy bank, the Industrial and Commercial Bank of China (中国工商银行, or ICBC), was formed in 1984. Initially, these four state-owned policy banks were under the direct authority of the PBOC. Starting in 2005, China began a process of transforming them into joint-stock commercial banks—a process it calls "equitization" (see section on " Equitized Banks "). All of the four policy banks—ABC, BOC, CCB, and ICBC—have been equitized. Following the transfer of its banking functions to the state-owned commercial banks, the PBOC's main purpose was as China's central bank. According to the PBOC's web page (www.pbc.gov.cn), its "major responsibilities" are: Formulating and implementing monetary policy; Issuing renminbi (RMB, or 人民币), China's currency, and regulating its circulation; Regulating the inter-bank lending and bond markets; Administering foreign exchange and regulating the inter-bank foreign exchange market; Regulating the gold market; Holding and managing official foreign exchange and gold reserves; Managing the state treasury (including the issuance of treasury bonds and other government securities); Operating the payment and settlement system; Maintaining financial statistics and conducting financial analysis and forecasts; Guiding and organizing anti-money laundering operations; and Issuing and enforcing relevant orders and regulations. As the main administrator of monetary policy, the PBOC manages the traditional instruments of monetary policy: setting reserve requirements for banks and other financial institutions, setting the discount rate (interest rate) for intra-bank lending; and controlling the supply of money (via the issuance of currency and open market operations). In addition, the PBOC utilizes two regulatory tools not available to the U.S. Federal Reserve—the setting of benchmark interest rates for RMB-denominated deposits and loans, and the allocation of credit limits to Chinese banks. In contrast to the U.S. Federal Reserve, the PBOC tends to utilize changes in the banks' reserve requirements as its primary method of signaling its desire to tighten or loosen bank lending, and thereby, the money supply. For example, in 2010 and much of 2011, the PBOC was concerned about the rising rate of inflation. In response, the PBOC increased the reserve requirement ratio six times in 2010 and another six times in the first half of 2011. Each time, the reserve requirement was increased by 0.5%, resulting in a 6.0% total increase in 18 months. As of June 20, 2011, China's reserve requirement stood at 21.5%. On August 25, 2011, the PBOC announced an expansion of its deposit reserve requirements to cover previously exempt types of accounts in an effort to block avenues by which banks had circumvented the tightening of the money supply. Despite these actions by the PBOC, China's consumer price index (CPI) remained relatively high. In June 2011, the official CPI was up 6.4% year-on-year, and rose to 6.5% in July. The PBOC also uses changes in benchmark interest rates for deposits and loans in its monetary policy, but with less frequency than changes in the reserve requirement. Under Chinese law and regulation, banks are allowed to offer interest rates within a band above and below the benchmark rates. As a result, the PBOC benchmark rates and their corresponding permissible bands have a limited effect on banks' interest rates. The PBOC raised benchmark interest rates twice in 2010, compared to six increases in the reserve requirement. On July 7, 2011, the PBOC raised the benchmark interest rate on one-year time deposits to 3.5% and the one-year lending rate to 6.56% in an effort to curb inflation (see Table 4 ), the third such increase in 2011. Each time the PBOC raised the one-year deposit and loan rates by 0.25%, preserving the 3.06% spread between the two rates. Another way the PBOC has historically restricted the commercial activities of banks is by allocating credit quotas to banks. In the past, the Chinese government would announce a target for the growth of credit for the year, and the PBOC would then allocate the available credit among China's banks. The PBOC did not publicly announced credit quotas for 2011, but reportedly provided banks with "target" growth rates of 13 or 14% for credit for the year. According to the PBOC, total outstanding loans in China rose by 15.7% in 2011, slightly above the target rate. Under the leadership of Governor Zhou Xiaochuan, the PBOC has generally supported the liberalization of China's banking sector. Governor Zhou released a statement on December 17, 2010 on "market-based interest rate reform" in which he advocated a policy to gradually adopting competitively set interest rates. In the article, he notes that starting from 1992, banks in China have been given more autonomy in setting interest rates. By 2010, wrote Governor Zhou, "all financial institutions but policy ones operate on a fully commercial basis, and an important part of their autonomy is to independently price their products and services." Following the Asian Financial Crisis of 1997, China created the China Banking Regulatory Commission (中国银行业监督管理委员会, or CBRC). In contrast to the PBOC, which manages monetary policy, the CBRC is responsible for the regulatory oversight of China's banks, ensuring that they are abiding by the relevant laws and regulations, and that the interests of depositors and consumers are protected. Its main functions are to: authorize the establishment and business scope of banks in China; formulate and enforce banking regulations; audit and supervise all banks operating in China; and compile and publish information on China's banking sector. Shang Fuling (尚福林) was appointed as CBRC Chairman on October 29, 2011, by the CCP's Central Committee, replacing Liu Mingkang (刘明康) who had reached the mandatory retirement age of 65. Shang was transferred from the China Securities Regulatory Commission (CSRC), where he had been Chairman since 2002. Shang is credited with successfully guiding China's stock markets through a comparatively tumultuous period by implementing a series of reforms. He is expected to use his experiences with CSRC and past postings in the banking sector to manage China's future banking reforms. True to its origins, the CBRC has generally been more cautious about the liberalization of China's banking sector. The CBRC sees excessive deregulation and poor oversight by the U.S. government and the Federal Reserve as the principal causes of the 2007-2008 global financial crisis. It is generally dismissive of claims that China was partially responsible for the crisis, and instead, sees China's pre- and post-crisis policies as being a critical element of Asia's quick recovery from the global economic downturn. The CBRC's top priorities for 2012, according to a statement by Chairman Shang, are: (1) defend the bottom line; (2) improve the risk control system; (3) strengthen external supervision and internal controls; (4) deepen financial reform by speeding up product and service innovation (especially for rural areas and small and micro enterprises); (5) promote economic restructuring; and (6) close down illegal financial activities. Once the sole authority for China's financial sector, the Ministry of Finance (财政部, MoF) has gradually lost responsibility and authority during the course of China's economic reforms. The MoF's current main functions are to: formulate and implement China's fiscal policies; prepare and administer the central government's annual budget; propose and collect taxes for the central government; prepare plans for the issuance of treasury bonds and other central government debt; formulate and implement accounting regulations for businesses operating in China; collect data; and conduct research on China's economy and its fiscal situation. In addition to previously supervising the activities of the PBOC, the MoF used to manage several other important financial institutions and entities in China. Although its direct management of other financial institutions has been taken away, the MoF continues to hold some authority over some banks and other financial institutions by means of either its equity holdings and/or having a representative on their governing boards. For example, the MoF holds 50% of the equity in the Agricultural Bank of China. In addition, the views of the MoF are influential with the State Council, which must approve all major banking policies. Established in 1978, the State Administration of Foreign Exchange (国家外汇管理局, or SAFE) reports to both the State Council and the PBOC. Its main function is to manage China's foreign exchange, including maintaining balance of payments statistics, regulating and monitoring foreign exchange transactions, and managing China's foreign exchange (forex) reserves. As the regulator of foreign exchange transactions, SAFE must approve the outlay of any forex for overseas investments by Chinese banks and companies. As the manager of China's forex reserves, SAFE also acts at times like a bank, providing credit to companies seeking to make overseas investments. SAFE keeps the details of its investment holdings secret. It generally invests China's foreign exchange reserves in traditional items, such as U.S. Treasury bonds, which are perceived as being relatively safe and fairly liquid. According to one source, 70% of SAFE's assets are in U.S.-dollar denominated bonds. However, there are signs that SAFE is diversifying its investment portfolio. In 2008, SAFE made small investments (usually less than 1% of total outstanding shares) in companies in Australia, France, and the United Kingdom. Among the companies in which SAFE currently holds an equity position are: Barclays, British Gas, Cadbury, Drax Group, Royal Bank of Scotland, Tesco, and Wire & Plastic Products Group. SAFE is also responsible for the regulation of "qualified foreign institutional investors," or QFIIs. QFIIs are non-Chinese entities that are allowed to purchase stock, bonds and other financial assets in China. Under current regulations, the QFIIs must have an authorized Chinese custodian bank as a partner. Since 2002, China has authorized 103 QFIIs to operate in China; as of April 2011, SAFE had approved $20.69 billion in investment quotas for QFIIs . On May 6, 2011, China Securities Regulatory Commission (中国证券监督管理委员会, or CSRC) published draft regulations allowing QFIIs to trade in stock index futures for hedging purposes. Under the terms of its 2001 World Trade Organization (WTO) accession agreement, China agreed to gradually open its financial markets over a five year period to foreign competitors. The services schedule of China's WTO accession agreement delineates the details of the scope of foreign bank access to China's financial markets. Foreign banks generally are to be afforded national treatment for listed banking services, with the ability to provide the same types of services and facing the same legal restrictions as domestic banks. There are, however, some exceptions. For example, foreign banks are not allowed to provide automobile financing. Foreign banks can accept deposits, make loans (including mortgages, consumer credit, factoring, and commercial financing), issue credit and debit cards, provide letters of credit or guaranty, and other financial services. Since 2001, the Chinese government has passed laws and regulations to implement its WTO obligations. On November 11, 2006, China's State Council promulgated Decree No. 478, "Regulations of the People's Republic of China on Administration of Foreign-funded Banks," establishing the general policy of foreign bank operations in China. The regulations differentiated between "foreign-funded banks" (which includes "wholly foreign-funded banks" and "Chinese-foreign joint venture banks") and their branches, and a branch of a foreign bank. While the types of financial services the two types of foreign banks were authorized to provide were almost identical, they were subject to different minimum capital requirements. Foreign-funded banks had to have a minimum of 1 billion yuan ($157 million) in registered capital and have received a minimum of 100 million yuan ($15.7 million) in non-callable operating capital. Branches of foreign banks operating in China had to have received a minimum of 200 million yuan ($31.5 million) in operating capital. In addition, the owners of foreign-funded banks must possess no less than $10 billion in assets at the end of the year prior to the submission of an application to form a foreign-funded bank, and the foreign banks seeking to establish a branch in China must possess no less than $20 billion in assets at the end of the year prior to the submission of an application to open the branch. The approval process for foreign-funded banks and branches of foreign banks is a two-step process. The first step is the submission of application documents to China's banking regulatory agencies, which are to make a decision within six months of submission. The second step involves the submission of additional information within six months of receiving the decision of the regulatory agencies. China's banking regulatory agencies have up to two months to approve or reject the second submission. If the application is approved, the applicant must register with the appropriate administrative department and obtain a business license. If foreign-funded banks or branches of foreign banks intend to apply to provide services denominated in renminbi, the regulations require that the bank have been in operation in China for no less than three years, and have been profitable for two consecutive years prior to the application. Both types of foreign banks must also comply with the asset-liability ratio requirements prescribed in the Law of the People's Republic of China on Commercial Banks. Among these ratios is a requirement that "the ratio of the outstanding of loans to the outstanding of deposits may not exceed 75 percent." While the 2006 regulations provide greater market access to foreign banks, the Chinese government has also eliminated some of the special privileges previously offered to foreign banks. Special business arrangements—including tax holidays or reductions—were phased out, making foreign banks compete and operate under the same conditions as Chinese banks. For example, special tax deductions available to foreign banks for doubtful debts were eliminated on December 31, 2010. The U.S. government, U.S. banks, and other interested parties are concerned that the Chinese authorities are limiting market access for U.S. banks and protecting Chinese banks from competition from U.S. banks. Although China has made apparent efforts to comply with its WTO obligations, several U.S. banks maintain that China's laws and regulations, and the manner in which they have been enforced, have created barriers to entry for U.S. banks. A recent assessment of China's WTO compliance by the Office of the U.S. Trade Representative (USTR) was generally supportive of the views of U.S. banks. As of December 2011, eight U.S. banks were operating in China (see Table 5 ). Two banks, Citibank and JPMorgan Chase, chose to establish a subsidiary bank in China. The Chinese government considers these subsidiaries to be wholly foreign-funded banks. The other six U.S. banks established what the Chinese consider branches of a foreign bank. Seven additional banks have opened representative offices in China, but are not offering financial services. In its 2011 report to Congress on China's WTO compliance, USTR mentioned four shortcomings in China's fulfillment of its WTO obligations related to banking. First, USTR sees the capital requirements for foreign banks as a de-facto barrier to entry. Second, foreign equity ownership has been effectively limited to 25% although existing regulations allow for up to 49% for joint venture banks. Third, the requirements for a foreign bank to offer financial services in renminbi are considered overly restrictive. Fourth, the process of obtaining approval to open a new bank or branch is too slow and cumbersome. Previously, USTR filed a WTO case against China in September 2010 for its exclusion of U.S. suppliers from China's electronic payment services market (see "U.S. WTO Case Against China on Electronic Payment Services" sidebar). The USTR report indicated that obtaining "full access to the domestic currency business" for U.S. banks remains a priority. U.S. banks currently operating in China voice the same complaints expressed by USTR in its report to Congress. In particular, U.S. and other foreign banks reportedly are concerned that restrictions on their ability to access renminbi-denominated deposits will make it difficult to meet the loans-to-deposit ratio requirement. In an interview with CRS, an officer for one U.S. bank claimed that Chinese regulators are requiring U.S. banks to open a branch in a commercially undesirable city in order to obtain approval for a branch in a more commercially desirable city. U.S. banks also indicate that they are facing stiffer competition from Chinese commercial banks, who seemingly face fewer barriers to opening new branches or expanding operations. Despite the perceived problems, some U.S. banks reportedly plan to expand their operations in China. Citigroup announced in December 2010 that it plans to have about 100 branches in China within 2-3 years. Citigroup has 31 branches in China. By comparison, China's largest lender, ICBC, has over 16,000 branches in China. According to sources in the banking industry, U.S. banks are especially interested in expanding into China's "second-tier" cities and providing financial services to China's growing middle class. An unresolved issue regarding Chinese banks is the extent to which regulatory reforms have led to the banks being operated on a commercial basis. One of the stated goals of China's banking reforms has been to transform the banks into relatively autonomous, profit-driven financial institutions, modeled to a certain extent after commercial banks in the United States and Western Europe. However, the relationships of the different types of banks in China with the central government and its various regulatory agencies, and with local government entities remain complex. While circumstances vary for each of the major types of Chinese banks, virtually all of them balance their commercial interests with the changing and sometimes conflicting directives and priorities issued by different arms of the central and local government. Below is a brief description of the operational patterns of the different types of Chinese banks and their relationships with government entities. China's three state-owned policy banks—the Agricultural Development Bank of China (ADBC), China Development Bank (CDB), and Export Import Bank of China (China Ex-Im Bank)—have been assigned specific functions in the nation's financial markets, much like Fannie Mae, Freddie Mac, and Ginnie Mae in the United States. The ADBC's main role is provide financial services to China's agricultural sector and its rural population. The CDB's primary function is to finance major development projects, particularly infrastructure projects. The core function of the China Ex-Im Bank, as its name implies, is to help finance China's imports and exports. China's policy banks operate financially by either receiving a capital contribution from the central government or by issuing bonds to raise capital. Because the bonds are issued by a policy bank, they are presumed to be backed by the full faith and credit of the Chinese government, with little or no risk of nonpayment. This allows the policy banks to raise capital at a reduced cost. Once they have the necessary capital, the policy banks then provide loans or lines of credit to finance projects designated by bank management. The annual reports of two of the three policy banks seem to emphasize their role in implementing the policies set by China's State Council. President Zheng Hui of the Agricultural Development Bank of China (ADBC) wrote in his bank's 2010 annual report that the bank, "produced fruitful business results by conscientiously implementing China's major policies in terms of economy and finance, as well as 'three rural issues' (agriculture, farmer and rural area issues) and continuing to strengthen the credit support for agriculture." In China Ex-Im Bank's 2010 annual report, bank president Li Ruogu wrote of "the completion of our targets under the Eleventh Five-year Plan," including helping launch the State Council's regional development strategy and the revitalization of China's shipbuilding industry. The lending practices of the ADBC and China Ex-Im Bank also reflect their stipulated economic roles. Virtually all of ADBC's 1.67 trillion yuan in loans in 2010 went to providing credit for agricultural production, including 923.6 billion yuan (55.3%) in loans to purchase grain and edible oils. Similarly, most of China Ex-Im Bank's business activities in 2010 were trade-related transactions consistent with its specified function and the directives of the central government. However, both banks reported on their efforts to improve their risk management system and reduce their levels of non-performing loans (NPLs), demonstrating a concern about the bank's overall profitability and solvency. China's third policy bank—China Development Bank (CDB)—faces a different situation than ADBC and China Ex-Im Bank. CDB has been scheduled for equitization since 2007, but has intentionally resisted its transformation. Over the last four years, CDB Chairman Chen Yuan (the eldest son of one of China's most famous economists, the late Chen Yun) has purposely forestalled CDB's equitization while at the same time expanding the bank's activities well beyond the policy role of financing China's major development projects. Under Chen's leadership, CDB has become one of China's more dynamic banks, operating like a commercial banks when it serves its purpose, and benefitting from its status as a policy bank when that is to its advantage. CDB's original mission was to finance large-scale infrastructure and industrial projects by providing long-term loans and lines of credit. CDB was a major source of credit for China's Three Gorges hydroelectric project and the nation's high-speed railway system. According to its 2010 annual report, 73.7% of its new loans—422 billion yuan ($66.4 billion)—in 2010 went to key sectors, such as coal, electricity, oil, telecommunications, transportation and public infrastructure. Based on these figures, CDB would appear to be much like the other two policy banks. However, a closer examination of CDB's lending activities reveals evidence that it has broadened its operations well beyond its prescribed policy role. Two of the more important innovations promoted by Chen are providing credit for domestic projects collateralized by local government investment corporations (LICs) and supplying loans for international investments by state-owned enterprises (SOEs), particularly energy and natural resources investments. The domestic investments are notable because of the innovative means for securing the loans. The international loans are important because they have helped finance China's early effort to encourage its firms to go global. CDB was the first major Chinese bank to finance local infrastructure projects by means of LICs. Under Chinese law, local governments cannot currently issue bonds or borrow from banks to finance infrastructure projects. However, an LIC can. Under the arrangement developed by CDB, the local government authorizes an LIC to develop a parcel of land. The LIC, in turn, uses the value of the land to collateralize a loan from CDB to finance a project. In theory, the sale of the completed commercial or residential property development, or the proceeds from the operation of the infrastructure project are sufficient to service the debt. Based on CDBs success, many Chinese commercial banks entered into loan arrangements with LICs. According to one study, the cumulative value of LIC borrowing at the end of 2009 was 11.4 trillion yuan, or more than one-third of China's gross domestic product. As will be discussed below, this innovative financial arrangement has raised some concern about the strength of China's commercial banks, given the comparatively high prices of real estate in China, and the perceived risk of a property bubble. CDB was also one of the first and most aggressive banks to take advantage of the China's "Going Out" strategy (走出去战略) adopted at the 16 th National Congress of the Chinese Communist Party in November 2002. In 2003, CDB provided a major state-owned corporation, Sinochem, with a $230 million line of credit so it could acquire Atlantis, a subsidiary of Norwegian Petroleum Geo-Service (PGS). CDB subsequently worked out an arrangement with the National Development and Reform Commission (NDRC), a super-ministry under the State Council, whereby the two entities will draft an annual plan for overseas projects to be financed by CDB. Under the arrangement, CDB will independently assess the proposed projects and negotiate the terms of the loans. By 2009, CDB's overseas loans had grown to nearly $100 billion, representing 17% of the bank's outstanding loans. CDB's overseas activities have not been limited to loans to Chinese energy companies. In 2007, CDB was designated by the State Council to be the financier for the newly established China–Africa Development Fund. According to the Chinese government, the Fund was established to promote economic cooperation between China and Africa, and advance Africa's economic development. Critics of the Fund, however, maintain that it has been used by the Chinese government to secure access to important energy and mineral resources, while providing limited developmental benefit to the African countries involved. CDB's relationships with China's central government, as well as with the companies to which CDB has lent money, have become a balance between the different interests of the involved entities. In the words of a recent study of CDB's energy-backed loans (EBLs): Although many media reports on the EBLs portrayed them as the quest of a monolithic China to secure oil and natural gas supplies, the reality is that these transactions involved multiple actors and a complex mix of motivations. First, the deals supported CDB's agenda, which included growing profits, demonstrating that China still needs CDB to function as a policy bank, ... and expanding the bank's international business. Second, the EBL's advanced the State Council's goals of enhancing China's access to energy and diversifying China's foreign exchange reserves. Third, CDB's loans helped China's NOCs [national oil companies] further their objective of acquiring exploration and production assets abroad. For its own part, CDB has demonstrated an ability to operate with some autonomy, while remaining a wholly state-owned policy bank. Following their transformation from state-owned policy banks to joint-stock companies, China's five equitized banks no longer had access to direct capital allotments from the central government or the ability to issue no-risk, government-backed bonds to raise capital. Instead, they were expected to operate like commercial banks, drawing in deposits and dispensing loans to cover expenses and possibly earn a profit. The banks also were able to raise capital via their initial public offering (IPO) of stock. However, the central government was unwilling to fully relinquish control over the equitized banks. Banking regulations continue to restrict the types of financial services they can provide, the amount of credit they can extend, the interest rates they can charge, and other aspects of the banks' operations. The 2010 annual reports of the five equitized banks reveal some important aspects of their financial operations (see Table 6 ) as of the end of 2010. The largest assets for all five banks were loans, with the value of corporate loans three or more times the value of personal loans. The personal loans provided by the five equitized banks were predominately mortgage loans. The banks' assets included significant investments in securities and other financial assets, which includes holdings of government and corporate bonds. The banks also maintained significant balances with other financial institutions—including their required reserves at the PBOC. On the liability side, customer deposits—both corporate and personal—dominated the balance sheets of the five equitized banks. Customer deposits were at least three-quarters of each of the bank's liabilities, but the relative proportion of corporate and personal deposits varied from bank to bank. Based on their balance sheets, China's equitized banks in 2010 were—like most commercial banks—taking in deposits from corporations, individuals and other entities, and recycling the funds as loans to corporations and individuals, as well as investments in securities and other assets (see Table 6 ). The five equitized banks apparently were fairly successful in their operations in 2010. The Agricultural Bank of China (ABC) reported net profits of 94.9 billion yuan ($14.9 billion) in 2010. Bank of China (BOC) reported net profits of 9.7 billion yuan ($1.5 billion). The reported net profit for the Bank of Communications was 39.0 billion yuan ($6.1 billion). China Construction Bank (CCB) reported 134.8 billion yuan ($21.2 billion) in net profit in 2010, while the Industrial and Commercial Bank of China (ICBC) reported net profit for 2010 of 166.0 billion ($26.1 billion). A recent study of equitized Chinese banks determined that "post-listing earnings figures are consistent with banks adopting a more market-driven orientation." Despite the partial privatization of the equitized banks, some observers maintain that China's central government continues to exert a strong influence over the lending practices and administration of these banks via various means. First, the board of directors of the banks and the senior bank officers are generally directly appointed by the Communist Party Organization Department, and usually come from central government or Party agencies or one of the equitized banks. Second, the career opportunities for senior bank officers largely depend on the assessments of the official agencies responsible for their appointment, which according to some observers make them more responsive to the wishes of the central government than to the interests of the shareholders of the bank. Third, according to some accounts, the central government agencies will apply direct pressure on the bank officials to provide loans and services to specific projects or investments. In interviews with CRS, officials of China's equitized banks described the operation of their banks and, in particular, their lending practices. The officials reported that the banks have established modern risk assessment procedures to assess prospective clients and strive to operate on a commercial basis. However, they also noted that the PBOC and CBRC apply pressure on bank officials to adjust their lending practices to conform with government policy priorities, such as providing greater assistance to small- and medium-sized enterprises (SMEs), or slowing the growth rate of credit in China. None of the officials interviewed mentioned being pressured to provide a specific loan to a specific company. However, the bank officials did say that their banks' past relations with state-owned and larger private companies when the banks were still policy banks did influence their lending patterns. According to the bank officials, the banks perceive their past creditors more favorably than new creditors, and the banks have a tendency to provide loans to the larger, well-established state-owned and private corporations. Some of the bank officials commented on a dilemma they faced in 2008 when China's central government was trying to stimulate the economy by pumping more credit into the market. The PBOC and other government officials pressured the equitized banks to provide more loans to SMES, rather than larger companies, as this would supposedly create more jobs and be subject to less public criticism. During the same time, the CBRC reminded banks about the dangers of non-performing loans (NPLs) and cautioned the banks about offering credit to riskier companies. Because the equitized banks generally perceive SMEs as higher risk than larger companies which have a credit history with the bank, the bank officials said that the banks generally resisted the pressures from the government to lend to SMEs during the financial crisis. The dynamic between the central government and the five equitized banks appears to be very similar to the relationship between CDB and the central government described above. The equitized banks seem to be striving to balance the goals of the bank to earn profits and expand operations with the overall economic policy objectives stipulated by the State Council, PBOC, and other government entities. In addition, the equitized banks also take into consideration the financial needs of their major clients—China's SOEs and larger private corporations—to insure repayment of their outstanding loans and maintain good relations with increasingly influential figures in China's political system. The city commercial banks primarily interact with the Chinese government at the provincial or municipal level, but are still supervised by the PBOC and the CBRC. Like the equitized banks, the city commercial banks have been largely transformed into private joint stock companies, with shares owned by local government agencies, investment companies and other legal entities, and individual investors (see Table 7 ). In addition, the officers of the city commercial banks generally are also shareholders. In many cases, share ownership is concentrated among a small set of shareholders. For the five city commercial banks listed in Table 7 , the top 10 shareholders in 2010 held between 46.0% and 90.2% of the banks' shares. Many of the top 10 shareholders were investment companies associated with corporations, such as trading companies, railroads, power companies, and telecommunications companies. A few local government agencies were also on the top 10 investor lists, such as the finance departments of Fuzhou City and Wuhan City. Among the top 10 shareholders in the Bank of Chongqing was Dah Sing Bank of Hong Kong. Like the equitized banks, the city commercial banks generally have a board of directors and appointed bank officers responsible for the operation of the bank. The board of directors of city commercial banks generally include senior officials from the major shareholders, including representatives from government agencies. Many of the board members have experience working for banks, while some have also worked for local governments. Similarly, the bank officers usually have experience working for banks or for local governments. The apparent close ties between the city commercial bank officials and local government officials would support the idea that the banks are highly responsive to the preferences of local governments. The financial statements of the city commercial banks reflect their smaller size and their lower reliance on loans (see Table 8 ). The five city commercial banks had total assets about 1% the size of those of the equitized banks. They also relied more on various forms of investments, including a high volume of reverse repurchase agreements. The reverse repurchase agreements are effectively a form of securitized loan, in which the bank temporarily acquires title to an asset from the borrower, who promises to repurchase the assets at a higher price at a future date. The difference between the bank's acquisition price and the borrower's repurchase price provides the return to the bank. The city commercial banks had comparatively low levels of personal deposits when compared to the five equitized banks (see Table 6 and Table 8 ). The city commercial banks appear to remain tied financially to their region, with a focus on serving the needs of the local business community. The leading borrowers in 2010 for the five selected banks were almost exclusively from the city or province in which the banks are located, according to their annual reports. While details of top depositors were not provided in the annual report, it is likely that most of them are also from the bank's home city or province. Only Harbin Bank has developed a considerable personal loan portfolio, and most of that lending is for mortgages. However, some city commercial banks (such as Bank of Beijing, Bank of Shanghai, and Bank of Tianjin) have been allowed by the CBRC to open branches outside of their home city or province, indicating an interest on the part of some banks and the banking regulators to see the city commercial banks develop beyond their traditional regional role. The current institutional arrangements would appear to place the officers of China's city commercial banks in a sometimes difficult and confining situation. The banks' shareholders, including some of the larger corporations in the region and local government agencies, may push for higher profits and greater returns on their investments, but at the same time, seek preferential treatment for their loan requests and deposits at the banks. In addition, the central government and its regulatory agencies may encourage the banks to direct their financial services towards providing greater support for certain types of customers or lending activities. In many respects, the city commercial banks face a similar situation as the other types of banks discussed previously, with the additional complexity of addressing the desires of local government entities and local corporate shareholders. China's joint-stock commercial banks have a mixture of ownership structures (see Table 9 ). The 12 banks were established as commercial banks after China began its economic reforms, and were subsequently transformed into joint-stock companies. In most cases, the original state entities that owned the bank remained a major stock holder after the conversion, but were allowed to divest their shares after a mandatory holding period. For some banks, the state-owned entity chose to remain a major shareholder (for example, CITIC Bank). For at least 10 of the 12 banks, a foreign entity has purchased a significant holding of the outstanding shares, often after the bank received permission to list H shares on the Hong Kong stock exchange, the Hong Kong Exchanges and Clearing Limited, or HKEx (see Table 9 ). The number of actual shareholders for the 12 banks also varied. At one extreme, China Bohai Bank had only seven shareholders as of the end of 2010. At the other extreme, China Minsheng Bank reported 1,123,423 shareholders as of December 31, 2010. In most cases, the major shareholders have at least one representative on the bank's board of directors. In contrast to the city commercial banks, the senior management of the joint-stock commercial banks generally are not shareholders. The senior officers of the private banks are appointed by the board of directors; most of the senior officers have a career working in the banking sector. Based on their balance sheets, China's joint-stock commercial banks show some similarities to the city commercial banks (see Table 10 ). Loans are the largest assets for all 12 banks, but the banks generally also have significant holdings of reverse repurchase agreements. In addition, deposits dominate the banks' liabilities. For five of the banks, deposits constitute more than three-quarters of their liabilities. From their management structures, stock ownership and balance sheets, it can be inferred that China's joint-stock commercial banks are largely operating on a commercial basis, but may face pressure from two distinct quarters to allocate loans and resources at variance with optimal business practices. First, the continued presence of the local government or government-owned entities as major shareholders—often with a voting member on the bank's board of directors—provides the local governments with direct and indirect means to influence the operation of the banks. Second, the banks may also be under pressure from private stockholders who also have a voting member on the board—including their overseas investors—to provide preferential treatment to their companies, their families, and/or their friends. All of China's banks share a common governance system, involving senior bank officers, a board of directors, and a board of supervisors. The senior bank officers are members of the Chinese Communist Party (CCP) and are appointed by the CCP. The officers are also assigned ranks in the Chinese government's hierarchy, ranging from the equivalent of a bureau chief to a vice-minister. The professional careers of the senior bank officers is determined by the CCP, and may involve moving into positions within the Party, the central or local governments, or other banks depending on the officer's performance. For example, in November 2011, Wang Hongzhan, previously PBOC's deputy governor, was appointed as CCB's chairman and Party secretary, replacing Guo Shuqing, who was appointed chairman of the China Securities Regulatory Commission. The Board of Directors consist of a mix of senior bank officials, persons appointed by major shareholders, and supposedly "independent directors (独立董事)." However, some of the "independent directors" are also senior officials in governmental financial agencies or with other financial institutions. In a few cases, some of the "independent directors" are foreign nationals. The main responsibilities of the board of directors of Chinese banks, much like for U.S. banks, is to oversee the activities of the senior bank officials and the set general policies of the bank. The board of supervisors usually include individuals appointed by the CCP, the bank's labor union, the major shareholders, and "external supervisors" (外部监事) who frequently have positions with some other entity involved in China's financial system. The board of supervisors for Chinese banks monitor the financial activity, risk management, and risk control of the bank as well as the performance of the board of directors and the senior officials of the bank. Some commentators on China's banking system explicitly or implicitly maintain that China's banks continue to operate as direct tools of the Chinese government. In this view, the government-appointed bank officers distribute loans and credit in accordance with directives of the State Council or its agents: the Ministry of Finance, the PBOC, or the CBRC. Additional evidence used to demonstrate the continued interference of the central government in the operations of China's bank are the allocation of credit limits, the regulation of interest rates, and anecdotal accounts of banks being instructed to provide credit to selected businesses as part of a larger national or provincial economic policy. Other commentators maintain this view oversimplifies the operational situation for Chinese banks and fails to appreciate recent developments. While the PBOC continues to set overall credit growth targets for the year, it no longer allocates credit limits to individual banks. It is relying on changes in the reserve requirement and interest rates to control the money supply. Also, banks have more latitude than in the past in setting interest rates on loans; the PBOC still sets base interest rates for different types of loans, but interest rate ceilings have been eliminated. In addition, bank managers are reportedly using creative means to bend or evade regulations designed to curtail or redirect credit allocations. Although China's central and local governments continue to wield significant influence over the operations of China's banks, these commentators say, they are no longer simply extensions of the government. Through business relations with foreign banks, most Chinese banks have established modern risk management systems and strive to allocate their resources based on commercial criteria. However, the Chinese banks are constrained by various circumstances that periodically require that the banks acquiesce to external pressures. The central government at times will pressure the banks to align their credit allocation along with national economic policy. Local governments may lobby the banks to extend loans to preferred local companies. Overseas investors and companies that are major shareholders may also seek preferential treatment for certain projects or companies. Sometimes, these pressures may contradict each other, placing the bank managers in a bind. Despite these constraints and others, China's banks have to a significant extent substantially shifted over to a commercially based business model. The CBRC appears to be dissatisfied with the incomplete transition of bank management to a commercially based business model. It has drafted a "consultative document" for additional reforms of the governance of China's commercial banks. The "Guidelines for Corporate Governance of Commercial Banks" would apply to all commercial banks "that are approved by the banking supervisory authority to establish within the territory of [the] People's Republic of China." Among the draft document's major provisions are: A prohibition on shareholders interfering with decision-making and management of a bank; A ban on providing shareholders with preferential loans; Rules governing the nomination and election of directors and supervisors by shareholders, including limits on the number of candidates who can be nominated by individual shareholders and a requirement that shareholders vote on the nominees; Rules defining the duties of the board of directors, the board of supervisors, and the senior management of the bank; A requirement that the bank "support national policies on industrial transformation and environmental protection, protect and save resources, and promote the sustainable development of the society;" A requirement that the bank establish a "risk management department" and the delineation of the department's duties; A requirement that the bank use an external auditor; Requirements for the performance evaluation and compensation of directors, supervisors, and bank management; and Minimum standards for information disclosure. In addition to the draft guidelines, the CBRC has issued notices, directives, and guidelines designed to promote the management of banks based on risk/return assessments utilizing international best practices. These include a December 2010 guideline on performance appraisal for bank directors and a February 2010 guideline on compensation practices for bank employees, including top management. The adoption of more commercially based management has brought about the return of serious problems that were associated with China's banking system when it was under greater government control: non-performing loans (NPLs) and fears of insolvency. After several years of growing profitability and improved finances, China's banks appear to be poised for a rise in NPLs, particularly if there is a sharp decline in real estate values. Unresolved NPLs of the past, newly emerging NPLs associated with a recent sharp rise in local government debt, and hidden exposure to underground banking have increased the likelihood that China's banks may experience a rise in NPLs and, in some cases, edge towards insolvency. While recent stress tests conducted by the CBRC indicate that most of the banks can survive a major drop in property prices, some banks—particularly city commercial banks—are more exposed. China's banking regulators have taken some steps to avoid a precipitous rise in NPLs. They are also discussing how to handle insolvent banks, if and when the issue arises. In 1999, China's banking system was virtually insolvent. Years of central government micromanagement of bank operations had resulted in the country's four major banks—ABC, BOC, CCB, and ICBC—drowning in a pool of NPLs. The precise extent of the problem was unknown, as the PBOC had dictated an upper limit on the percentage of loans that could be declared bad debt. Besides the excessive interference by the central government, the major banks were in trouble because local governments and state-owned enterprises frequently defaulted on their loans, under the assumption that the central government would provide the necessary capital to keep the banks afloat. As part of an effort to rescue the banking sector, the State Council transferred 1.4 trillion yuan in NPLs from the four major banks over to four newly created asset management companies (AMCs). The NPLs of each bank were transferred to one of the new AMCs at full face value in 1999 and 2000 (see Table 11 ). According to some estimates, the initial transfer only represented about half of the NPLs held by the four banks, and did nothing to address the NPLs held by other Chinese banks. A second round of NPLs were transferred to the AMCs in 2004 and 2005, totaling a reported 1.6 trillion yuan. In contrast to the 2000 transfer, the second round of NPLs were sold at a discount on face value. Additional transfers eventually brought the total NPL transfers from Chinese banks to the AMCs to nearly 3.6 trillion yuan ($566 billion). The four AMCs were originally owned by the Ministry of Finance (MOF), and were instructed to attempt to recover as much of the debt as possible either by debt collection, debt restructuring, debt-equity swaps, or loan repackaging and resale. The AMCs were to be disbanded after 10 years. Each of the AMCs was provided 10 billion yuan ($1.6 billion) in initial capital by the Ministry of Finance in exchange for AMC bonds. In order to raise additional operating capital, the AMCs issued 858 billion yuan in bonds in 2000 with a coupon yield equal to the one-year deposit rate. The bonds were mostly bought by the four major banks, effectively bringing the NPLs back onto their books, but "disguised" as a new type of asset. In addition, the PBOC provided the AMCs with 634 billion yuan ($99.7 billion) in loans. The AMCs used various means to attempt to recover the value of the NPLs. One of the main strategies was to bundle the bad loans by province, debtor, or industry and then sell the resulting loan portfolios to domestic and foreign investors. Among the U.S investors in the AMCs loan portfolios were Bank of America, BNY Mellon, Cargill, and Citigroup. The asset recovery record for the AMCs through the first quarter of 2006 was below China's expectations of a 30% recovery rate. According to the CBRC, the four AMCs had disposed of 866.3 billion yuan ($136.2 billion) in loans, with a cash recovery of 180.6 billion yuan ($28.4 billion)(see Table 12 ). The resulting asset recovery rate was 24.2%, and the cash recovery rate was 20.8%. Based on the assumption that the easier-to-collect loans had been the first disposed of by the AMCs, China's banking officials decided to revisit the organization and operation of the AMCs. The MOF decided to make two significant changes in the AMCs. First, the AMCs would be allowed to engage in a broader range of asset management activities, including purchasing share in other companies, as a means of providing them with more revenue. Second, the MOF sold minority interest in the AMCs to selected domestic investors. The Agricultural Bank of China acquired a 49% of China Great Wall AMC. China Construction Bank acquired 48% of China Cinda AMC. ICBC purchased 48% of China Huarong AMC. Bank of Communications obtained an unknown share of China Orient AMC. As a result, three of the four original major banks not only became large holders of dubious AMC bonds, they also became major equity owners in the possibly insolvent AMCs, raising questions about the underlying strength of the banks. By 2008, the Chinese government's efforts to improve to underlying financial situation of its major banks had improved the appearance of the banks' balance sheets, but had seemingly done little to address the outstanding NPL problem. While a large portion of the banks' NPLs had been explicitly removed from the books of the banks, they had subsequently returned to their list of assets renamed as AMC bonds and investment holdings in the AMCs. The problem of unresolved loans remains an issue for China's banks. A second source of possible financial troubles for China's banks emerged out of the combined effects of China's post-global financial crisis stimulus program, flaws in local government financing, and the credit decisions of the banks. A new innovation in local finance called "local government funding platforms" is playing a central role in what may mature into a sharp rise in NPLs for China's banks. The global financial crisis of 2008 seemed to catch China, and the rest of the world, off guard. To offset the sharp decline in global demand and the resulting slowdown in China's growth, the Chinese government announced in November 2008 a two-year, 4 trillion yuan ($629 billion) stimulus program designed to improve overall economic growth, invest in the nation's infrastructure, and stimulate domestic consumer demand. According to the stimulus plan, 1.2 trillion yuan ($188 billion) of the funding would be provided by the central government; local governments would be responsible for 2.8 trillion yuan ($440 billion). For the local governments, funding 70% of the stimulus program was a serious challenge. Local governments in China are limited in the ways by which they can raise revenues. Local government cannot directly issue bonds. As a result, many local governments were unable to finance the stimulus program via regular means. Instead, they turned to an innovative method of raising revenues commonly known as "local government funding platforms." The local government funding platforms involved the local government creating a separate incorporated entity for the purpose of financing the various local projects that were part of the national stimulus program. These entities, or "local investment companies" (LICs)—often given names using such words as "development" and "investment"—were given land use rights or development rights to designated locations by the local governments. The LICs would then use these rights to obtain loans from local banks or to issue bonds—which were often purchased by the local banks—to raise the necessary capital to develop the land or build the specified project. In some cases, the LICs resold the development rights to other companies. According to China's National Audit Office, 6,576 LICs had been created by June 2011 with a total debt of 4.97 trillion yuan ($782 billion). According to a survey by PBOC and CBRC, the local government funding platforms had borrowed 6 trillion yuan by September 2009, primarily from banks. The CBRC determined that 14% of new credit issued in China in 2009 was to local government funding platforms. The details of these loans varied, but in many cases, the underlying value of the land was used as collateral for the loans. In other cases, rather than provide loans, the banks apparently negotiated reverse repurchase agreements with the LICs. While an official breakdown is not available, it appears that city commercial banks and "private" banks were particularly active in providing credit to local government funding platforms. At a national level, it appears that China's credit market was unable to effectively absorb the national stimulus program. While much of the funding went to infrastructure construction and other useful development projects, a significant portion of the funds was used by local companies to purchase stocks on China's stock market and make real estate investments. As a consequence, property values in many Chinese cities rose dramatically. This, in turn, led to inflated real estate prices, which raised the amount of credit made available by banks to local government funding platforms. The possible excessive provision and misallocation may have been exacerbated by central government pressures on local banks to provide more credit to small and medium-sized enterprises. The initial reaction of bank managers to the stimulus program reportedly was to offer more credit to its more reliable customers, which were usually larger state-owned enterprises. Subsequently, the PBOC indicated that the banks should make sure that other customers received a reasonable portion of the stimulus credit. According to some accounts, the banks' credit officers lacked the experience or the resources to adequately assess the risk associated with the large volume of loans being approved. The threat of rising NPLs appeared to be mounting. In the fall of 2011, the City of Wenzhou in Zhejiang Province, nationally known as the birthplace of the model for the development of private enterprise in China during the 1980s and a major high-speed rail crash in July 2011, once again captured national attention as dozens of private entrepreneurs closed their factories, stores, and businesses, and fled town to escape their creditors. Despite strong sales and factory orders, the business owners faced financial ruin because of their inability to service loans secured via the city's "underground banks." By October 5, the crisis was so severe that Premier Wen Jiabao and PBOC Governor Zhou Xiaochuan visited the city to discuss ways of preventing any spread of the financial instability. The Wenzhou financial crisis exposed a previously unseen and underappreciated vulnerability in China's banking system. Unable to obtain loans from China's banks, private companies in Wenzhou and across the country had turned to "underground banks" to obtain their desired credit. Estimates of the size of the "underground" loan market vary, ranging up to 4 trillion yuan ($630 billion). The credit, however, came at a high cost; interest rates for "underground bank" loans reportedly ran as high as 180% in some cases. A spokesperson for the CBRC, however, estimated that underground interest rates varies from 14% to 70%. By comparison, Chinese banks at the time were offering lending rates between 7% and 8% for commercial loans. A survey by the PBOC branch in Wenzhou revealed that 89% of Wenzhou households and 60% of the local businesses were involved in underground banking in some form. The largely unregulated and unmonitored "underground banks" had grown rapidly prior to the outbreak of the Wenzhou financial crisis for several reasons. The strict ceilings on interest rates for deposit accounts had provided an incentive for some people and businesses to seek higher rates of return for their cash holdings. The tightening of monetary policy which followed China's post-global financial crisis stimulus package had reduced the amount of credit Chinese banks could offer. Rising prices for real estates and stocks stimulated speculative behavior by individual investors and commercial businesses. Seemingly unbeknownst to China's banks and its financial regulators, businesses took cash obtained from commercial loans with banks and lent it to private businesses and individuals—who in turn, sometime lent the money to other businesses and individuals—at the higher "underground" interest rates. Some reports say that government officials and bank officers also participated in underground lending, using their positions to obtain loans from the banks. This created the mechanism whereby the collapse of the underground banks of Wenzhou threatened to spread to China's banking system. It is believed that much of the money raised by underground loans was invested in real estate and the stock market. When prices for real estate and stocks stopped their rapid ascent, the creditors defaulted on their "underground' loans. No longer receiving payments on the credit they had provided in underground loans, many of the holders of the commercial bank loans were unable to service their debt and the Chinese banks saw a rise in the NPL rates. As Wenzhou's financial crisis subsided (see " Government Response to Non-Performing Loan Concerns "), concerns about underground banking receded in the news. The issue reemerged just prior to Chinese New Years, a time when people traditionally attempt to settle all their debts. China Daily published a special weekly supplement in early January that included multiple stories on underground banking, the credit crunch for private enterprises, and the government's response to these economic problems. The supplement's lead story portrays a mixed picture of the underground banking situation, with some commentators worried that a new crisis could emerge and critical of the government's response, and other commentators maintaining that efforts to provide private enterprises with credit and improved oversight will prevent a reoccurrence of the events in Wenzhou. The CBRC was the first government agency to perceive the possible risk associated with the surge in credit accompanying the stimulus program and the emergence of local government funding platforms. In March 2009, the CBRC warned China's banks and local governments about the possible rise of NPLs. In the spring of 2009, the CBRC required China's commercial banks to review their loans to local government funding platforms and restructure them as necessary to reduce the risk of non-payment. In addition, the CBRC conducted a stress test study of China's banks to determine if they could withstand a sharp decline in property values. The CBRC's initial stress test conducted in 2009 considered the impact of a 30% decline in property values on the financial health of the banks. According to the study, a 30% decline would increase the NPL rate by 2.2% and the bank's pre-tax profits would decline by 20%. In general, the banks would survive the market decline. In April 2011, the CRBC ordered the banks to conduct a subsequent stress test examining the effects of a 50-60% drop in property values. The results of the second set of stress tests have not been released, but CBRC Chairman Liu Mingkang said in October 2011 that China's banks could sustain a 40% price drop in the real estate market. In addition to conducting stress tests, the CBRC has introduced new requirements for the management of Chinese banks' lending practices. The new requirements—collectively known as the "Three Rules and One Guideline"—consist of: Provisional Rules on the Management of Fixed Assets; Provisional Rules on the Management of Working Capital; Provisional Rules on the Management of Retail Loans; and Guidelines on Project Financing. According to CBRC, the "Three Rules and One Guideline" are designed to tighten loan management by controlling the dispersal of credit until the funds are to be used, providing credit only to the extent needed by the borrower, strengthening loan contract enforcement, and maintaining supervision of the loan throughout the lending process. In a reported effort to provide local governments with a new way to raise funds, the State Council approved a pilot program allowing Guangdong Province, Shanghai Municipality, Shenzhen Municipality, and Zhejiang Province to issue three- or five-year bonds. The pilot program will be supervised by the Ministry of Finance, which will handle the servicing of the local government bonds. Each of the four local governments reportedly were provided a bond quota. If successful, the pilot program may be expanded to include more local governments. With respect to the risks associated with underground banking, after the Wenzhou crisis arose, China's financial regulators moved to stem the crisis and to monitor and regulate underground banking. In November 2011, the City of Wenzhou reportedly asked for $60 billion yuan ($9.4 billion) in financial stability support from the Zhejiang Provincial Government to help out local banks and companies damaged by the underground banking crisis. In addition, the CBRC says it has erected "firewalls" between China's financial institutions and underground lending to reduce the commercial banks' exposure to the underground banking risks. China's financial leaders are also considering their options for more long-term solutions to the underground banking problem. PBOC Governor Zhou sees a role for what he calls "informal financing" if it plays "a positive role in supporting the real economy," but opposes usury. Other commentators say China needs to develop long-term finance vehicles to supplement the existing short-term, high interest funding currently available from Chinese banks. Other alternatives being discussed are requiring the registration of all private loans and training banks to better assess the risks associated with lending to private companies. Despite the growing concern by the CBRC and market analysts, many observers considered the financial situation of China's banking sector at the end of 2010 to be reasonably strong (see Table 13 ). All the major types of banks were showing a profit and the NPL rate was quite low, particularly for a developing economy. Net profits were up 34.5% from the previous year; the value of NPLs was down 12.8%. According to Asian Development Bank, China's ratio of NPLs to total loans as of June 2011 was 1.0%—higher than Hong Kong (0.6%) and Taiwan (0.5%), but lower than South Korea (1.6%) and Thailand (3.2%). However, signs of underlying problems with China's banks continue to appear. Financial reports for a number of Chinese commercial banks for the first half of 2011 reported a notable increase in overdue loans. Of the four equitized banks, only the Agricultural Bank of China did not report a rise in overdue loans. A number of banks saw the value of their overdue loans rise by over 10% compared to a year ago. While overdue loans are technically not considered NPLs, the sharp increase was a cause of concern for CBRC and market analysts. In June 2011, a report from China's National Audit Office (NAO) revealed that local government debt as of the end of 2010 exceeded 10.7 trillion yuan ($1.7 trillion). A few days after the NAO results were disclosed, Moody's announced the results of their own estimates of local government debt in China, stating that the correct figure may be as high as 14.2 trillion yuan ($2.2 trillion). As much as 1.84 trillion yuan ($290 billion) of the outstanding local debt will become due in 2012. According to Moody's, China needs to develop a "clear master plan" to resolve the local debt problem, or China's banks will face a sharp rise in their NPL rates. Various market analysts have attempted to assess the local debt situation in China and its implications for China's banks. Fitch Ratings claims that the NPL rate in China is likely to rise to 5% and could reach 15%, depending on how well the Chinese government responds to the situation. In a survey of financial institutions involved in the Chinese market, 84% of the respondents said that local government debt would create a major NPL problem sometime in the next two years, with the majority expecting the problem to emerge in 2013. The average projection for the NPL rate among the respondents was 15%. A Credit Suisse study projected that the NPL rate in China will rise to 12% in the next few years and equal 60% of the value of total bank equity. The China's financial regulators appear to be preparing additional measures to reduce a sharp increase in NPLs and the resulting threat to the financial situation of China's banks. In April 2011, the CBRC said that banks needed to take steps to "prevent the loan risk associated with local government funding platforms." In addition, the CBRC called for financial institutions to strictly abide by policies issued by the central government concerning lending practices for real estate and commercial loans. The Ministry of Finance was reportedly considering transferring 2-3 trillion yuan ($314 billion - $472 billion) of debt from the books of local governments partially to the central government and partially to "newly-created companies," but so far no action has been taken. The CBRC is reportedly considering new regulations that would tie a bank's reserve requirement to the quality of its loan portfolio. Other CBRC initiatives include reforming China's laws and regulations governing the closure of insolvent financial institutions, establishing a deposit insurance system, and further deregulation of interest rates. The CBRC is reportedly also considering long-term extensions of bank loans to local governments. The underlying principles for most of these changes appear to be making the banks responsible for their financial situation and lowering the central government's exposure to the potential cost of rescuing China's banks and local governments. The media and reports about China's banking system are replete with allegations that Chinese banks provide subsidized loans to preferred companies—usually state-owned enterprises (SOEs)—as part of a central government strategy to make Chinese companies more domestically or globally competitive. Such claims are regularly made by the U.S. government, U.S. businesses, scholars, and others. The Chinese government acknowledges that past financial policies did provide SOEs with preferential loans, but asserts that the recent banking reforms have effectively ended these policies and that lending is now being done on a commercial basis. Some scholars maintain that recent lending patterns—particularly after the 2007 global financial crisis—provide evidence that the central government by and large no longer directs banks to provide preferential credit to SOEs, and that banks are extending credit largely on a commercial basis. The alleged bank subsidies of SOEs in China has become one of the issues raised in the larger discussion of China's supposed unfair competitive practices in world trade. The World Trade Organization's Agreement on Subsidies and Countervailing Measures defines a subsidy as financial contribution by a government or public body within the territory of a WTO member, which confers a benefit. To be WTO actionable, the subsidy must be shown to have an adverse effect on the complaining WTO member, either by injuring its domestic industry, diminishing the value of some form of trade benefit (e.g.—preferential tariffs), or seriously prejudicing its interests. The U.S. government has released evidence it argues demonstrates the Chinese government is providing subsidies by means of credit. It has submitted a request to the World Trade Organization's (WTO) Committee on Subsidies and Countervailing Measures for information on possible Chinese subsidies. In addition, the International Trade Administration (ITA) has on several occasions considered countervailing duty (CVD) petitions containing claims that China is providing actionable credit or loan subsidies. On October 11, 2011, the U.S. government submitted to the WTO Committee on Subsidies and Countervailing Measures a request that the Committee be notified of approximately 200 possibly non-compliant subsidies provided by China's central and local governments to Chinese enterprises. Of the cases listed in the request, seven explicitly refer to either preferential policies of the CBRC or interest or loan subsidies. The documents in question require Chinese banks to establish special procedures to review credit applications made under central government programs designed to promote "major national scientific and technological projects" or "hi-tech enterprises." However, the documents also contain language explicitly stating that any credit provided should be based on various commercial criteria. The documents do not contain any direct statement that the enterprises in question should be given preferential credit terms. Allegations that the Chinese government is providing preferential loan programs to selected Chinese enterprises are also found in CVD petitions submitted to the ITA. The ITA has been conducting CVD claims against China since 2007. Many of the CVD petitions include allegations that Chinese enterprises are receiving various forms of loan or credit subsidies. Among the types of subsidies most frequently mentioned are: preferential loans to SOEs; preferential loans for "key projects;" preferential lending to "honorable enterprises;" discount loans for export-oriented enterprises; and special provincial loan programs. However, the preliminary ITA assessments generally have stated that the petitioners provided insufficient evidence to warrant investigation into the loan subsidy claims. One notable CVD case was a 2007 petition regarding coated free sheet paper from China. In a memorandum regarding the market economy status of the industry, the ITA determined that China's history of non-performing loans to SOEs—and the tendency to allocate a disproportionate share of credit to SOEs—had previously constituted evidence of the continuing non-market economy status of China. However, the memorandum continued by pointing to various aspects of China's economic reforms, including reforms of its banking system, as being sufficient to consider CVD petitions against China. A number of scholars and other analysts of China's financial markets argue that the State utilizes Chinese banks to provide state-owned enterprises and other selected companies with preferential loans. In its 2011 Report to Congress, the U.S.-China Economic and Security Review Commission wrote, "China's largest banks are state-owned and are required by the central government to make loans to state-owned companies at below market interest rates and, in some cases, to forgive those loans." On February 15, 2012, Elizabeth J. Drake, a Partner with the Law Offices of Stewart and Stewart, stated in her testimony at a hearing of the U.S.-China Economic and Security Review Commission, "SOEs in China enjoy significant advantages due to their preferential access to credit and debt forgiveness from state-owned banks …" According to Drake, concessional export credits and export credit guarantees provided by China Development Bank and China Ex-Im Bank are major sources of State-directed financial subsidies for SOEs, totaling as much as $100 billion per year—about the total cumulative exposure limit for the U.S. Export-Import Bank. Song Ligang, Associate Professor of Economics at the Australian National University, presents a more mixed picture of China's banking subsidies for SOEs. According to Song, "Interest rate controls have served to maintain the market dominance of state banks, which have long directed most of their lending to state-owned enterprises." In short, the combination of a state policy (interest rate controls) and lending bias by the state banks has resulted in a de facto subsidization of SOEs. In addition, Song maintains that the failure of non-state financial institutions to emerge has led to the continuation of the unintended subsidies. Adam S. Hersh, an economist at the Center for American Progress, offered a third understanding of bank subsidy issue in his testimony before the U.S.-China Economic and Security Review Commission. According to Hersh, local government officials—not the central government—are the predominant source of outside influence in the allocation of credit by Chinese banks. Hersh stated in his testimony, "(L)ocal government officials have directed this support to both government-owned and private-owned companies with a goal of promoting overall economic and export growth." In his assessment, Hersh maintained, "not all domestic bank credit is used to support SOEs on a non-commercial basis. World Bank economists Robert Cull and Collin Xu find that firms receiving bank loans in China tend to be of higher productivity." A recent book, Inside China, Inc. , focuses on the role of China Development Bank (CDB) in the overseas investments by Chinese enterprises in energy and natural resources. The author, Erica Downs, a research fellow at the Brookings Institute, generally downplays the notion that lower interest rates imply loan subsidies, stating: The fact that CDB may be lending at interest rates lower than what a western bank might require does not mean that it acts simply as an agent of state policy with no regard to profit. Instead, CDB balances its commitment to profitability and its mandate to advance the policy priorities of the Chinese government. On a straight commercial basis, it may be rational for CDB to accept lower interest rates than western banks because CDB is backed by the Chinese government. Chinese officials and bank officers acknowledge that in the past the central government played an active role in the allocation of loans and credit, and that SOEs were provided preferential terms over other types of enterprises, generally in the form of lower interest rates or debt forgiveness. However, in interviews with CRS, they contend that since the "equitization" of most of the previously state-owned banks and the reform of bank management policy, the newly-established Chinese commercial banks autonomously decide to whom to provide commercial loans. Xiao Gang, chairman of the Bank of China, echoes the response of Chinese banking officials in an article he wrote in 2010. Following a rapid rise on bank lending, Xiao notes, "Many people have reason to believe that China's lending spree last year …was the result of government intervention. The evidence seems obvious—the government holds controlling stakes in those banks and appoints the chairpersons and the CEOs." However, Xiao asserts, "Since the major State-owned banks have undergone a process of commercialization, from financial restructuring to forming foreign strategic partnerships to going public, they have generated a strong internal and market-driven desire to increase their lending. They did not act on government orders [emphasis added]." Later on, Xiao is more emphatic in his denial of government intervention in bank lending practices, stating, "As a chairman of a bank, I have never received any instructions from the government to lend money to any project. All decisions relating to business were made either by the board, or by the management." The claims that the Chinese government is directing Chinese banks to provide preferential loans to selected enterprises generally relies on two types of financial evidence: 1. that the selected enterprises are being provided a disproportional share of loans or credit; and 2. that the terms of the loans being provided to the selected enterprises are based on preferential treatment, usually in the form of lower interest rates. In addition, to demonstrate that the greater access and preferential terms of the loans constitute a government subsidy, it has to be shown that the loans are not based on commercial considerations, but are the result of the Chinese government directing the banks to provide the preferential loans. What follows is a separate examination of the available data for credit access and interest rates for China's SOEs, and within those sections, a discussion of the issue of government direction of bank lending behavior. One of the key forms of evidence of Chinese banks subsidizing SOEs is the reported disproportionate share of credit extended to SOEs relative to other forms of enterprises in China. Almost 70% of state-owned commercial bank new loan commitments in 2001 were given to SOEs, according to Pieter Bottelier. According to the PBOC, "loans to non-financial enterprises and other sectors"—a proxy some scholars use to estimate loans to SOEs and local government funding platforms—totaled 5.04 trillion yuan ($793 billion), or 67.5% of total new loans for the year, which is slightly lower than Bottlier's estimate for 2001. In addition, some observers claim that the SOE's preferential access to credit increased when the Chinese government implemented a stimulus package following the 2007 global financial crisis. However, Nicholas R. Lardy, a research fellow at the Peterson Institute for International Economics, maintains, "contrary to the often repeated assertion, bank loans in 2009-10 did not flow primarily to state-owned companies and that the access of both private firms and household businesses to bank credit improved considerably." In addition to be provided more than their fair share of credit, the SOEs supposedly have been subsidized by greater forgiveness of outstanding debt. The Chinese government has taken steps that appear to be in response to criticisms that SOEs are being provided a disproportionate share of commercial credit. The CBRC issued a new regulation in October 2011 designed to provide greater incentives to Chinese banks to offer loans to small enterprises. The new regulation allows banks to deduct loans of under 5 million yuan ($786,000) to small enterprises from the calculation of the bank's loan-deposit ratio, as well as reduces the weight of loans to small enterprises in calculating the bank's asset risk. The goal of the new regulation is to raise the growth rate for loans to small enterprises above the national growth rate of commercial loans. Other factors may also be influencing how Chinese banks allocate credit among potential borrowers. The three remaining policy banks, ADBC, CDB, and China ExIm Bank, remain under the direct control of the central government and are mandated to provide credit to support national development projects, and thus are more likely to provide loans to large SOEs chosen to head these projects. The "equitized" commercial banks have a history of lending to SOEs when they were fully state-owned, and may be more comfortable with lending to known clients than to new, and possibly riskier private enterprises. Similarly, city commercial banks have historically served as a major source of credit for local governments and local enterprises, leading the bank management to focus on their known clientele at the expense of smaller, newer private companies. The other major form of evidence frequently cited to support claims of Chinese banks subsidizing SOEs is the claim that SOEs are generally provided loans at lower interest rates than other types of companies in China. Because China does not report information on effective interest rates on commercial loans by type of enterprise, attempts to substantiate this claim have relied on independently compiled data based on information on individual loans available in the Chinese or international press. Such studies are inherently incomplete in their coverage, but may indicate if the claims have any basis in the observable data. It is generally agreed that prior to the initiation of financial reforms in 1997, the Chinese government fixed interest rates for both bank deposits and loans. In addition, Chinese banks were required to provide loans to SOEs at fixed interest rates lower than those extended to other types of enterprises. In the following years, interest rates on loans were gradually liberalized, allowing banks to determine the interest rate for a particular loan within a given range of a benchmark interest rate set by the PBOC (see Table 4 ). Eventually, the PBOC eliminated the ceiling on interest rates, but continued to set a benchmark interest rate. Throughout this period, the PBOC continued to set fixed interest rates for bank deposits. Caixin , an independent online economic news agency in China, reported in March 2011 that Unirule, an independent think tank in Beijing, had conducted a study of SOEs and determined that "the average annual interest rate for SOEs was 1.6 percent while the annual rate for private companies was 5.4 percent." However, an examination of the original Unirule report (in Chinese) reveals that the study, covering the years 2001 to 2005, estimated the effective interest rate paid on loans by dividing declared interest payments by the value of outstanding loans for each enterprise. The report's table show that the SOEs effective interest rate varied from 2.46% to 2.86%, while effective interest rate for private enterprises varied from 3.81% to 4.84%. For the five years covered in the Unirule report, the difference between the SOE and private enterprise effective interest rate varies from 0.95% to 2.41%. A 2009 study by the Hong Kong Institute for Monetary Policy used a different approach to determine if SOEs received preferential loan treatment by Chinese banks. Using National Bureau of Statistics information for about 160,000 Chinese firms, the study compared the cost of debt (interest payments/outstanding loans) for SOEs to other types of ownership. The study found that SOEs were charged 225 basis points (0.225%) less than private companies and 157 basis points (0.157%) less than the average interest rate in the selected sample. According to the authors, "The low costs of debt for SOEs seem to be neither justified on the grounds of better productivity nor on the basis of lower leverage...." However, the authors also note, "Obviously, the low costs of debt for SOEs might be explained by other factors. For instance, a major expected difference between the SOEs and private enterprises is asset size ... the data confirms that the costs of debt are noticeably lower as the firm size increases." The authors conclude, "(O)ur estimates show that if SOEs were to pay a market interest rate [i.e., the same interest rate as private enterprises], their existing profits would be entirely wiped out. Our findings suggest that SOEs are still benefiting from credit subsidies and they are not yet subject to the market interest rates." The authors also note two other important issues related to the issue of the alleged subsidization of SOEs by Chinese banks. They state in the introduction to the study, "It is well known that SOEs in China are quite reluctant to pay back their loans to SOCBs [State-Owned Chinese banks]." It is possible that the failure of SOEs to service their loans—thereby generating NPLs—may constitute a larger source of subsidization to SOEs in China than the alleged interest rate preferences. In addition, the authors observe that the relations between SOCBs and SOEs have historically been "politically influenced," implying that considerations other than commercial merit have affected the allocation of credit in China. Lardy offers an alternative explanation for the seemingly low interest rate loans Chinese banks provide to SOEs and other companies. Although the PBOC has eliminated the ceiling on bank lending rates, it has continued to fix the interest rate on deposits, with a built-in 2-3% margin (see Table 4 ). According to Lardy, "The government's policy of low interest rates on deposits indirectly depresses interest rates on loans. This occurs largely because of competition among banks." China's leadership apparently intend to continue to liberalize interest rates, but it is uncertain when and in what fashion this will occur. PBOC Governor Zhou wrote a speech on December 17, 2010 in which he laid out the reasons why China wanted to promote "market-based interest rate reform." In his speech, Zhou argued: (T)he key to market-based interest rate reform is that financial institutions have autonomy to price their products. Since the onset of reform, autonomy of enterprises has always been emphasized, including the essential pricing autonomy. As a result of the reforms, all financial institutions but policy ones operate on a fully commercial basis, and an important part of their autonomy is to independently price their products and services. Late in 2011, the PBOC's Monetary Policy Committee met in Beijing and decided to make efforts to "promote the market-based reform of the interest rates." No details were provided on what measures would be taken. On January 19, 2012, China Daily ran a story in which Li Mingxian, President of Guangdong Development Bank, called for the removal of the interest rate ceiling on time deposits of longer than one year duration. At present, two main aspects of China's banking systems may have significant implications for Sino-U.S. relations and by extension, for Congress. First, China's policies on credit and loans have been cited as a source of subsidization for Chinese companies, making it difficult for U.S. companies to compete in global markets. Congress could consider various options with respect to evaluating and responding to allegations of inappropriate bank subsidies in China. Second, China's intention to further liberalize its financial sector—including the further deregulation of interest rates—may create greater opportunities for U.S. banks and financial institutions to enter China's domestic market. However, domestic concerns about inflation may make Chinese officials cautious about implementing reforms that could lead to higher interest rates. Congress could look into ways of encouraging banking reforms in China that would be conducive to greater market penetration for U.S. banks. Under current U.S. law, the primary means by which U.S. entities can seek relief from perceived inappropriate bank subsidies in China is by submitting a CVD petition. In order for the bank subsidy to be considered in the CVD determination, the subsidy must either be a prohibited or actionable subsidy. For several years, some Members of Congress have advocated the reexamination of U.S. trade remedy laws. The 112 th Congress may consider modifying U.S. laws governing CVD petitions to include specific provisions regarding preferential loans, unwarranted credit provision, non-payment of loans, and other means by which banks can subsidize companies. In addition, Congress may chose to press the Obama Administration to respond to allegations of inappropriate bank lending practices at such fora as the Strategic and Economic Dialogues (S&ED) and the Joint Committee on Commerce and Trade (JCCT) meetings. Furthermore, Congress may consider asking the U.S. Department of the Treasury to investigate the lending practices of Chinese banks to determine to what extent the banking sector is operating on a commercial basis and if Chinese banks are a significant source of subsidization of Chinese enterprises and investment. Congress may also seek greater U.S. efforts to address bank subsidization at multilateral fora, such as the G20, as well as part of the on-going Doha Round negotiations. In his report to the National People's Congress March 2009, Premier Wen Jiabao called for the continuation of banking reforms in China. The reform of state-owned financial institutions were to be "deepened," and small and medium-sized financial institutions were to be "steadily" developed under "multiple forms of ownership." On December 31, 2010, however, PBOC Governor Zhou stated that while efforts would be made to continue financial reforms in 2011, the prevention of systemic risks and safeguarding financial stability would be priorities in China's monetary policy. It is unclear how China will balance Wen's call for further reforms with Zhou's concerns about financial stability. If implemented, Wen's proposed reforms may provide an opportunity for U.S. banks and other financial service providers to enter China's financial market. The exchange of information and ideas on possible reforms in China's banking sector may be a productive topic for future bilateral talks. The topics of China's banking reforms and China's compliance with its WTO accession agreement have been raised at past Strategic and Economic Dialogues (S&ED), as well as Joint Committee on Commerce and Trade (JCCT) meetings, and are likely to continue to be raised by the United States at future bilateral fora. It is also likely that China, for its part, will continue to raise its concerns about market access for Chinese banks in the United States. Chinese officials have claimed in the past that U.S. procedures for approving foreign bank branches is needlessly complex and that selective enforcement has discriminated against Chinese banks. The 111 th Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act ( P.L. 111-203 ), which, among other things, created a Bureau of Consumer Financial Protection within the Federal Reserve and consolidated bank regulation by merging the Office of Thrift Supervision (OTS) into the Office of the Comptroller of the Currency (OCC). China monitored congressional consideration of this act closely. Based on meetings with Chinese officials, one of their main concerns was how the new law would affect U.S. compliance with Basel III. It is possible that any additional reforms in China's financial system may reflect lessons learnt from Chinese officials' analysis of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The extent to which the 112 th Congress may choose to play a role in this issue remains to be seen. Under current law, Congress is to be advised on the proceedings of major bilateral meetings, such as the S&ED and the JCCT. In addition, the USTR is required to provide Congress with an annual report on China's WTO compliance. Congress could, if it should so choose, hold hearings or request briefings on China's financial reforms and their implications for U.S. market access. In addition, Congress could consider legislation designed to encourage or require China to fulfill its WTO obligations with respect to opening its financial services sector to foreign banks. | China's banking system has been gradually transformed from a centralized, government-owned and government-controlled provider of loans into an increasingly competitive market in which different types of banks, including several U.S. banks, strive to provide a variety of financial services. Only three banks in China remain fully government-owned; most banks have been transformed into mixed ownership entities in which the central or local government may or may not be a major equity holder in the bank. The main goal of China's financial reforms has been to make its banks more commercially driven in their operations. However, China's central government continues to wield significant influence over the operations of many Chinese banks, primarily through the activities of the People's Bank of China (PBOC), the China Banking Regulatory Commission (CBRC), and the Ministry of Finance (MOF). In addition, local government officials often attempt to influence the operations of Chinese banks. Despite the financial reforms, allegations of various forms of unfair or inappropriate competition have been leveled against China's current banking system. Some observers maintain that China's banks remain under government control, and that the government is using the banks to provide inappropriate subsidies and assistance to selected Chinese companies. Others claim that Chinese banks are being afforded preferential treatment by the Chinese government, giving them an unfair competitive advantage over foreign banks trying to enter China's financial markets. While some question what they characterize as unfair competition in China's banking sector, others are concerned that many of China's banks may be insolvent and that China may experience a financial crisis. According to these commentators, efforts to resolve a serious accumulation of non-performing loans (NPLs) only disguised the problem. In addition, China's NPL situation may have been worsened by its November 2008 stimulus program and the emergence of "local government funding platforms" that generated an estimated $1.7 trillion in local government debt. A financial crisis in the city of Wenzhou revealed the previously underappreciated risk associated with China's "underground" banking activities. Some analysts fear that a sharp decline in China's property values could precipitate a financial crisis that could effect the U.S. economy. China's banking system raises two key issues that may be of interest to Congress. First, Congress may choose to examine allegations of inappropriate bank subsidies to major Chinese companies, particularly state-owned enterprises (SOEs). Second, under its World Trade Organization (WTO) accession agreement, China was to open its domestic financial markets to foreign banks. Congress may consider reviewing China's compliance with the WTO agreement and press the Obama Administration to raise the issue with the Chinese government. This report will be updated as circumstances warrant. |
Two of the major goals of the Elementary and Secondary Education Act (ESEA), as amended by the No Child Left Behind Act of 2001 ( P.L. 107-110 ; NCLB), are to improve the quality of K-12 teaching and raise the academic achievement of students who fail to meet grade-level proficiency standards. In setting these goals, Congress recognized that reaching the second goal depends greatly on meeting the first; that is, quality teaching is critical to student success. Thus, NCLB established new standards for teacher qualifications and required that all courses in "core academic subjects" be taught by a highly qualified teacher by the end of the 2005-2006 school year. During implementation, the NCLB highly qualified teacher requirement came to be seen as setting minimum qualifications for entry into the profession and was criticized by some for establishing standards so low that nearly every teacher met the requirement. Meanwhile, policy makers have grown increasingly interested in the output of teachers' work; that is, their performance in the classroom and the effectiveness of their instruction. Attempts to improve teacher performance led to federal and state efforts to incentivize improved performance through alternative compensation systems. For example, through P.L. 109-149 , Congress authorized the Federal Teacher Incentive Fund (TIF) program, which provides grants to support teacher performance pay efforts. In addition, there are various programs at all levels (national, state, and local) aimed at reforming teacher compensation systems. The most recent congressional action in this area came with the passage of the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ) and, in particular, enactment of the Race to the Top (RTTT) program. The ARRA appropriated $4.35 billion to the U.S. Department of Education (ED) for the RTTT program. Since that time, appropriations legislation has continued to fund the RTTT program in FY2011 (approximately $700 million) and FY2012 (approximately $549 million). Eligibility for funds is dependent on four broad areas of school reform outlined by ED: adopting standards and assessments that prepare students to succeed in college and the workplace and to compete in the global economy; building data systems that measure student growth and success, and inform teachers and principals about how they can improve instruction; recruiting, developing, rewarding, and retaining effective teachers and principals, especially where they are needed most; and turning around the lowest-achieving schools. Two of the four school reform areas specifically address teacher improvement and teacher effectiveness. By articulating these reform areas, ED has provided an incentive to states to become more systematic about using student data to inform teacher instruction and to measure teacher effectiveness. The latter point is elaborated on in the discussion that follows pertaining to the definition of effectiveness (i.e., "effective teacher") included in ED's RTTT final rule. In November 2009, ED released a final rule of priorities, requirements, definitions, and selection criteria for the RTTT, which provided details on how states are expected to address the four school reform areas. In the area of teacher effectiveness, the final rule proposed a definition of an effective teacher as one "whose students achieve acceptable rates (e.g., at least one grade level in an academic year) of student growth (as defined in this notice)." That is, to be considered effective, teachers must raise their students' learning to a level at or above what is expected within a typical school year. States, LEAs, and schools must also include additional measures to evaluate teachers; however, these evaluations must be based, "in significant part, [on] student growth." This report addresses issues associated with the evaluation of teacher effectiveness based on student growth in achievement. It focuses specifically on a method of evaluation referred to as value-added modeling (VAM). Although there are other methods for assessing teacher effectiveness, in the last decade, VAM has garnered increasing attention in education research and policy due to its promise as a more objective method of evaluation. Considerable interest has arisen pertaining to the feasibility of using VAM on a larger scale—for instance, to meet RTTT program eligibility requirements concerning the evaluation of teacher performance. This report has been prepared in response to numerous requests for information on this topic. While no federal program has specified VAM as the approach that should be used to link teacher performance to student achievement, this examination of the feasibility of implementation and relevant policy implications may generate insights that are helpful in consideration of the use of VAM and alternative approaches to linking student achievement to teacher performance. The first section of this report describes what constitutes a VAM approach and how it estimates the so-called "teacher effect." The second section identifies the components necessary to conduct VAM in education settings. Third, the report discusses current applications of VAM at the state and school district levels and what the research on these applications says about this method of evaluation. The fourth section of the report explains some of the implications these applications have for large-scale implementation of VAM. Finally, the report describes some of the federal policy options that might arise as Congress considers legislative action around these issues. VAM is a quasi-experimental method that uses a statistical model to establish a causal link between a variable and an outcome. In education, VAM has been used to establish a link between teachers and the achievement of students within their classroom. This method of modeling is seen as promising because it has the potential to promote education reform and to create a more equitable accountability system that holds teachers and schools accountable for the aspects of student learning that are attributable to effective teaching while not holding teachers and schools accountable for factors outside of their control (e.g., the potential impact of socioeconomic status on student learning). VAM is actually a flexible set of statistical approaches that can incorporate many different types of models. Some models use student achievement as an outcome and others use student growth. Some models attempt to link teachers to student achievement while other models attempt to link both teachers and schools to student achievement. Although many types of VAM approaches are possible, this report refers to all of these approaches as VAM. There are common elements across these VAM approaches that have policy implications, and these common elements will be explored in the following sections. VAM is not necessarily equivalent to other "value-added assessment" systems. Some use the term "value-added assessment" to include any method of analyzing student assessments to ascertain growth in learning by comparing students' current level of learning to their own past level of learning. There are some "value-added assessment" systems that do not use VAM, and there are other "value-added assessment" systems that do use VAM. While there are many "value-added assessment" systems, many of them do not use statistical modeling to compare a student's actual growth to a level of expected growth (e.g., one year of academic achievement, average student growth for a school, or some other measure of expected growth). Without comparing actual growth to some pre-defined level of expected growth, a "value-added assessment" system may not be estimating teacher effectiveness. Because the focus of this report is on the estimation of teacher effectiveness—a prominent provision in the RTTT grant competition—only VAM approaches, and not other "value-added assessment" systems, are considered. There are numerous factors that influence student achievement, including past educational experiences, home and neighborhood experiences, socioeconomic status, disability status, the classroom teacher, and so on. VAM recognizes that there are multiple factors that contribute to learning and is therefore designed with the intention of isolating the teacher's effect on student learning. The "teacher effect" is an estimate of the teacher's unique contribution to student achievement as measured by student performance on assessments. It is isolated from other factors that may influence achievement, such as socioeconomic status, disability status, English language learner (ELL) status, and prior achievement. One important feature of the teacher effect is that it is a statistical estimate of teacher effectiveness. The teacher effect is simply a statistical value or number, whereas teacher effectiveness is the actual phenomenon being estimated. Another important characteristic of the teacher effect is that it cannot determine why a teacher is effective or ineffective, nor does it provide any information on the specific characteristics of what makes a teacher effective. The teacher effect is no more or less than an estimate of the amount of influence a teacher has on the achievement of students in his or her classroom in the content areas being assessed. Defining a teacher effect is critical to the utility of VAM. If VAM is used to estimate teacher effectiveness, it may be advisable to define the teacher effect consistently across schools, districts, or states, depending on the conclusions one would like to make about teachers (i.e., comparisons of teacher effectiveness across schools, comparisons of teacher effectiveness across districts, or comparisons of teacher effectiveness across states). A teacher effect can be defined in multiple ways depending on two major features: (1) the "plausible alternative," and (2) the other factors in the model (e.g., socioeconomic status, disability status, ELL status, prior achievement, and so on). The first feature—the "plausible alternative"—defines a teacher effect relative to some other realistic alternative. For example, the teacher effect can be defined relative to the average teacher within a school, average teacher within a district, average teacher within a state, or some other alternative. In current applications of VAM, teacher effects are often estimated relative to the average teacher within a district. Defining the teacher effect in this way may make sense if the goal is to provide information about teacher effectiveness relative to others in the district; however, this definition makes it difficult to make comparisons of teachers across districts within a state. If policy makers pursue the use of VAM approaches, the policy may need to clearly describe the desired comparisons to be made. The second feature—the other factors in the model—defines how precisely a teacher effect is isolated from other factors that are not attributable to the teacher but can nonetheless affect student achievement. VAM approaches usually include "covariates," which are factors that are thought to affect student achievement but are not attributable to the teacher. For example, one covariate that is often used in VAM is socioeconomic status. By adding covariates in VAM, the model attempts to essentially remove the influence of other factors on student learning. By doing this, the teacher effect is isolated and the modeled teacher effect does not, in theory, reflect student learning that is attributable to these other factors. To maintain consistency in the definition of a teacher effect, VAM approaches may need to use the same covariates across settings. The use of covariates influences the amount of student achievement that can be directly attributed to a teacher. For example, if a large number of covariates are added to the model, much of a student's achievement may be attributed to these factors, leaving a small amount that can be influenced by the teacher. In this scenario, the teacher effect may be accurately isolated, but the magnitude of the effect may be small. If a small number of covariates are added to the model, much of a student's achievement is available to be explained. In this scenario, the teacher effect may not be well isolated, but the magnitude of the effect has the potential to be large. If policy makers pursue the use of VAM approaches, the policy may need to clearly describe the covariates of interest that should be included in a model that attempts to isolate the teacher effect. The use of covariates in VAM is appealing because it allows the teacher effect to more accurately reflect his or her contribution to student performance; however, the use of covariates also introduces several conceptual difficulties for policy. For example, consider the use of socioeconomic status as a covariate. If a student comes from a family of low socioeconomic status, it is likely that this will explain a portion of his or her achievement within the model. Historically, students from families of low socioeconomic status tend to have lower scores on student assessments than students from families of higher socioeconomic status. Should policy assume that socioeconomic status may influence student scores and not make teachers responsible for attaining equitable achievement of students from low socioeconomic status? Or, should policy acknowledge that a factor like socioeconomic status is outside of the control of a classroom teacher and should be taken into consideration when evaluating that teacher? As another example, assume that one of the covariates in the model is disability status. If the model allows a student's disability status to explain a portion of achievement, is that acceptable? Or, should policy expect teachers to be equally effective in teaching students with disabilities and students without disabilities? These are important underlying questions that can inform the use of VAM. Answers to these questions are difficult and depend on the overall goal of education policy. Using VAM to estimate teacher effectiveness has the potential to provide clear, useful information to teachers, principals, and policy makers about which teachers are influencing student learning in a positive way. If principals and policy makers can identify effective teachers, they may be able to begin the process of understanding what makes them effective and promote policies and practices that may increase the effectiveness of other teachers. Although the positive potential for using VAM to gauge teacher effectiveness is considerable, VAM is conceptually complex and computationally difficult. The sections below discuss some of these complexities, including the database requirements that must be in place prior to using VAM and the decisions that must be made when calculating a teacher effect. Although there are many statistical issues to consider, the sections below primarily discuss how the statistical complexities of VAM may influence policy decisions regarding the use of VAM to estimate teacher effectiveness. To conduct an analysis using VAM, a sophisticated database must be in place, possibly for several years before an analysis can be carried out. The first requirement of a database for VAM is that it must have longitudinal data; that is, the database must include test scores from multiple grades for individual students. Ideally, the test scores would come from the same assessment, and that assessment would have known psychometric properties, such as reliability and validity. Second, the database must have variables that link students to teachers. In some cases, this link could be fairly simple. For example, an elementary school teacher who is completely responsible for teaching a class of 20 students could be linked to the assessment scores of these students in a relatively straightforward way. In other cases, this link is not as clear. For example, many students are taught by multiple teachers, such as a regular education classroom teacher and a special education teacher or an English language teacher. In higher grades, students often have multiple teachers—one for each subject. Linking multiple teachers to a student's assessment score is a difficult process that requires some forethought: What fraction of the student's learning should be accounted for by each teacher? In higher grades, which teacher should be responsible for student performance on a reading assessment (e.g., history teacher, English teacher, etc.), given that most students do not explicitly learn "reading skills" in higher grades? Similarly, which teacher is responsible for student performance on a mathematics assessment (e.g., geometry teacher, algebra teacher, trigonometry teacher, etc.), given that a "mathematics" assessment may have items from multiple mathematics courses? Are all teachers responsible? If so, what fraction of student performance should be attributed to each teacher? A third requirement for databases is general information about the students, teachers, and schools that can be used as covariates in the model. At the student level, information about student race/ethnicity, socioeconomic status, disability status, and ELL status may be included in the database. In addition, any information on the student's family and neighborhood characteristics may be included. At the teacher and school level, information about teacher preparation programs, years of experience, and characteristics of the school may be useful covariates in VAM. In reality, however, information on students, teachers, and schools in large-scale databases is often limited, inaccurate, or missing completely, which may make the use of covariates in VAM inconsistent. Policy regarding the use of VAM may wish to consider which covariates are of interest when estimating teacher effectiveness, and ensure that schools and districts have the capacity to collect this information and report it accurately. Once an appropriate database is in place, an analyst can construct a specific model using a VAM approach designed to isolate the teacher effect, thus estimating teacher effectiveness. The estimation of a teacher effect requires the analyst to make decisions about the specific model to be used and the covariates to be included. These decisions can affect the results and influence the level of certainty of the teacher effect. The following sections discuss common factors that can influence the calculation of the teacher effect: general issues of statistical modeling; covariates, confounding factors, and missing data; and the use of student assessments. There are many types of VAM approaches that can estimate teacher effectiveness. Models differ along at least two dimensions: (1) how student achievement is conceptualized, and (2) how teacher effectiveness is conceptualized. In terms of how student achievement is conceptualized, some models use a single score on an assessment while others use "growth" or "gain scores" from one year to the next. While there are advantages and disadvantages to both methods, the important policy implication to consider is that teacher effects from VAM using a single score and teacher effects from VAM using gain scores may not be directly comparable. Furthermore, the way in which student achievement is conceptualized can affect the magnitude of the teacher effect. In some cases, teachers may be found to be "more effective" using a single score on an assessment than when using gain scores. In other cases, the opposite may be true. Again, an important consideration in the use of VAM is to predetermine the types of comparisons to be made with the results. Teacher effects may not be easily compared across different types of models with different conceptualizations of student achievement. In terms of how teacher effectiveness is conceptualized, some models consider teachers "fixed effects" while others consider teachers "random effects." Analysts may choose to use either "fixed effects" or "random effects" based on the goal of the VAM analysis. If the outcome of interest is to determine the effectiveness of teachers in a particular school or district relative to each other, it may make sense to consider teachers a "fixed effect." In this scenario, teachers within the same school or district could be compared to each other but not to teachers who were not included in the VAM analysis. If the outcome of interest is to determine the effectiveness of teachers relative to a "hypothetical teacher," it may make sense to consider teachers a "random effect." In this scenario, teachers could be compared more broadly to the hypothetical situation defined by the model. Both methods have advantages and disadvantages in modeling teacher effectiveness. Some researchers have suggested that using a "fixed effect" model may be preferable when using teacher effects within an accountability system; however, some current applications of VAM use a "random effects" model (e.g., the Tennessee Value-Added Assessment System; TVAAS). There are many statistical implications for specifying teachers as either "fixed effects" or "random effects," but, once again, an important policy consideration is the potential to make comparisons of teacher effectiveness. The teacher effect from a "fixed effects" VAM analysis and the teacher effect from a "random effects" VAM analysis may not be easily compared. It may be of interest, therefore, to specify the comparisons of interest before making these modeling decisions. Analysts must also make decisions about the components that constitute the VAM: covariates, confounding factors, and missing data. Decisions about how to include these components can affect the calculation of a teacher effect. Characteristics of a student or a student's environment that are believed to affect academic achievement but are not attributable to the teacher are called covariates. As discussed above, a covariate is included in a VAM analysis to "factor out" the amount of a student's academic performance for which the teacher is not responsible. By doing so, the teacher effect should be a true representation of the influence of the teacher on achievement and not the influence of so-called "uncontrollable" factors on achievement (i.e., the influence of covariates). Some of the most relevant covariates in education are factors such as socioeconomic status, disability status, ELL status, and expenditure per student. Although these are commonly discussed covariates, there may be many more covariates that affect student achievement—some of which are not apparent or cannot be easily measured. For example, some research has demonstrated that parental level of education or individual student motivation can influence student achievement, but this information is unlikely to be included as covariates in a VAM analysis because it is generally not available in statewide databases. Furthermore, there may be other covariates that influence student achievement that have not yet been uncovered. Without knowing all the variables that affect student achievement (and how to measure them), the teacher effect is not completely isolated from any influence of characteristics of a student or a student's environment that is not attributable to the teacher. This introduces bias into the teacher effect due to the influence of unknown factors. That is, a student's learning, or lack thereof, is mistakenly attributed to the teacher when, in reality, the learning may be a function of unmeasured school or community characteristics. Nevertheless, in practical terms, the use of known factors (e.g., covariates such as socioeconomic status) to measure teacher effects may be the most accurate method currently available to gauge how much a teacher contributes to student learning. In practice, however, it is possible that even the most accurate method may not be sufficiently precise to provide useful information to teachers and principals due to the unknown factors that are left out of the estimate of teacher effectiveness. This gap between the current state of research and the current needs of practice continues to be negotiated as VAM is used and studied in schools and districts. Another potential source of bias in the teacher effect may arise due to confounding factors. A confounding factor is something within the culture of the school, community, or neighborhood that can influence the teacher effect. This source of bias may negatively affect teachers who work in low-performing schools where the factors that cannot be measured likely influence student achievement in negative ways. For example, students in low-performing schools may live in communities with more widespread problems that affect student achievement, such as health problems (e.g., malnutrition and undiagnosed vision or hearing problems) or neighborhood factors (e.g., low expectations for academic success or lack of community resources for after-school activities). Although VAM can estimate a teacher effect that reduces the influence of confounding factors, it is difficult to completely isolate the "true" teacher effect from these factors. As such, policy regarding teacher effectiveness may again consider the appropriate comparisons of teacher effects. If teacher effects are to be compared within a school, the influence of confounding factors is less likely to be a problem because most students within a single school will be influenced by similar health and community factors. If teacher effects are to be compared across schools, districts, or states, the influence of confounding factors may introduce bias into the comparisons because of the diversity of health and community factors across schools, districts, and states. Finally, the issue of missing data can affect the teacher effect. In district-wide or statewide longitudinal databases, there generally is missing data. Due to high levels of student mobility and absence rates, information collected on students may be incomplete. In addition, cultural factors or language barriers may not allow for certain parent and community data to be collected. There are several methods that researchers use to deal with the problem of missing data; however, these methods have not been well tested in the context of VAM. It is unknown at this time how missing data would affect the teacher effect; however, student data that is missing in a nonrandom way may create bias. If student data is missing on a large number of students who are highly mobile or have numerous absences, this missing data is nonrandom (i.e., students who are frequently absent have a greater chance of having missing data than students who are not frequently absent). Since students who are highly mobile or have numerous absences are likely to perform at a lower level than other students, the missing data may bias the teacher effect depending on how an analyst chooses to deal with missing data. For example, if students who have missing data are excluded from the analysis, the teacher effect may be positively biased and the teacher may appear more effective than his or her true level of effectiveness. Alternatively, if students who have missing data are assigned an "average" value for their missing data, the teacher effect may be negatively biased because the covariates explaining low achievement are not appropriately used in the model. Student achievement is measured through the use of assessments. Results of student assessments are used for many purposes, one of which is to evaluate programs and policies. If states choose to incorporate VAM within teacher evaluation systems, it is unclear at this time whether the VAM analyses would be conducted with existing state assessments or whether states would choose to develop new assessments. Currently, states are required by NCLB to conduct assessments in reading, mathematics, and science for grades 3 through 8 and once in high school. If states choose to use existing assessments, VAM can only provide an estimate of teacher effectiveness for teachers who provide instruction in tested subjects (i.e., reading, mathematics, and science) and for teachers of students in the tested grades (i.e., grades 3 through 8 and once in high school). Using existing assessments may exclude a large number of teachers from an evaluation system using VAM (e.g., teachers of students younger than grade 3 or in non-tested secondary grades; teachers of geography, social studies, history, art, music, etc.). In this scenario, teachers within the same school could not all be evaluated using the same system, which may complicate decisions regarding teacher performance, promotion, and tenure. Furthermore, an evaluation system that does not treat all teachers equally has the potential to create internal conflict among a group of teachers within the same school. If states wish to include all teachers in a VAM system, they may need to develop new assessments for currently untested grades and subjects. To create a comprehensive and consistent teacher evaluation system with VAM, states may need to consider the feasibility and cost of developing new assessments in untested grades and subjects. Regardless of whether states use new or existing assessments, there are several features of assessments in general that may affect their use in a VAM system that estimates teacher effectiveness. One feature of assessments that may complicate the measurement of the teacher effect is scaling. Ideally, scores from different grades in a longitudinal data system would be vertically linked to a single scale so that achievement at one grade could be compared to achievement at other grades. In most statewide assessment systems, scores across multiple grades are not vertically linked onto a single scale. If scores are not vertically linked, the calculation of teacher effects across grades may be inconsistent. For example, students may appear to make large gains from 3 rd grade to 4 th grade, and the teacher effect may be relatively large. The same group of students could appear to make small gains from 4 th grade to 5 th grade, and the teacher effect would be relatively small. It is possible that the group of students learned the same amount from 3 rd to 4 th grade as it did from 4 th grade to 5 th grade; however, the scaling of the test or the items on the test may have been more suited to measuring the gain from 3 rd to 4 th grade than to measuring the gain from 4 th to 5 th grade. Thus, without vertical scaling, it is difficult to equate the amount of gain made across grades, and therefore it is difficult to compare the teacher effect across grades. Another issue related to using student assessment scores in VAM is the timing of the assessment. Currently, state assessments used in accountability systems are administered once per year, typically in the spring. Using this "posttest-only" model of student assessment, a student's gain score would be measured as the difference in achievement in spring of the previous grade to the spring of the current grade. One problem with this model may be the drop in student achievement that occurs over the summer recess. If this drop in achievement affected all students equally, it may not be a problem for VAM. Research has demonstrated, however, that the drop in student achievement during the summer recess may be related to socioeconomic status and ethnicity. In practice, this may translate into negatively biased teacher effects for teachers of minority student groups of low socioeconomic status. In theory, it may be beneficial to test students twice per year, once in the fall and once in the spring, so that a student's gain score would be measured as the difference in achievement across one grade in school, presumably with one teacher. This "pretest-posttest" model of student assessment may reduce the problem of decreased achievement over the summer recess; however, it introduces more testing into the school year, which may be burdensome. Furthermore, a past evaluation of federal programs found evidence that the "pretest-posttest" model may introduce more bias into the teacher effect than the "posttest-only" model. Due to the uncertainty related to "posttest-only" models and "pretest-posttest" models in VAM, it is unclear when school administrators and policy makers should schedule assessments to accommodate VAM. Another consideration in the use of student assessments to measure teacher effectiveness is the potential for score inflation. Score inflation refers to increases in scores that do not reflect increases in actual student achievement. In the case of score inflation, increases in scores can be attributed to an inappropriate focus on the specific types of items on the test, "teaching to the test," or even cheating. Score inflation is a difficult phenomenon to study, so it is unclear how prevalent score inflation is in educational testing. Increasing the stakes of student achievement, however, may inappropriately incentivize teachers and schools to engage in activities that promote score inflation. If estimates of teacher effectiveness are to be used for high-stakes decisions for teachers (such as promotion, compensation, tenure, and dismissal), policy makers may consider implementing certain protections against score inflation (e.g., the use of multiple measures of student assessment, the use of a low-stakes "audit" assessment, etc.). Despite the complexities associated with the use of VAM, it is currently used on a limited basis for both teacher and school evaluation. It is not known how many schools or districts have VAM in place; however, the popularity of "value-added" systems continues to grow. Often times, the schools and districts that choose to implement VAM to estimate teacher effectiveness provide limited information on the details of their procedures and their statistical models. There are, however, several large-scale examples of VAM. Two often-cited applications of VAM are the Tennessee Value-Added Assessment System (TVAAS) and the Dallas Value-Added Accountability System (DVAAS). Both TVAAS and DVAAS (pronounced "T-VAS" and "D-VAS") are used as a part of larger, comprehensive evaluation systems that offer monetary incentives for teachers and schools. Although the available information on the use of VAM is fairly limited, the findings of several research studies may be able to supplement information on VAM and provide policy guidance. The following section discusses VAM in the field, including the current large-scale applications in Tennessee and Dallas. In addition, relevant research findings are reported and discussed in terms of how they may be able to inform future policy surrounding the use of VAM to estimate teacher effectiveness. The TVAAS is perhaps the most widely cited application of VAM. The TVAAS was developed in the mid-1980s by the Tennessee Department of Education and two statisticians from the University of Tennessee. TVAAS is a statewide system that uses student performance on the state assessment to analyze student gain scores. The student gain scores are used to estimate both teacher effects and school effects. The TVAAS system uses prior student records to remove the influence of factors not attributable to teachers (e.g., socioeconomic status or prior achievement); however, the model does not use covariates in the traditional sense. Teachers' records, including the estimate of teachers' effects, are reported only to the necessary school administrators and not to the public. Teachers are typically awarded a salary bonus for high performance on the TVAAS. In some cases, principals and teams of teachers are also eligible for monetary awards based on high performance on the TVAAS. The Dallas Public Schools began developing a ranking system for effective schools in 1984. Over time, the DVAAS was developed by an Accountability Task Force as part of a comprehensive accountability system that incorporated school improvement planning, principal and teacher evaluation, and school and teacher effectiveness. In past years, the DVAAS was used to estimate "Teacher Effectiveness Indices" and "Classroom Effectiveness Indices." The indices represent a composite measurement of multiple outcomes, such as results from qualitative evaluations, student achievement, graduation rates, etc. In its current form, the DVAAS mainly measures "School Effectiveness Indices." The DVAAS uses a VAM that incorporates covariates to control for preexisting differences in student characteristics. The covariates in the DVAAS model include ethnicity, gender, English language proficiency, socioeconomic status, and students' prior achievement. The DVAAS model also controls for school-level variables, such as mobility, crowding, percent minority, and socioeconomic status. Unlike some of the other VAM approaches used in accountability systems, the DVAAS uses multiple indicators, such as student assessment scores, attendance rates, dropout rates, graduation rates, and other indicators selected by the Accountability Task Force. Scores from student assessments, however, are weighted more heavily and contribute more to the overall estimation of school effectiveness than the other indicators. Because the DVAAS primarily measures School Effectiveness Indices, monetary awards are typically awarded for an entire school. The school then decides how to distribute the awards among teachers and staff at the school. The TVAAS and DVAAS have been in place (in some form) for over 20 years. Although these systems appear to have operated successfully, a perceived lack of transparency has created confusion among accountability analysts and policy makers who have tried to evaluate these systems. It is difficult to determine the exact models that were used to produce the results reported through the TVAAS and DVAAS systems. If policy makers and administrators choose to use these current systems as examples in the use of VAM for teacher effectiveness, more transparency in model specification may be necessary to replicate the results from Tennessee and Dallas. If these systems cannot be replicated reliably, policy makers may not be able to ensure that the estimate of the teacher effect is meaningful, and teachers may not buy in to a system that is perceived to be unreliable. Furthermore, if these systems are not well understood, they may not be able to serve as appropriate models as other districts and states choose to implement VAM programs to estimate teacher or school effectiveness. In addition to the use of VAM in states and districts, researchers also have explored the potential use of VAM to estimate teacher effectiveness using data from multiple educational settings. This work may be able to inform the development of policy regarding viable methods for estimating teacher effectiveness because results may have implications for how teacher effects are measured and how teacher effects can be interpreted. In a critical review of the literature on the use of VAM to estimate teacher effectiveness, a team of researchers determined that results generally support the existence of teacher effects; however, the magnitude of teacher effects may have been overstated in some cases. Furthermore, researchers generally expressed concerns about the stability of teacher effects over time. Researchers who have explored the stability of teacher effectiveness estimates report mixed results. The results suggest that the correlation between the estimate of a teacher's effectiveness from year to year is "modest." Furthermore, the estimated effectiveness of pre-tenure teachers does not necessarily predict their effectiveness post-tenure. For example, one study categorized pre-tenure teachers of reading into quintiles based on their estimated effectiveness; then, the researchers calculated the same teachers' post-tenure effectiveness and categorized the teachers into quintiles. Although many ineffective pre-tenure teachers remained ineffective, 11% of pre-tenure ineffective teachers became effective teachers when measured post-tenure. In the area of mathematics, the estimate of teacher effectiveness seemed to be more stable, with only 2% of ineffective pre-tenure teachers becoming effective post-tenure teachers. Other researchers have studied the stability of teacher effectiveness estimates and reached similar conclusions. That is, when teachers are ranked by effectiveness and separated into quintiles, the rankings change over time. In general, about one-third to one-fourth of teachers remained within the same effectiveness quintile; however, approximately 10% to 15% of teachers move from the bottom quintile of effectiveness to the top, and an equal number move from the top quintile of effectiveness to the bottom. These results may serve to caution policy makers and school administrators from making tenure and dismissal decisions based solely on teacher effectiveness rankings. It may be possible to use teacher effectiveness rankings as part of an overall evaluation; however, researchers have not studied such evaluation systems. Although the results suggest that VAM may not accurately rank teachers according to effectiveness, there may be other potential conclusions that can be made using VAM. Some research suggests that VAM can be used to determine whether teacher effectiveness is significantly different from the average teacher effectiveness. In one study, approximately one-fourth to one-third of teachers could be identified as distinct from the average level of teacher effectiveness. If other studies are able to corroborate these results, this information could have implications for the way policy makers and school administrators use the estimates of teacher effectiveness. If one-fourth to one-third of teachers can be accurately identified as significantly less effective or significantly more effective than the average teacher, policy makers may be able to support some high-stakes decisions for teachers based on VAM in limited contexts. Researchers who conduct VAM studies generally caution policy makers about making high-stakes decisions based on the measurement of teacher effectiveness. Currently, VAM may not produce estimates that are stable enough to support decisions regarding promotion, compensation, tenure, and dismissal. VAM measures of teacher effects, however, may be useful in a more comprehensive system of evaluation for teachers and schools. To date, VAM has been used in limited contexts to estimate teacher effectiveness. With the introduction of the RTTT program, however, states may now be incentivized to find new, rigorous methods to evaluate teachers, one of which may be VAM. If states begin to consider the use of VAM to evaluate teachers, there are many questions regarding large-scale implementation that may require some forethought. These questions largely concern the statewide longitudinal data requirements, capacity for data collection and analysis, and transparency of VAM for teacher evaluation. There are specific database requirements for VAM analyses. States that pursue the use of VAM may need to have comprehensive statewide longitudinal data systems in place for at least a year (possibly longer) before they can measure teacher effects using student achievement or student growth as an outcome. In addition, if states consider collecting additional student-level information to use as covariates in VAM, there may be new confidentiality and security policies that must be developed and implemented to ensure that students' and teachers' personally identifiable information is protected. Using VAM to estimate teacher effectiveness may require states to consider the resources, time, and expertise involved with establishing an appropriate database. Although a number of states have already developed statewide longitudinal data systems, either on their own or through an ED grant, it is unclear how many of these data systems currently link teachers to student achievement data. If existing statewide longitudinal data systems do not have this link in place, states may not be able to use data from their current longitudinal data system to estimate teacher effectiveness with VAM. If states choose to create the link between teachers and student achievement from this point forward, it may take a year or more before VAM can be used to estimate teacher effectiveness. Creating a comprehensive statewide longitudinal data system with teachers linked to student achievement is a large investment; however, the potential for future analyses may extend beyond analyses of teacher effectiveness. States would face a tradeoff between the time and resources necessary to create and maintain the database and the potential information that may be revealed by it. States may also consider whether they have the capacity to conduct VAM analyses in terms of human resources and computing requirements. Measuring a teacher effect with VAM is quite complex computationally and requires an experienced analyst who can make defensible decisions about covariates, confounding factors, and missing data. Although it is possible that accountability analysts may already be trained in this methodology, it is unlikely that most of them possess the necessary skills to conduct VAM in the absence of further training. In addition to human capital requirements, VAM requires sophisticated software to create and run these models. If districts and states choose to use these standard software packages, there is an associated cost with purchasing the software and maintaining licenses for this software. Furthermore, although these software packages are currently available on the market, it is unclear whether they can compute some of the more complex models that are used in research. Due to the complexity of VAM, transparency can be difficult. The estimate of teacher effectiveness using VAM may not be universally accepted if it is not well conceived and communicated to all the appropriate stakeholders. Furthermore, if teacher effectiveness is to be used, in part, for decisions regarding teacher compensation, promotion, tenure, and dismissal, teachers need to understand how their performance will be measured. One way to make the process of estimating teacher effectiveness more transparent is to involve teachers and other school personnel throughout the process. For example, the DVAAS used an Accountability Task Force comprised of parents, teachers, principals, and community and business representatives to design the accountability system for teachers and schools. It may be important for the sustainability of the system to get "buy-in" from teachers and other stakeholders at the beginning of the process. Another way to increase the transparency of VAM may be to allow a second team of analysts to have access to the data in order to corroborate findings. If teacher effectiveness data are to be used for high-stakes decisions, it may be beneficial to have two separate groups of analysts reaching the same conclusions. Replication may increase the scientific rigor of the process and provide additional protection for teachers who are being evaluated using VAM. The emphasis on transparency of VAM procedures may need to be balanced with an emphasis on student and teacher privacy. As the VAM procedures become more transparent, more information about students and teachers becomes available to analysts or teams of analysts. Although names and other personally identifiable information are typically removed from databases before any analysis takes place, states may need to ensure that appropriate privacy policies are in place before they implement VAM. States may also need to consider implementing policies regarding who may have access to data for analysis purposes and who may have access to the results of the data analysis. Although VAM approaches have been used successfully in district- and state-level contexts to estimate teacher and school effectiveness, research findings related to VAM and implications of large-scale implementation raise issues that may be relevant to the development of federal policy. At this time, it is unclear whether the current applications of VAM can be generalized to a large-scale federal effort or if future research and development is necessary for large-scale implementation. Perhaps other policy alternatives to evaluate teacher effectiveness independent of VAM may be considered (e.g., increasing teachers' and principals' capacity to use student achievement data to inform practice, better use of teacher data to inform teacher evaluation, etc.). If the use of VAM for teacher effectiveness is seen as promising for federal policy, however, there are several short-, mid-, and long-term objectives that may be able to further this goal. In the short term, federal policy could continue to incentivize states to create databases that can be used for VAM. For example, the RTTT program prohibits eligible states from having any legal, statutory, or regulatory barriers to creating databases that link teachers to student achievement data for the purposes of teacher and principal evaluation. Linking teachers to student achievement data is an essential short-term objective for the use of VAM (or other models of teacher evaluation). Another short-term objective may be to ensure that the student assessments currently in place in elementary and secondary schools are relatively stable and remain in place for a number of years. A consistent measure of student achievement simplifies longitudinal databases and increases the likelihood that VAM can be conducted. In addition to using consistent measures of student achievement, developing consistent measures of potential covariates for VAM analysis may be useful. In some cases, measures of covariates already exist and are collected routinely by schools (e.g., measures of socioeconomic status, disability status, ELL status, etc.). In other cases, however, new measures of covariates of interest may need to be developed (e.g., family characteristic measures, school violence measures, school climate measures, neighborhood measures, etc.), and schools may need to increase the capacity for data collection. Another short-term objective may be to improve analysts' access to school, district, and state longitudinal databases. In other contexts, analysts have reported difficulty in accessing databases containing high-stakes student achievement data. Although these databases include sensitive information about test scores, analysts who are granted access to actual data may be able to conduct studies on the feasibility of VAM in a typical school context. The federal government may have a role in incentivizing schools, districts, and states to share their longitudinal databases with analysts who are interested in conducting experimental VAM analyses. The potential information gained from granting data access to analysts, however, may need to be weighed against the privacy concerns for students, teachers, principals, districts, and even states. Privacy policies, confidentiality agreements, and strict protection of identification numbers may be necessary before data access can be granted to analysts outside of the system. In the mid-term, federal policy could provide startup funding for model demonstration projects of VAM systems in real school contexts. One way to do this may be to scale up current applications of VAM, such as the TVAAS and DVAAS, to other districts or states within the nation. Another way may be to incentivize the development of new teacher accountability systems in which VAM is part of a comprehensive evaluation system. If model demonstration projects of VAM are successful, these models may continue to be scaled up and generalized to new contexts. While the VAM approaches are being generalized, researchers and practitioners may be able to develop "practice guides" that may allow the use of VAM to become more widespread. Another mid-term objective may be to increase the capacity to carry out VAM in an efficient way. Currently, there is no easily accessible software that can carry out some of the more complicated VAM analyses, and there are few analysts who are qualified to conduct these complicated analyses. The development of more sophisticated, user-friendly modeling software may allow VAM to become more feasible in educational settings. In addition, building human capacity in the use of VAM may be necessary. The federal government has provided funding for capacity building in the past through grants administered by ED. In the current context, grants could be provided for training pre- or post-doctoral fellows in VAM techniques or retraining current accountability specialists in VAM techniques. In addition, the federal government could provide funding to train teachers and principals to make better use of student achievement data and teacher effectiveness data to inform their practice. In the long term, federal policy may be able to build on successful model demonstration projects of VAM in school settings. In addition, the capacity to conduct this work on a larger scale may be in place. Once VAM is implemented on a larger scale, further evaluation may be warranted. Some researchers advocate using alternative measures of teacher effectiveness to validate the results of VAM. Using alternative measures of teacher effectiveness to validate VAM may potentially lead to more "buy-in" from teachers who are evaluated using VAM. It may also allow teachers, principals, and policy makers to gain a better understanding of what characteristics of teachers make them effective. Currently, a teacher effect can estimate the magnitude of teacher effectiveness; however, the teacher effect cannot, by itself, point to the characteristics of teachers that make them effective. By combining VAM with alternative measures of teacher effectiveness, research and practice may eventually be better able to identify characteristics of effective teachers. | Two of the major goals of the Elementary and Secondary Education Act (ESEA), as amended by the No Child Left Behind Act of 2001 (P.L. 107-110; NCLB), are to improve the quality of K-12 teaching and raise the academic achievement of students who fail to meet grade-level proficiency standards. In setting these goals, Congress recognized that reaching the second goal depends greatly on meeting the first; that is, quality teaching is critical to student success. Thus, NCLB established new standards for teacher qualifications and required that all courses in "core academic subjects" be taught by a highly qualified teacher by the end of the 2005-2006 school year. During implementation, the NCLB highly qualified teacher requirement came to be seen as setting minimum qualifications for entry into the profession and was criticized by some for establishing standards so low that nearly every teacher met the requirement. Meanwhile, policy makers have grown increasingly interested in the output of teachers' work; that is, their performance in the classroom and the effectiveness of their instruction. Attempts to improve teacher performance led to federal and state efforts to incentivize improved performance through alternative compensation systems. For example, through P.L. 109-149, Congress authorized the Federal Teacher Incentive Fund (TIF) program, which provides grants to support teacher performance pay efforts. In addition, there are various programs at all levels (national, state, and local) aimed at reforming teacher compensation systems. The most recent congressional action in this area came with the passage of the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5) and, in particular, enactment of the Race to the Top (RTTT) program. In November 2009, the U.S. Department of Education released a final rule of priorities, requirements, definitions, and selection criteria for the RTTT. The final rule established a definition of an effective teacher as one "whose students achieve acceptable rates (e.g., at least one grade level in an academic year) of student growth (as defined in this notice)." That is, to be considered effective, teachers must raise their students' learning to a level at or above what is expected within a typical school year. States, LEAs, and schools must include additional measures to evaluate teachers; however, these evaluations must be based, "in significant part, [on] student growth." This report addresses issues associated with the evaluation of teacher effectiveness based on student growth in achievement. It focuses specifically on a method of evaluation referred to as value-added modeling (VAM). Although there are other methods for assessing teacher effectiveness, in the last decade, VAM has garnered increasing attention in education research and policy due to its promise as a more objective method of evaluation. The first section of this report describes what constitutes a VAM approach and how it estimates the so-called "teacher effect." The second section identifies the components necessary to conduct VAM in education settings. Third, the report discusses current applications of VAM at the state and school district levels and what the research on these applications says about this method of evaluation. The fourth section of the report explains some of the implications these applications have for large-scale implementation of VAM. Finally, the report describes some of the federal policy options that might arise as Congress considers legislative action around these or related issues. |
In December 2014, Congress passed the Revitalize American Manufacturing and Innovation Act of 2014 (RAMIA), as Title VII of Division B of the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ). President Obama signed the bill into law on December 16, 2014. RAMIA directs the Secretary of Commerce to establish a Network for Manufacturing Innovation (NMI) program within the Commerce Department's National Institute of Standards and Technology (NIST). The act comes about two years after President Obama first proposed the establishment of a National Network for Manufacturing Innovation in his FY2013 budget. President Obama first proposed the establishment of a National Network for Manufacturing Innovation (NNMI) in his FY2013 budget, requesting $1 billion to support the establishment of up to 15 institutes. Shortly thereafter, he formally introduced the concept in a speech at a manufacturing facility in Virginia on March 9, 2012. No legislation to enact the President's proposal was introduced in the 112 th Congress. In 2013, the President renewed his call for an NNMI in his FY2014 budget request, again seeking $1 billion in mandatory funding. The President's FY2015 budget proposal also sought authority and funding to establish the NNMI. The request was not part of the President's FY2015 base budget request, but rather a part of an adjunct $56 billion Opportunity, Growth, and Security Initiative (OGSI) proposal. The OGSI request included $2.4 billion to establish up to 45 NNMI institutes. In August 2013, bills entitled the Revitalize American Manufacturing and Innovation Act of 2013 were introduced in the House ( H.R. 2996 ) and the Senate ( S. 1468 ) to establish a Network for Manufacturing Innovation. H.R. 2996 passed the House in September 2014. S. 1468 was reported by the Senate Committee on Commerce, Science, and Transportation in August 2014. In December 2014, provisions of H.R. 2996 were incorporated in the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ) as Title VII of Division B, the Revitalize American Manufacturing and Innovation Act of 2014 (RAMIA). P.L. 113-235 was signed into law by President Obama on December 16, 2014. RAMIA includes provisions establishing and providing for the operation of a Network for Manufacturing Innovation. RAMIA, in part, amends the National Institute of Standards and Technology Act (codified at 15 USC 271 et seq.) establishing the NMI program, setting forth its purposes, and authorizing its structure, funding, and operation. The act also establishes a National Program Office to support the NMI program. RAMIA articulates eight purposes of the NMI program: to improve the competitiveness of U.S. manufacturing and to increase the production of goods manufactured predominantly within the United States; to stimulate U.S. leadership in advanced manufacturing research, innovation, and technology; to facilitate the transition of innovative technologies into scalable, cost-effective, and high-performing manufacturing capabilities; to facilitate access by manufacturing enterprises to capital-intensive infrastructure, including high-performance electronics and computing, and the supply chains that enable these technologies; to accelerate the development of an advanced manufacturing workforce; to facilitate peer exchange and the documentation of best practices in addressing advanced manufacturing challenges; to leverage non-federal sources of support to promote a stable and sustainable business model without the need for long-term federal funding; and to create and preserve jobs. The act directs the Secretary of Commerce to establish a Network for Manufacturing Innovation program in the Commerce Department's National Institute of Standards and Technology. The Secretary, acting through NIST, is directed to support the establishment of centers for manufacturing innovation and to establish and support a network of centers for manufacturing innovation. The act defines a "center for manufacturing innovation"—including centers established prior to the act, as well as ones established under the provisions of the act—as one that meets each of the following criteria: has been established to address challenges in advanced manufacturing and to assist manufacturers in retaining or expanding industrial production and jobs in the United States; has a predominant focus on a manufacturing process; novel material; enabling technology; supply chain integration methodology; or another relevant aspect of advanced manufacturing, such as nanotechnology applications, advanced ceramics, photonics and optics, composites, bio-based and advanced materials, flexible hybrid technologies, and tool development for microelectronics; has the potential, as determined by the Secretary of Commerce, to improve the competitiveness of U.S. manufacturing; to accelerate non-federal investment in advanced manufacturing production capacity in the United States; or to enable the commercial application of new technologies or industry-wide manufacturing processes; includes active participation among representatives from multiple industrial entities, research universities, community colleges, and such other entities as the Secretary of Commerce considers appropriate, which may include industry-led consortia; career and technical education schools; federal laboratories; state, local, and tribal governments; businesses; educational institutions; and nonprofit organizations. The act authorizes activities of a center to include research, development, and demonstration projects (including proof-of-concept development and prototyping) to reduce the cost, time, and risk of commercializing new technologies and improvements in existing technologies, processes, products, and research and development (R&D) of materials to solve precompetitive industrial problems with economic or national security implications; development and implementation of education, training, and workforce recruitment courses, materials, and programs; development of innovative methodologies and practices for supply chain integration and introduction of new technologies into supply chains; outreach and engagement with small and medium-sized manufacturing enterprises, including women- and minority-owned manufacturing enterprises, in addition to large manufacturing enterprises; and such other activities as the Secretary of Commerce, in consultation with federal departments and agencies whose missions contribute to or are affected by advanced manufacturing, considers consistent with the purposes specified in the act. The act allows a number of existing manufacturing centers to be classified as a center for manufacturing innovation for participation in the network of centers. President Obama initiated the establishment of several such centers prior to enactment of RAMIA under the existing general statutory authority of several agencies, including the Department of Defense and Department of Energy. In particular, the act incorporates the National Additive Manufacturing Innovation Institute and other manufacturing centers formally recognized as manufacturing innovation centers pursuant to Federal law or executive actions, or under pending interagency review for such recognition as of the date of enactment of the Revitalize American Manufacturing and Innovation Act of 2014. However the act prohibits such centers from receiving any financial assistance authorized under the act's Financial Assistance to Establish and Support Centers for Manufacturing Innovation provisions (described in the next section). The National Additive Manufacturing Innovation Institute (NAMII) is led by the Department of Defense (DOD). In addition, DOD and the Department of Energy (DOE) have established, are in the process of establishing, or have announced plans for several other manufacturing centers since the President's original NNMI proposal. Several of these centers include the participation of other federal agencies, including the Department of Commerce, the National Aeronautics and Space Administration, and the National Science Foundation. These centers include Digital Manufacturing and Design Innovation Institute (DOD-led); Lightweight and Modern Metals Manufacturing Innovation Institute (DOD-led); Next Generation Power Electronics National Manufacturing Innovation Institute (DOE-led); Clean Energy Manufacturing Innovation Institute for Composite Materials and Structures (DOE-led); Integrated Photonics Institute for Manufacturing Innovation (DOD-led); Flexible Hybrid Electronics Manufacturing Innovation Institute (DOD-led); and Clean Energy Manufacturing Innovation Institute on Smart Manufacturing: Advanced Sensors, Controls, Platforms and Modeling for Manufacturing (DOE-led). These centers may be considered candidates for inclusion in the Network for Manufacturing Innovation. RAMIA authorizes the Secretary of Commerce to award financial assistance to a person or group of persons to assist in planning, establishing, or supporting a center for manufacturing innovation. The act requires an open process for the solicitation of applications that allows for the consideration of all applications relevant to advanced manufacturing, regardless of technology area, and competitive merit-based review of the applications that incorporates peer review by a "diverse group of individuals with relevant experience from both the public and private sectors." Political appointees are prohibited from participating on any peer review panel, and the Secretary of Commerce is required to implement a conflict of interest policy that ensures public transparency and accountability, as well as full disclosure of any real or potential conflicts of interest of individuals participating in the center selection process. The Secretary of Commerce is required to make publicly available at the time of any award of financial assistance to a center a description of the bases for the award, including the merits of the winning proposal relative to other applicants. The Secretary must also develop and implement performance measures to assess the effectiveness of the funded activities. In making center selections, the act requires the Secretary, working through the National Program Office (discussed later in this report), to collaborate with federal departments and agencies whose missions contribute to or are affected by advanced manufacturing. RAMIA requires the Secretary to apply certain considerations in the selection of centers for manufacturing innovation. The considerations specified in the act include the potential of a center to advance domestic manufacturing and the likelihood of economic impact, including creation or preservation of jobs, in the predominant focus areas of the center for manufacturing innovation; the commitment of continued financial support, advice, participation, and other contributions from non-federal sources to provide leverage and resources to promote a stable and sustainable business model without the need for long-term federal funding; whether the financial support provided to the center from non-federal sources significantly exceeds the requested federal financial assistance; how the center will increase the non-federal investment in advanced manufacturing research in the United States; how the center will engage with small and medium-sized manufacturing enterprises to improve the capacity of such enterprises to commercialize new processes and technologies; how the center will carry out educational and workforce activities that meet industrial needs related to its predominant focus areas; how the center will advance economic competitiveness and generate substantial benefits to the United States that extend beyond the direct return to participants in the program; whether the predominant focus of the center is a manufacturing process, novel material, enabling technology, supply chain integration methodology, or other relevant aspect of advanced manufacturing that has not already been commercialized, marketed, distributed, or sold by another entity; how the center will strengthen and leverage the assets of a region; and how the center will encourage education and training of veterans and individuals with disabilities. In addition, the act allows for other factors to be considered. RAMIA includes several provisions related to center funding: Financial assistance may not be awarded to a center more than seven years after the date the Secretary of Commerce first awards financial assistance to that center. Total federal assistance awarded to a center, including funding made under the provisions of RAMIA, may not exceed 50% of the total funding of the center in that year. The Secretary of Commerce may make exceptions in circumstances in which a center is making large capital facilities or equipment purchases. The Secretary is directed to give preference to centers seeking less than the maximum federal share of funds allowed. Centers are to receive decreasing levels of funding in each subsequent year of funding. The Secretary may make exceptions to this requirement when a center is otherwise meeting its stated goals and metrics, unforeseen circumstances have altered the center's anticipated funding, and the center can identify future non-federal sources of funding that would warrant a temporary exemption. RAMIA authorizes NIST to use $5 million per year for FY2015-FY2024 from funds appropriated to its Industrial Technology Services account to carry out the Network for Manufacturing Innovation program. The act also authorizes the Department of Energy to transfer to NIST up to $250 million over the FY2015-FY2024 period from funds appropriated for advanced manufacturing R&D in its Energy Efficiency and Renewable Energy account. The Secretary of Commerce, in addition to amounts appropriated to carry out the NMI program, may accept funds, services, equipment, personnel, and facilities from any covered entity to carry out the NMI program, subject to certain conditions and constraints. RAMIA directs the Secretary of Commerce to establish, within NIST, a National Program Office of the Network for Manufacturing Innovation to oversee and carry out the program. The act specifies the following functions of the National Program Office: to oversee planning, management, and coordination of the program; to enter into memoranda of understanding with federal departments and agencies whose missions contribute to or are affected by advanced manufacturing, to carry out the authorized purposes of the program; to develop a strategic plan to guide the program no later than one year from the date of enactment of the act, and to update the strategic plan at least once every three years thereafter; to establish such procedures, processes, and criteria necessary and appropriate to maximize cooperation and coordination of the activities of the program with programs and activities of other federal departments and agencies whose missions contribute to or are affected by advanced manufacturing. The act, in particular, calls for the Secretary to ensure that the NIST Hollings Manufacturing Extension Partnership (MEP) is incorporated into NMI program planning to ensure the results of the program reach small and medium-sized entities; to establish a clearinghouse of public information related to the activities of the program; and to act as a convener of the Network for Manufacturing Innovation. In support of the development and updating of the strategic plan, the Secretary of Commerce is directed by the act to solicit recommendations and advice from a wide range of stakeholders, including industry, small and medium-sized manufacturing enterprises, research universities, community colleges, and other relevant organizations and institutions on an ongoing basis. The Secretary is directed to transmit the strategic plan to the Senate Committee on Commerce, Science, and Transportation and the House Committee on Science, Space, and Technology. The act authorizes any federal government employee to be detailed to the National Program Office without reimbursement and without interruption or loss of civil service status or privilege to the employee. RAMIA requires several reports and audits to be conducted with respect to the NMI program. RAMIA directs the Secretary of Commerce to require each recipient of federal assistance under the act to submit an annual report to the Secretary that describes the finances and performance of the center for which assistance was awarded. Each report is required to include an accounting of expenditures of amounts awarded under the program to the center; a description of the performance of the center with respect to its goals, plans, financial support, and accomplishments; and an explanation of how the center has advanced the purposes of the NMI program as specified by the act. RAMIA requires the Secretary of Commerce to report annually to Congress through December 31, 2024, on the performance of the program during the most recent one-year period. Each report is to include a summary and assessment of the annual reports provided by each center; an accounting of the funds expended by the Secretary under the program, including any temporary exemptions granted; an assessment of the participation in, and contributions to, the network by any centers for manufacturing innovation not receiving financial assistance under the NMI program; and an assessment of the NMI program with respect to meeting the purposes described in the act. RAMIA requires the Comptroller General of the United States to conduct an assessment of the NMI program at least once every two years during the operation of the program, covering the two most recent years of the program on the overall success of the NMI program, and a final assessment to be made not later than December 31, 2024. Each assessment is to include, for the period covered by the report: a review of the management, coordination, and industry utility of the NMI program; an assessment of the extent to which the program has furthered the purposes identified in the act; such recommendations for legislative and administrative action as the Comptroller General considers appropriate to improve the NMI program; and an assessment as to whether any prior recommendations for improvement made by the Comptroller General have been implemented or adopted. Other provisions of RAMIA authorize: the Secretary of Commerce to appoint such personnel and enter into such contracts, financial assistance agreements, and other agreements as the Secretary considers necessary or appropriate to carry out the program, including support for R&D activities involving a center for manufacturing innovation; the Secretary of Commerce to transfer to other federal agencies such sums as the Secretary considers necessary or appropriate to carry out the program—however, such funds may not be used to reimburse or otherwise pay for the costs of financial assistance incurred or commitments of financial assistance made prior to the date of enactment of RAMIA; agencies to accept funds transferred to them by the Secretary of Commerce, in accordance with the provisions of RAMIA, to award and administer, under the same conditions and constraints applicable to the Secretary, all aspects of financial assistance awards under RAMIA; and the Secretary of Commerce to use, with the consent of a covered entity and with or without reimbursement, land, services, equipment, personnel, and facilities of such covered entity. RAMIA also specifies that the provisions of 35 USC 18, Patent Rights in Inventions Made with Federal Assistance, shall apply to any funding agreement awarded to new or existing centers. This chapter of the U.S. Code is widely known as the Bayh-Dole Act and formally titled the University and Small Business Patent Procedures Act of 1980. While RAMIA establishes the NMI program; sets forth its purposes; and authorizes its structure, funding, and operation; a number of broad policy issues and ones related to the program's implementation remain. The appropriate role of the federal government in fostering technological innovation or supporting a particular company, industry, or industrial sector (e.g., manufacturing) has been the focus of a long-running national policy debate. Views range from those who believe that the federal government should take a hands-off or minimalist approach to those who support targeted federal investments in promising technologies, companies, and industries. And while there has been broad agreement on federal support for fundamental research, the consensus in favor of federal support frays as technology matures toward commercialization. Advocates for a strong federal role in advancing technologies and industries often assert that such interventions are justified by the economic, national security, and societal benefits that generally accompany technological advancement and U.S. technological and industrial leadership. For such reasons, the manufacturing sector has received the attention of the federal government since the nation's founding. Critics of a strong federal role provide a variety of arguments. For example, some contend that such interventions skew technology development and competition by replacing market-based decisions of companies, capital providers, and researchers with the judgment of government bureaucrats or politicians (sometimes referred to as the government "picking winners and losers"). Those who hold this view generally assert that this may result in inefficient allocation of capital, development and deployment of inferior technologies, and political favoritism (sometimes referred to as "crony capitalism"). Others assert that such interventions often represent a transfer of wealth from taxpayers to already-prosperous companies and their shareholders (sometimes referred to as "corporate welfare"). Others may prefer an approach that is more technology- or industry-neutral, such as reducing costs and other burdens on manufacturers by reducing taxes, regulations, and frivolous lawsuits. The NMI—with its focus on advanced manufacturing research, innovation, and technology—is likely at the intersection of these viewpoints. While RAMIA included a number of findings that highlight the role manufacturing plays in the U.S. economy, it did not identify specific shortcomings of the U.S. manufacturing sector that the NMI program is to address. Analysts hold divergent views of the health of U.S. manufacturing. While some may be supportive of the effort, others may question whether there is a compelling national need for the Network for Manufacturing Innovation program. Some analysts believe that the U.S. manufacturing sector is at risk. Expressed concerns of those holding this view include a "hollowing-out" of U.S. manufacturing resulting from the decision of many U.S. manufacturers to move production activities and other corporate functions (e.g., research and development, accounting, information technology, tax planning, legal research) offshore; focused efforts by other nations to grow the size, diversity, and technological prowess of their manufacturing capabilities and to attract manufacturing operations of U.S.-headquartered multinational companies using a variety of policy tools (e.g., tax holidays, worker training incentives, market access, and access to rare earth minerals); and a decades-long declining trend in U.S. manufacturing employment, punctuated by a steeper drop from 2001 to 2010. In January 2010, U.S. manufacturing employment fell to its lowest level (11.5 million) since March 1941, down more than 41% from its peak of 19.6 million in June 1979. In support of the President's proposal for a National Network for Manufacturing Innovation, the Information Technology and Innovation Foundation, a Washington, DC-based think tank, articulated a variety of reasons why there is a need for an NMI-like federal program in a report titled Why America Needs a National Network for Manufacturing Innovation . Among the ITIF's assertions: An NMI-like program would address two issues important to U.S. manufacturing competitiveness: technology and talent. Spillovers from successful innovations resulting from a firm's investments can yield substantial benefits captured by competitors producing a market failure that results in underinvestment in manufacturing R&D and innovation. Other types of market failures—for example, the need for large-scale capital investments and training outlays that may require many years to pay off—may "limit the scale-up of innovative manufacturing processes, the installation of new capital equipment, and the full integration of manufacturing systems across supply chains." Foreign governments engage in a variety of policy and programmatic activities designed to attract U.S. and other manufacturing firms to their countries; subsidize and protect domestic producers; or "repress labor, condone intellectual property theft, and manipulate their currency values in order to expand their manufacturing footprint." The federal government provides little support for manufacturing-focused U.S. based research activities: such funding is scattered among multiple agencies and "has rarely been a priority for any of them." This position contends that U.S. academia, in general, does not incentivize engineering advances and practical problem-solving, but rather "originality and breakthroughs." The emphasis on "engineering as a science" in U.S. academic engineering programs contributes further to this bias. Other analysts see the U.S. manufacturing sector as vibrant and healthy. Those holding this view tend to point to, among other things, the sector's strong growth in output and productivity, as well as the United States' substantial share (17.4%) of global manufacturing value-added (second only to China, 22.4%). In addition, between January 2010 and September 2014, manufacturing employment added approximately 707,000 jobs, growing to 12.2 million. In addition, many analysts attribute U.S. manufacturing employment losses to broader global technology and business trends, such as technology-driven productivity improvements, increases in capital-labor substitution, movement of labor-intensive production activities to lower wage regions of the world, foreign competition in manufactured goods in both U.S. and foreign markets, and disaggregation of work processes resulting in the contracting of service work previously performed by employees of manufacturing firms as well as the offshoring of manufacturing activities. Independent of their perspective on the health of the U.S. manufacturing sector, some analysts may believe that there should not be an NMI program. Some may assert that the role envisioned for the NMI should be performed by the private sector; that the federal government should not favor or subsidize particular companies, industries, or technologies; that the NMI would be ineffective or counterproductive; that the funds that would go to the NMI should be used to support manufacturing in other ways; that the funds should be used for different federal functions altogether; or that the funds should be directed toward deficit reduction. Some may also believe that the NMI is, in part or in whole, duplicative of other federal programs, such as the NIST Advanced Manufacturing Technology (AmTech) consortia program or the Manufacturing Extension Partnership; or, as a new and separate program, represents an increasing fragmentation of federal efforts to help manufacturers. Some may question whether additional federal funding will produce more innovation and whether and how the U.S. manufacturing base will effectively absorb such innovations. Others may prefer an expanded direct role for the federal government. This could include increasing federal funding for manufacturing R&D, providing grants and loan guarantees for domestic manufacturing, and, in some cases, subsidizing production of products for which there are deemed positive benefits for the nation that cannot be captured by the manufacturer. Still others argue that long-term employment losses in manufacturing are inevitable and that federal policy should focus elsewhere. In a July 2014 Wall Street Journal article, former Treasury Secretary Lawrence Summers argued that, "The economic challenge of the future will not be producing enough. It will be providing enough good jobs." Summers described the loss of manufacturing jobs over the long-term as "inexorable and nearly universal," a result of technology and market forces mirroring the earlier loss of agricultural jobs, only, he added, this "change will come faster and affect a much larger share of the economy." Summers did not offer a prescriptive alternative, but rather stated the need for government policies and approaches that "meet the needs of the information age." When considered in the context of the overall U.S. economy, manufacturing output, or federal spending, the NMI appropriations authorizations provided in P.L. 113-235 are relatively small. Nevertheless, both proponents and opponents of the NMI may see such appropriations authorizations as opening the door to future increases in funding for the NMI as well as establishing a precedent for the creation of additional programs of a similar nature for manufacturing or other sectors of the U.S. economy. The act provides for the Secretary of Commerce to use up to $5 million in funds appropriated to the NIST Industrial Technology Services account to carry out the NMI program. The availability of funds from this authorization, however, will depend on the level of annual appropriations made to the NIST ITS account. In addition, whatever appropriations are made to the ITS account may be subject to congressional prioritization and restrictions included in report language accompanying the appropriations bill. In FY2015, Congress appropriated $138.1 million for the ITS account, directing NIST to spend $130.0 million on the Hollings Manufacturing Extension Partnership and $8.1 million on NIST's Advanced Manufacturing Technology Consortia program. It did not provide explicit funding for the NMI in FY2015. For FY2016, if Congress desires to provide funding to NIST to carry out the NMI program under the act's authorization, it may choose to increase funding for the ITS account in an amount equal to the level of funding it wishes to provide for the administration of the NMI program, reduce funding for one or both of the existing programs being funded by this account, or leave the determination of the allocation of the ITS appropriation to the Secretary of Commerce or NIST. A second source of funding provided for by the act is authority given to the Department of Energy to transfer to NIST up to $250 million for the period FY2015-FY2024. However, the availability of funds provided by the DOE to NIST depends, in part, on the level of annual appropriations made to the DOE's Energy Efficiency and Renewable Energy account specifically for advanced manufacturing R&D. This source of funding for the NMI may also be subject to prioritization and potential restrictions included in report language accompanying the appropriations bill. In addition, the availability of these funds to NIST will depend on DOE's willingness to transfer funds to NIST for the NMI program. A third possibility for funding the program is the authority given to the Secretary to accept funds, services, equipment, personnel, and facilities from any covered entity to carry out the program. The act does not specify how the funds provided by NIST, DOE, or other agencies are to be allocated between program management activities and funding for the centers. In the absence of such specifications, it appears that the funds from these sources may be used for either or both of these purposes. In addition to authorizing the establishment of centers for manufacturing innovation, the act authorizes the establishment of a network of these centers. In this regard, the act specifies which centers are eligible to be a part of the network and designates the National Program Office as "a convener of the Network." However, the act does not further specify the purpose, federal role, or activities of the network. Congress may opt to consider amending the act to clarify these points or to authorize NIST and participating agencies to do so. The act authorizes the NMI through FY2024 and requires the Comptroller General of the United States to make a final assessment by December 31, 2024. No specifications are made for a federal role after the end of FY2024. As the program progresses, Congress may opt to consider whether to continue the NMI beyond FY2024 or to allow it to expire. Congress may opt to conduct oversight hearings on the implementation of the NMI program to ensure that it is operating as Congress intends, with respect to funding, interagency cooperation, the establishment of new centers, the incorporation of existing manufacturing centers as part of the network, the integration of the NMI with existing federal manufacturing activities, and other related issues. | In December 2014, Congress passed the Revitalize American Manufacturing and Innovation Act of 2014 (RAMIA), as Title VII of Division B of the Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235). President Obama signed the bill into law on December 16, 2014. RAMIA directs the Secretary of Commerce to establish a Network for Manufacturing Innovation (NMI) program within the Commerce Department's National Institute of Standards and Technology (NIST). The act comes about two years after President Obama first proposed the establishment of a National Network for Manufacturing Innovation in his FY2013 budget. RAMIA includes provisions authorizing NIST, the Department of Energy, and other agencies to support the establishment of centers for manufacturing innovation and establishing and providing for the operation of a Network for Manufacturing Innovation. NIST is authorized to use up to $5.0 million per year of appropriated funds for FY2015-FY2024 to carry out its responsibilities under the act. The Department of Energy is authorized to transfer to NIST up to $250.0 million of appropriated funds over the same FY2015-FY2024 period. The Secretary of Commerce is also authorized to accept funds, services, equipment, personnel, and facilities from any covered entity—federal department, federal agency, instrumentality of the United States, state, local government, tribal government, territory, or possession of the United States, or of any political subdivision thereof, or international organization, or any public or private entity or individual—to carry out the program. The act also establishes a National Office of the Network for Manufacturing Innovation Program (also referred to in this report as the National Program Office) at NIST to oversee and carry out the program. Each center receiving financial assistance under the NMI program must submit annual reports to the Secretary. The Secretary must submit annual reports to Congress on the performance of the program. And the Comptroller General of the United States is directed to perform biennial assessments of the program, with a final assessment due by December 31, 2024. Several factors could affect the implementation of the NMI program. Although the act authorizes funding for establishment of the centers and the network, the act does not appropriate any funds. Funding availability for the program will depend on congressional appropriations, priorities, and allocations. In addition, the Department of Energy is authorized, but not required, to transfer funds to NIST to carry out the program. Another program uncertainty relates to the network of centers. While the act specifies which new and existing centers are eligible to be a part of the network and designates the National Program Office as "a convener of the Network," it does not further specify the purpose, federal role, and activities of the network. |
Continuing a legislative effort that began in the 107th Congress, House and Senate confereeson November 17, 2003, reached agreement on an omnibus energy bill ( H.R. 6 , H.Rept.108-375 ), which would be the first comprehensive energy legislation in more than 10 years. OnNovember 18, the House approved the conference report by a vote of 246-180, but on November 21,a cloture motion to limit debate in the Senate failed, 57-40. On February 12, 2004, SenatorDomenici introduced a revised version of the bill ( S. 2095 ) with a lower estimated costand without a controversial provision on the fuel additive MTBE. Including tax provisions, S. 2095 is estimated by its supporters to cost less than $14 billion, in contrast to the $31billion estimated for the H.R. 6 conference report. The two bills contain identical provisions to change the regulatory requirements for thewholesale electric market, including repeal of the Public Utility Holding Company Act (PUHCA). They would also mandate increasing levels of ethanol production through 2012 but allow regionsto opt out under certain conditions. Use of methyl tertiary butyl ether (MTBE) as a domesticgasoline additive would be banned by the end of 2014, but the President could void the ban and astate could authorize continued use. Under the H.R. 6 conference report, producers ofMTBE and renewable fuels would be granted protection (a "safe harbor") from product liabilitylawsuits, but that provision was dropped in S. 2095 . Both bills would provide $18 billion in loan guarantees for construction of a natural gaspipeline from Alaska to Alberta, where it would connect to the existing Midwestern pipeline system. Royalty reductions would be provided for marginal oil and gas wells on federal lands and the outercontinental shelf. Provisions are also included to increase access by energy projects to federal lands. Several new statutory efficiency standards would be established for consumer andcommercial products and appliances, and other standards could be set by the Department of Energy(DOE). For motor vehicles, funding would be authorized for the National Highway Traffic SafetyAdministration (NHTSA) to set Corporate Average Fuel Economy (CAFE) levels as provided incurrent law. The House version of H.R. 6 , which passed April 11, 2003, included a keycomponent of the Bush Administration's energy strategy: opening the Arctic National WildlifeRefuge (ANWR) to oil and gas exploration and development. But the Senate version, passed July31, 2003, did not include the ANWR language, and the conference report and S. 2095 would leave ANWR off-limits to drilling. This report summarizes the major non-tax provisions of the H.R. 6 conferenceagreement and notes the changes included in S. 2095 . Table 1 lists annual fundingauthorizations in the bills, which total about $71 billion over 10 years. (The likely cost of thefunding authorizations has not yet been estimated by the Congressional Budget Office.) For adiscussion of the tax provisions in the bills, see CRS Issue Brief IB10054, Energy Tax Policy . For a comparison of the House and Senate versions of H.R. 6 , see CRS Report RL32033, Omnibus Energy Legislation (H.R. 6): Side-by-side Comparison of Non-taxProvisions . Many provisions in the H.R. 6 conference report are similar to those of anomnibus energy bill that the Senate debated but did not pass, S. 14 . For a comparisonof major provisions of S. 14 and the House and Senate versions of H.R. 6, seeCRS Report RL32078, Omnibus Energy Legislation: Comparison of Major Provisions in House-and Senate-Passed Versions of H.R. 6, Plus S. 14. Electricity Regulation. Historically, electric utilities have been regarded as naturalmonopolies requiring regulation at the state and federal levels. The Energy Policy Act of 1992(EPACT, P.L. 102-486 ) removed a number of regulatory barriers to electricity generation in an effortto increase supply and introduce competition, but further legislation has been introduced and debatedto resolve remaining issues affecting transmission, reliability, and other restructuring concerns. In part, the electricity section of the conference report and S. 2095 would repealthe Public Utility Holding Company Act (PUHCA) and establish mandatory reliability standards.Standard market design (SMD), a proposed system to provide uniform market procedures forwholesale electric power transactions, would be remanded to the Federal Energy RegulatoryCommission (FERC); no rule would be allowed before the end of FY2006. The Department ofEnergy (DOE) would identify "transmission corridors" that require new construction or upgrading.The bills would grant eminent domain authority to the federal government for construction ofinterstate power lines on these transmission corridors if the states did not act in time. (For a discussion of the policy context and current law, see CRS Report RL32178 , Summaryof Electricity Provision in the Conference Report on H.R. 6. For additional discussionon these issues, see CRS Report RL32728 , Electric Utility Regulatory Reform: Issues for the 109thCongress ; and CRS Report RL32133 , Federal Merger Review Authority .) Renewable Fuel Standard and MTBE. The H.R. 6 conference report and S. 2095 would amend the Clean Air Act to eliminate the requirement that reformulatedgasoline (RFG) contain 2% oxygen to reduce automotive emissions, a requirement which promptedthe widespread use of MTBE (methyl tertiary butyl ether) and, to a lesser degree, ethanol. Instead,the bills would establish a new requirement that an increasing amount of gasoline contain renewablefuels such as ethanol. The bills would require that 3.1 billion gallons of renewable fuel be used in2005, increasing to 5.0 billion gallons by 2012 (as compared to 2.1 billion gallons used in 2002). However, concerns have been raised that this requirement could significantly raise the pump pricefor gasoline in some areas. Because of concerns over drinking water contamination by MTBE (a major competitor withethanol), the bills would ban the use of MTBE in motor vehicle fuel, except in states that specificallyauthorize its use, not later than December 31, 2014. The ban has two possible exceptions. First, EPAmay allow MTBE in motor fuel up to 0.5 percent by volume, in cases that the Administratordetermines to be appropriate; and second, the President may make a determination, not later thanJune 30, 2014, that the restrictions on the use of MTBE shall not take place. The bills would alsoauthorize $2.0 billion to assist the conversion of merchant MTBE production facilities to theproduction of other fuel additives. Further, the bills would preserve the reductions in emissions oftoxic substances achieved by the RFG program. One of the most controversial provisions in the H.R. 6 conference report is theestablishment of a "safe harbor" from product liability lawsuits for producers of MTBE andrenewable fuels. The safe harbor provision -- which was excluded from S. 2095 --would protect anyone in the product chain, from manufacturers down to retailers, from liability forcleanup of MTBE and renewable fuels or for personal injury or property damage based on the natureof the product. (That legal approach has been used in California to require refiners to shoulderliability for MTBE cleanup.) The safe harbor would be retroactive to September 5, 2003. Prior to thatdate, five lawsuits had been filed. After that date, at least 150 suits were filed, on behalf of 210communities in 15 different states. (For additional information, see CRS Report RL32865(pdf) , Renewable Fuels and MTBE: AComparison of Selected Legislative Initiatives ; CRS Report RL30369, Fuel Ethanol: Backgroundand Public Policy Issues ; and CRS Report RL32787 , MTBE in Gasoline: Clean Air and DrinkingWater Issues .) Motor Vehicle Fuel Economy. One of the first initiatives designed to have a significanteffect on oil demand was passage of corporate average fuel economy standards (CAFE) in theEnergy Policy and Conservation Act of 1975 (EPCA, P.L. 94-163 ). In the years since, there havebeen periodic calls for toughening or broadening the CAFE standards -- especially as consumerdemand has turned more to light-duty trucks and sport utility vehicles (SUVs). A final rule mandating higher CAFE standards for light-duty trucks was issued April 1, 2003,by the National Highway Traffic Safety Administration (NHTSA), but congressional interest in theissue continues. The bill reported from conference and S. 2095 would require a CAFEstudy, would prescribe several considerations that must be weighed in determining maximumfeasible fuel economy, would authorize $2 million annually during FY2004-FY2008 for NHTSArulemakings and CAFE analysis, and would extend the existing fuel economy credit for themanufacture of alternative-fueled vehicles. (For additional information, see CRS Issue Brief IB90122, Automobile and Light Truck FuelEconomy: The CAFE Standards .) Nuclear Accident Liability. Reauthorization of the Price-Anderson Act nuclear liabilitysystem is one of the top nuclear items on the energy agenda. Under Price-Anderson, commercialreactor accident damages are paid through a combination of private-sector insurance and a nuclearindustry self-insurance system. Liability is capped at the maximum coverage available under thesystem, currently about $10.9 billion. Price-Anderson also authorizes the Department of Energy toindemnify its nuclear contractors. The limit on DOE contractor liability is the same as forcommercial reactors, except when the limit for commercial reactors drops because of a decline inthe number of covered reactors. The H.R. 6 conference agreement and S. 2095 would provide a20-year extension of Price-Anderson to the end of 2023. The nuclear industry contends that thesystem has worked well and should be continued, but opponents charge that Price-Anderson'sliability limits provide an unwarranted subsidy to nuclear power. The conference report would alsoauthorize the Nuclear Regulatory Commission (NRC) to issue new regulations on nuclear powerplant security and would require force-on-force security exercises. Another nuclear provision in the bills is a $1.1 billion authorization for a nuclear-hydrogencogeneration project at the Idaho National Engineering and Environmental Laboratory. In the taxtitle, the conference agreement -- but not S. 2095 -- would provide a tax credit of 1.8cents per kilowatt-hour for electricity generated by new nuclear power plants, if the plants wereplaced in service by 2020 and did not exceed a total capacity of 6,000 megawatts. (For more information, see CRS Issue Brief IB88090, Nuclear Energy Policy .) Renewable Energy and Efficiency. The H.R. 6 conference report and S. 2095 would legislate new energy efficiency standards for several consumer andcommercial products and appliances. For certain other products and appliances, DOE would beempowered to set new standards. Also, the bills would provide increased funding authorizations forthe DOE weatherization program and establish a voluntary program to promote energy efficiencyin industry. However, neither bill includes one of the top priorities of environmental groups: a renewableportfolio standard (RPS), which would have required retail electricity suppliers to obtain a minimumpercentage of their power from a portfolio of new renewable energy resources. The Senate versionof H.R. 6 would have established an RPS starting at 1% in 2005, rising at a rate of about1.2% every two years, and leveling off at 10% in 2019. (For additional information, see CRS Issue Brief IB10020, Energy Efficiency: Budget, OilConservation and Electricity Conservation Issues , and CRS Issue Brief IB10041, RenewableEnergy: Tax Credit, Budget, and Electricity Production Issues .) Arctic National Wildlife Refuge. The congressional debate over whether to open the ArcticNational Wildlife Refuge (ANWR) to oil and gas leasing has continued for more than 30 years. H.R. 6 as passed by the House would have authorized oil and gas exploration,development, and production in ANWR, with a 2,000-acre limit on production and support facilities.The Senate-passed bill did not include ANWR provisions. The Administration strongly urged thatthe House ANWR language be included in the conference bill. However, once it became apparentthat there were insufficient votes in the Senate to pass an energy bill with ANWR provisions, themanagers decided to leave ANWR out of the final conference bill and S. 2095 . Proponents of exploring ANWR point to advances in exploration and drilling technology andmethods that have significantly reduced the extent of surface disturbance caused by oil and gasactivities. While opponents concede this may be so, they argue that the bill does not imposeadequate requirements in this regard, that surface disturbance represents only one of manyenvironmental impacts, and that considerable risk to the environment remains during all phases ofdevelopment. Some opponents, citing ANWR's pristine character, argue that its ecology and habitatshould not be disturbed under any circumstances. (For additional information, see CRS Issue Brief IB10136, Arctic National Wildlife Refuge(ANWR) , and CRS Report RL31115 , Legal Issues Related to Proposed Drilling for Oil and Gas inthe Arctic National Wildlife Refuge .) Domestic Energy Production. The Department of the Interior (DOI) has estimated thatroughly a quarter of oil resources and less than one-fifth of gas resources on Indian lands have beendeveloped. The H.R. 6 conference report and S. 2095 would allow Indiantribes to enter into business agreements with energy developers without obtaining prior approvalfrom the Department of the Interior, but only if DOI has already approved the tribe's regulationsgoverning such energy agreements. To encourage production on federal lands, royalty reductions would be provided for marginaloil and gas wells on public lands and the outer continental shelf. Provisions are also included toincrease access to federal lands by energy projects -- such as drilling activities, electric transmissionlines, and gas pipelines. Alaska Gas Pipeline. Alaska's North Slope currently holds 30 trillion cubic feet ofundeveloped proven natural gas reserves, about 18% of total U.S. reserves. The Alaska gas reserveshave not been developed due to the high cost of building and operating the transportationinfrastructure to reach distant markets. The H.R. 6 conference bill and S. 2095 would provide $18 billion in loan guarantees for constructing an Alaska gas pipeline. The taxsection of S. 2095 would also provide a tax credit for Alaska gas producers if prices fellbelow a certain level. Hydrogen Fuel Initiative. The H.R. 6 conference bill and S. 2095 would authorize $2.1 billion for FY2004-2008 for President Bush's hydrogen initiative and establisha goal of producing hydrogen vehicles by 2020. Critics of the Administration suggest that thehydrogen program is intended to forestall any attempts to significantly raise vehicle CAFE standards,and that it relieves the automotive industry of assuming more initiative in pursuing technologicalinnovations. On the other hand, some contend that it is appropriate for government to becomeinvolved in the development of technologies that could address national environmental and energygoals but are too risky to draw private-sector investment. (For additional information, see CRS Report RS21442 , Hydrogen and Fuel Cell R&D:FreedomCAR and the President's Hydrogen Fuel Initiative ; and CRS Report RL32196, A HydrogenEconomy and Fuel Cells: An Overview .) Several significant non-tax provisions in the H.R. 6 conference report are notfound in the House and Senate versions of the bill. The following is a partial list and briefdescription of such new provisions. Hydropower. Section 246: Corps of Engineers Hydropower Operation and MaintenanceFunding. The administrators of power marketing administrations could transfer receipts to the ArmyCorps of Engineers for operations and maintenance activities at facilities assigned to them. Thisprovision was not included in S. 2095 . Energy on Federal Lands. Section 316: Alaska Offshore Royalty Suspension. TheSecretary of the Interior could reduce or eliminate oil and gas royalty or net profit shares in planningareas of offshore Alaska. Section 317: Oil and Gas Leasing in the National Petroleum Reserve in Alaska. Thecompetitive leasing system for oil and gas in the National Petroleum Reserve in Alaska would bemodified, allowing the Secretary of the Interior to grant royalty reductions if they were found to bein the public interest. Section 329: Outer Continental Shelf Provisions. For applications to build deepwater ports,the Secretary of Transportation could use environmental impact statements or other studies preparedby other federal agencies instead of conducting separate studies. Section 352: Renewable Energy on Federal Lands. A five-year plan would be prepared toencourage renewable energy development. Section 356: Finger Lakes National Forest Withdrawal. All federal land within the boundaryof Finger Lakes National Forest in the state of New York would be withdrawn from entry,appropriation, or disposal under public land laws and disposition under all laws relating to oil andgas leasing. Section 358: Federal Coalbed Methane Regulation. States would be encouraged to reduceimpediments to coalbed methane development. Nuclear Energy. Section 634: Fernald Byproduct Material. DOE-managed material in theconcrete silos at the Fernald uranium processing facility would be considered byproduct material,which DOE would dispose of in an NRC- or state-regulated facility. Section 635: Safe Disposal of Greater-than-Class-C Radioactive Waste. DOE woulddesignate an office with the responsibility for developing a comprehensive plan for permanentdisposal of the most concentrated category of low-level radioactive waste. Section 637: Uranium Enrichment Facilities. The Nuclear Regulatory Commission (NRC)would be required to issue a final decision on a license to build and operate a uranium enrichmentfacility within two years after an application is submitted, and procedures for handling the facility'swaste would be established. Section 638: National Uranium Stockpile. The Secretary of Energy would be authorized tocreate a national low-enriched uranium stockpile. Section 662: Fingerprinting for Criminal Background Checks. The existing requirement thatindividuals be fingerprinted for criminal background checks before receiving unescorted access tonuclear power plants would be extended to individuals with unescorted access to any radioactivematerial or property that could pose a health or security threat. Section 668: NRC Homeland Security Costs. Except for the costs of background checks andsecurity inspections, NRC homeland security costs would not be recovered through fees on nuclearpower plants and other licensees. Section 928: Security of Reactor Designs. DOE's Office of Nuclear Energy, Science, andTechnology would be required to carry out a research and development (R&D) program ontechnology for increasing the safety and security of reactor designs. Section 929: Alternatives to Industrial Radioactive Sources. After studying the currentmanagement of industrial radioactive sources and developing a program plan, DOE would berequired to establish an R&D program on alternatives to large industrial radioactive sources. Energy Efficiency and Renewables. Section 703: Credits for Medium and Heavy-DutyDedicated Vehicles. Vehicle fleets operated by states and alternative fuel providers could claim extracredits for purchasing medium- and heavy-duty vehicles dedicated to running on alternative fuels. Section 915: Distributed Energy Technology Demonstration Program. DOE would beauthorized to provide financial assistance to consortia for demonstrations to accelerate the use ofdistributed energy technologies in highly energy-intensive commercial applications. Section 916: Reciprocating Power. DOE would be required to create a program for fuelsystem optimization and emissions reduction after-treatment technologies for industrial reciprocatingengines, including retrofits for natural gas or diesel engines. Section 920: Concentrating Solar Power Research and Development Program. DOE wouldbe required to conduct an R&D program on using concentrating solar power to produce hydrogen. Section 965: Western Hemisphere Energy Cooperation. DOE would be directed to conducta cooperative effort with other nations of the Western Hemisphere to assist in formulating economicand other policies that increase energy supply and energy efficiency. Electricity. Section 1222: Third-Party Finance. The Western Area Power Administration(WAPA) and the Southwestern Power Administration (SWPA) would be able to either continue todesign, develop, construct, operate, maintain, or own transmission facilities within their region orparticipate with other entities for the same purposes if specified criteria were met. Section 1227: Office of Electric Transmission and Distribution. Statutory authority wouldbe provided for the DOE Office of Electric Transmission and Distribution. Section 1275: Service Allocation. FERC would be required to review and authorize costallocations for non-power goods or administrative or management services provided by an associatecompany that was organized specifically for the purpose of providing such goods or services. Offshore Energy Revenue Sharing. Section 1412: Domestic Offshore EnergyReinvestment. A portion of the federal revenues from offshore energy activities would be given toaffected coastal states to fund specified activities. Tennessee Valley Authority. Sections 1431-1434: Changes to Board of Directors and StaffAppointments. The presidentially appointed TVA Board of Directors would be expanded from threeto nine, and the Board would hire a chief operating officer to take over day-to-day management. Environmental Regulation. Section 1443: Attainment Dates for Downwind OzoneNonattainment Areas. Clean Air Act deadlines would be extended for areas that have not attainedozone air quality standards if upwind areas "significantly contribute" to their nonattainment. Section 1445: Use of Granular Mine Tailings. The EPA Administrator would be directed toestablish criteria for the safe and environmentally protective use of lead and zinc mine tailings innortheastern Oklahoma for cement or concrete projects, and for federally funded highwayconstruction projects. Alternative and Reformulated Fuels. Section 1513: Cellulosic Biomass andWaste-Derived Ethanol Conversion Assistance. The conference report would allow the Secretaryof Energy to provide grants for the construction of ethanol plants. To qualify, the ethanol must beproduced from cellulosic biomass, municipal solid waste, agricultural waste, or agriculturalbyproducts. A total of $750 million would be authorized for FY2004 through FY2006. Neither theHouse nor the Senate version contained any similar provision. Section 1514: Blending of Compliant Reformulated Gasolines. This provision would allowreformulated gasoline (RFG) retailers to blend batches with and without ethanol as long as bothbatches were compliant with the Clean Air Act. In a given year, retailers would be permitted toblend batches over any two 10-day periods in the summer months. Currently, retailers must draintheir tanks before switching from ethanol-blended RFG to non-ethanol RFG (or vice versa). TheHouse and Senate versions contained no similar provision. The remainder of this report provides a section-by-section summary of the non-tax provisionsof the conference version of H.R. 6 . Sections that were excluded from S. 2095 are shown in italics, and new language is shown in boldface. The sections are listed in numerical order, with section numbers that have been changed in S. 2095 shown in parentheses. Some of the most controversial sections are discussedin greater detail, while multiple sections that deal with a single program have been combined. Funding authorizations, including changes made by S. 2095 , are shown in Table 1 atthe end of the report. The following analysts in the CRS Resources, Science, and Industry Division contributed tothis report: [author name scrubbed], electric utilities; [author name scrubbed], DOE management; [author name scrubbed], energy security; Carl Behrens, hydropower; [author name scrubbed], Federal Water Pollution Control Act; Lynne Corn, ANWR; [author name scrubbed], Native American energy, generalauthorizations; [author name scrubbed], nuclear energy; [author name scrubbed], federal energy leasing, coal; Larry Kumins, oil and gas; Erika Lunder, state energy incentive authority; Jim McCarthy, Clean Air Act, MTBE; Dan Morgan, science programs; [author name scrubbed], Clean Air Act; [author name scrubbed], hydropower; [author name scrubbed], ozone, mine tailings; [author name scrubbed], conservation and renewable energy; [author name scrubbed], underground storage tanks, drinkingwater; Brent Yacobucci, motor fuels; Jeff Zinn, Coastal Zone Management Act. Section 101: Energy and Water Saving Measures in Congressional Buildings. TheArchitect of the Capitol would be required to plan and implement an energy and water conservationstrategy for congressional buildings that would be consistent with that required of other federalbuildings. An annual report would be required. Up to $2 million would be authorized. Section 310of the Legislative Branch Appropriations Act of 1999 called for the Architect of the Capitol (AOC)to develop an energy efficiency plan for congressional buildings. Section 102: Energy Management Requirements. The baseline for federal energy savingswould be updated from FY1985 to FY2001 and a new goal of 20% reduction would be set forFY2013. At that time, DOE would be directed to assess progress and set a new goal for FY2023. Section 202 of Executive Order 13123 uses FY1985 as the baseline for measuring federal buildingenergy efficiency improvements and calls for a 35% reduction in energy use per gross square footby FY2010. Section 103: Energy Use Measurement and Accountability. Federal buildings would berequired to be metered or sub-metered by late 2010, to help reduce energy costs and promote energysavings. Section 104: Procurement of Energy-Efficient Products. Statutory authority would becreated to require federal agencies to purchase products certified as energy-efficient under the EnergyStar program or energy-efficient products designated by the Federal Energy Management Program(FEMP). Currently, Section 403 of Executive Order 13123 directs federal agencies to purchaselife-cycle cost-effective Energy Star products. Section 105: Energy Saving Performance Contracts . Federal agencies would beempowered to continue using energy savings performance contracts (ESPCs) indefinitely. Section801(c) of the National Energy Conservation Policy Act (NECPA, P.L. 95-619 ) provides for federaluse of ESPCs through the end of FY2002. Section 106: Energy Savings Performance Contracts Pilot Program for Non-BuildingApplications . The Department of Defense and other federal agencies would be authorized to enterinto up to 10 energy savings performance contracts for non-building applications. The paymentsto be made by the federal government could not exceed $200 million for all such contractscombined. Section 105 (107) : Voluntary Commitments to Reduce Industrial Energy Intensity. DOE would be authorized to form voluntary agreements with industry sectors or companies toreduce energy use per unit of production by 2.5% per year. While there is no current statutoryauthority, industry energy efficiency programs have been in place, such as the former Climate Wiseprogram at the Environmental Protection Agency (EPA). Section 106 (108) : Advanced Building Efficiency Testbed. DOE would be required tocreate a program to develop, test, and demonstrate advanced federal and private building efficiencytechnologies. Section 107 (109) : Federal Building Performance Standards. DOE would be directed toset revised energy efficiency standards for new federal buildings at a level 30% stricter than industryor international standards. Mandatory energy efficiency performance standards for federal buildingsare currently set in Section 305(a) of P.L. 94-385 and implemented through 10 CFR Part 435. Section 108 (110) : Increased Use of Recovered Mineral Component in Federally FundedProjects. Federally funded construction projects would be required to increase the procurement ofcement and concrete that used recovered material. Section 121: Low Income Home Energy Assistance Program (LIHEAP). Increasedfunding would be authorized for the LIHEAP grant program for FY2004 through FY2006. Department of Health and Human Services funding for LIHEAP is currently authorized throughFY2003 in the Human Services Authorization Act of 1998. Section 122: Weatherization Assistance. Increased funding would be authorized for theDOE weatherization grant program for FY2004 through FY2006. Funding for the program is currently authorized through FY2003 under 42 U.S.C. 6872. Section 123: State Energy Programs. New requirements would be set for state energyconservation goals and plans. Also, increased funding would be authorized for FY2004 throughFY2006 for DOE state energy grant programs. Section 124: Energy-Efficient Appliance Rebate Programs. DOE would be authorizedto fund rebate programs in eligible states to support residential end-user purchases of Energy Starproducts. Section 125: Energy-Efficient Public Buildings. A grant program would be created forenergy-efficient renovation and construction of local government buildings. Section 126: Low Income Community Energy Efficiency Pilot Program. A pilotenergy-efficiency grant program would be created for local governments, private companies,community development corporations, and Native American economic development entities. Section 131: Energy Star Program. DOE and EPA would be given statutory authority tocarry out the Energy Star program, which identifies and promotes energy-efficient products andbuildings. Section 132: HVAC Maintenance Consumer Education Program. DOE would berequired to implement a public education program for homeowners and small businesses thatexplained the energy-saving benefits of improved maintenance of heating, ventilating, and airconditioning equipment. Also, the Small Business Administration would be directed to assist smallbusinesses in becoming more energy-efficient. Section 133: Energy Conservation Standards for Additional Products. DOE would bedirected to issue a rule that determined whether efficiency standards should be set for standby modein battery chargers and external power supplies. Also, energy efficiency standards would be set bystatute for exit signs, traffic signals, torchieres (floor lamps), and distribution transformers (electricutility equipment). Further, DOE would be directed to issue a rule that prescribed efficiencystandards for ceiling fans, vending machines, commercial refrigerators and freezers, unit heaters(fan-type heaters, usually portable), and compact fluorescent lamps. Section 134: Energy Labeling. The Federal Trade Commission (FTC) would be requiredto consider improvements in the effectiveness of energy labels for consumer products. Also, DOEor FTC would be directed to prescribe labeling requirements for products added by this section ofthe bill. The FTC is currently required by Section 324(a) of the Energy Policy and Conservation Act( P.L. 94-163 ) to issue rules for energy efficiency labels on consumer products (42 U.S.C. 6294). Section 141: Capacity Building for Energy-Efficient, Affordable Housing. Activitieswould be required that would provide energy-efficient, affordable housing and other residentialmeasures under the HUD Demonstration Act. Section 142: Increase of CDBG Public Services Cap for Energy Conservation andEfficiency Activities. The amount of community development block grant (CDBG) public servicesfunding that could be used for energy efficiency would be increased to 25%. The current limit is15% under Section 105(a)(8) of the Housing and Community Development Act of 1974. Section 143: FHA Mortgage Insurance Incentives for Energy-Efficient Housing. Solarenergy equipment can be eligible for up to 30% of the total amount of property value that can becovered by Federal Housing Administration mortgage insurance. The current limit is 20% underSection 203(b)(2) of the National Housing Act. Section 144: Public Housing Capital Fund. The Public Housing Capital Fund would bemodified to include certain energy and water use efficiency improvements. Under Section 9 of theUnited States Housing Act, the Capital Fund is available to public housing agencies to develop,finance, and modernize public housing developments and to make management improvements tothese housing facilities. There is currently no provision for energy conservation projects that involvewater-conserving plumbing fixtures and fittings. Section 145: Grants for Energy-Conserving Improvements for Assisted Housing. HUDwould be directed to provide grants for certain energy and water efficiency improvements tomultifamily housing projects. Section 2(a)(2) of the National Housing Act, as amended by Section251(b)(1) of the National Energy Conservation Policy Act, empowers HUD to make grants forenergy conservation projects in public housing, but it has no provision for energy- andwater-conserving plumbing fixtures and fittings. Section 146: North American Development Bank. The North American DevelopmentBank would be encouraged to finance energy efficiency projects. Section 147: Energy-Efficient Appliances. Public housing agencies would be required topurchase cost-effective Energy Star appliances. Section 148: Energy-Efficient Standards. The energy efficiency standards and codes thatthe federal government encourages states to use would be changed from the codes set by the Councilof American Building Officials to the 2000 International Energy Conservation Code. Section 149: Energy Strategy for HUD. The Secretary of Housing and Urban Developmentwould be required to implement an energy conservation strategy to reduce utility expenses throughcost-effective energy-efficient design and construction of public and assisted housing. Section 201: Assessment of Renewable Energy Resources. DOE would be required toreport annually on resource potential, including solar, wind, biomass, ocean (tidal, wave, current, andthermal), geothermal, and hydroelectric energy resources. DOE would be required to reviewavailable assessments and undertake new assessments as necessary, accounting for changes in marketconditions, available technologies, and other relevant factors. The resource potential for renewableshas not been assessed as thoroughly as that for conventional energy resources and the potential maybe altered somewhat by climate change. Section 202: Renewable Energy Production Incentive. Eligibility for the existingincentive would be extended through 2023 and expanded to include electric cooperatives and tribalgovernments. Qualifying resources would be expanded to include landfill gas. Federal law currentlyprovides a 1.5 cent/kwh incentive for power produced from wind and biomass by state and localgovernments and non-profit electrical cooperatives. (1) The incentive is funded by appropriations to DOE and was createdto encourage public agencies, which are not eligible for tax incentives, in a fashion parallel to therenewable energy production tax credit for private sector businesses (Section 1302). This incentivehas played a major role in wind energy development and is viewed by the wind industry as thesingle-most important provision in the bill. The Senate version would have added incremental hydroand ocean energy to the list of eligible resources. Section 203: Federal Purchase Requirement. Federal agencies would be required, to theextent "economically feasible and technically practicable," to purchase power produced fromrenewables. The collective total percentage of renewables use, as a share of total federal electricenergy use, would start at 3% in FY2005, rise to 5% in FY2008, and then reach 7.5% in 2011 andall subsequent years. Renewable energy produced at a federal site, on federal lands, or on Indianlands would be eligible for double credit toward the purchase requirement. This provision aims tohelp develop the market for renewables. A report to Congress would be required every two years. Section 204: Insular Areas Energy Security. This section includes congressional findingsthat electric power transmission and distribution lines in insular areas are not adequate to withstandhurricane and typhoon damage, and that an assessment is needed of energy production, consumption,infrastructure, reliance on imported energy, and indigenous sources of energy in insular areas. Federal law currently requires comprehensive energy plans for insular areas that describe thepotential for renewable energy resources. (2) This section would require the Secretary of the Interior, inconsultation with the Secretary of Energy and the head of government of each insular area, to updateinsular area plans to reflect these findings, and to seek to reduce energy imports by increasing energyconservation and energy efficiency and by attempting to maximize the use of indigenous resources.Annual appropriations would be authorized that would, in part, be used for matching grants forprojects designed to protect electric power transmission distribution lines in one or more of theterritories of the United States from damage caused by hurricanes and typhoons. Section 205: Use of Photovoltaic Energy in Public Buildings. The General ServicesAdministration (GSA) would be authorized to encourage use of solar photovoltaic energy systemsin new and existing buildings. This provision aims to help reduce costs and, thereby, stimulate themarket for photovoltaic equipment. Section 206: Grants to Improve the Commercial Value of Forest Biomass. TheSecretaries of Agriculture and the Interior would be authorized to make grants of up to $20 per greenton (a ton of freshly sawed or undried wood or other biomass) to individuals, businesses,communities, and Indian tribes for the commercial use of biomass for fuel, heat, or electric power. Also, the Secretaries of Agriculture and the Interior may make grants as an incentive to projects thatdevelop ways to improve the use of, or add value to, biomass. Preference is given to small towns,rural areas, and areas at risk of damage to the biomass resource. This provision attempts to addressthe increasing risk of wildfires and the growing threat to forests of insect infestation and disease. Section 207: Federal Procurement of Biobased Products. This provision amends theexisting requirement (3) thatfederal agencies give procurement preference to items composed of the highest percentage ofbiobased products practicable by adding a specific reference to degradable six-pack rings. (4) Sections 211-227: Geothermal Energy Leasing Amendments. Much of the nation'sgeothermal energy potential is located on federal lands. Reducing delays in the federal geothermalleasing process and reducing royalties could increase geothermal energy production, although theenvironmental impact of greater geothermal development is also an issue. Current Law. Competitive geothermal lease sales are based on whether lands are within aknown geothermal resource area (Geothermal Steam Act of 1970, U.S.C. 1003). Geothermalproduction on federal lands is charged a royalty of 10%-15% under Section 5 of the GeothermalSteam Act. The royalty is imposed on the amount or value of steam or other form of heat derivedfrom production under a geothermal lease. The Secretary of the Interior can withdraw public lands from leasing or other public use andmodify, extend, or revoke withdrawals under provisions in the Federal Land Policy and ManagementAct of 1976 (FLPMA, 43 U.S.C. 1714). At certain intervals the Secretary may readjust terms andconditions of a geothermal lease, including rental and royalty rates. Annual rental fees of not lessthan $1 per acre on geothermal leases are paid in advance. The primary lease term is 10 years andshall continue as long as geothermal steam is produced or used in commercial quantities. Rents are$1 per acre or fraction thereof for each year of a geothermal lease. Conference Agreement. Amendments to the Geothermal Steam Act would change leaseprocedures for competitive and non-competitive lease sales. Competitive lease sales would be heldevery two years. If there were no competitive bid, then lands would be made available for two yearsunder a non-competitive process (Sec. 212) . A fee schedule in lieu of any royalty or rental paymentswould be established for low-temperature geothermal resources. Existing geothermal leases may beconverted to leases for direct utilization of low-temperature geothermal resources (Sec. 213) .Royalties from geothermal leases would be 3.5% of the gross proceeds from geothermal electricitysales and 0.75% of the gross proceeds from the sale of items produced from direct use of geothermalenergy. This section takes effect on October 1, 2004. (Sec. 214) . A memorandum of understandingbetween the Secretaries of the Interior and Agriculture should include provisions that would identifyknown geothermal areas on public lands within the National Forest system and establish anadministrative procedure that would include time frames for processing lease applications (Sec 215) . The Secretary the Interior would review all areas under moratoria or withdrawals and reportto Congress on whether the reasons for withdrawal still applied (Sec. 216 ). The Secretary couldreimburse lessees for the costs of environmental analyses required by the National EnvironmentalPolicy Act of 1969 (NEPA, 30 U.S.C. 1001 et seq.) through royalty credits under certaincircumstances. This section's effective date is changed from the date of enactment to October1, 2004. (Sec. 217) . The U.S. Geological Survey (USGS) would provide Congress with anassessment of current geothermal resources (Sec. 218) . Cooperative or unit plans for geothermaldevelopment would be promoted (Sec. 219) . Leasable minerals produced as a byproduct of ageothermal lease would pay royalties under the Mineral Leasing Act (30 U.S.C. 181) (Sec. 220) . Sections 8(a) and (b) of the Geothermal Steam Act would be repealed, which would eliminatethe Secretary's authority to readjust geothermal rental and royalty rates at "not less than 20 yearintervals beginning 35 years after the date geothermal steam is produced" (Sec. 221). Annual rentalswould be credited towards the royalty of the same lease (Sec. 222) , and the primary lease term couldbe extended for two additional five-year terms if work commitments were met (Sec. 223) . Ifproduction from a geothermal lease were suspended during a period in which a royalty was required,royalties would be paid in advance until production resumed (Sec. 224) . The conference agreementwould establish rental rates for competitive and non-competitive lease sales (Sec. 225 ). A joint reportwithin two years would be submitted to detail the differences between the military geothermalprogram and the civilian geothermal program, including recommendations for legislation oradministrative actions to improve the effectiveness of the program (Sec. 226). About two dozentechnical amendments are included in Section 227 . Section 231: Alternative Conditions and Fishways. Under the Federal Power Act (FPA,16 U.S.C. 797 et. seq.) the Federal Energy Regulatory Commission (FERC) has primaryresponsibility for balancing multiple water uses and evaluating hydropower relicensing applications. However, the FPA also creates a role in the licensing process for federal agencies that are responsiblefor managing fisheries or federal reservations (e.g. national forests, etc.). Specifically, sections 4(e)and 18 of the FPA give certain federal agencies the authority to attach conditions to FERC licenses. For example, federal agencies may require applicants to build passageways through which fish cantravel around the dam, schedule periodic water releases for recreation, ensure minimum flows ofwater for fish migration, control water release rates to reduce erosion, or limit reservoir fluctuationsto protect the reservoir's shoreline habitat. Once an agency issues such conditions, FERC mustinclude them in its license. While these conditions often generate environmental or recreationalbenefits, they may also require construction expenditures and may increase costs by reducingoperational flexibility. Reflecting recommendations by FERC and the hydropower industry, both the House andSenate versions of H.R. 6 included provisions to alter federal agencies'license-conditioning authority. The conference bill includes the House language. It would establishnew requirements for federal agencies that set conditions or fishway requirements for hydroelectriclicenses under sections 4(e) and 18 of the Federal Power Act. License applicants could initiate atrial-type hearing on factual issues related to an agency's conditions. Federal agencies would haveto consider alternative conditions proposed by the license applicant and accept a proposed alternativeif it would provide for the adequate protection and utilization of a federal reservation, and wouldeither cost less or improve a project's operational efficiency. An agency would have to justify itsdecision to accept or to reject the alternative after giving equal consideration to both conditions'effects on a broad range of factors. The bill would also establish a system for reviewing an agency'sdecision if it rejected the applicant's alternative. Section 241: Hydroelectric Production Incentives. The Secretary of Energy would makeincentive payments to non-federal owners or operators of hydroelectric facilities for power that isfirst produced within 10 years of the date of enactment by generating equipment added to existingfacilities. Payments of 1.8 cents per kilowatt-hour (kWh), up to a total of $750,000/year, may bemade for up to 10 years from the first year after the facility begins operating. Section 242: Hydroelectric Efficiency Improvement. The Secretary of Energy would makeincentive payments to the owners or operators of hydroelectric facilities who make capitalimprovements on existing facilities that improve efficiency by at least 3%. Payments would notexceed 10% of the improvement cost and would not exceed $750,000 at any single facility. Section 243: Small Hydroelectric Power Projects. This provision would amend the PublicUtility Regulatory Policy Act of 1978 (16 U.S.C. 2078), to change the date on or before which a dammust be constructed to qualify as an existing dam, from April 20, 1977, to March 4, 2003. Section 244: Increased Hydroelectric Generation at Existing Federal Facilities. Within18 months of enactment, the Secretaries of the Interior and Energy, in consultation with the Secretaryof the Army, would submit a study of the potential for increasing electric power productioncapability at federally owned or operated water regulation, storage, and conveyance facilities. Section 245: Shift of Project Loads to Off-Peak Periods. The Secretary of the Interiorwould review electric power consumption by the Bureau of Reclamation facilities for waterpumping, and, with the consent of affected irrigation customers, adjust water pumping schedules toreduce power consumption during periods of peak electric power demand. This section would notaffect Interior's existing obligations to provide electric power, water, or other benefits. Section 246: Corps of Engineers Hydropower Operation and Maintenance Funding. Thissection would authorize the administrators of federal power marketing administrations (PMAs) totransfer receipts to the Corps for operations and maintenance activities at facilities assigned tothem. This provision was not in either the House or Senate version of H.R. 6 . Section 246 (247) : Limitation on Certain Charges Assessed to the Flint Creek Project,Montana. Charges for using federal land for the Flint Creek hydroelectric facility would be limitedto $25,000 per year. This provision was not in either the House or Senate version of H.R. 6 . Section 247 (248) : Reinstatement and Transfer of Hydroelectric License. The licensefor FERC project 2696, the Stuyvesant Falls Hydroelectric Project, would be reinstated andtransferred to the Town of Stuyvesant, NY. This provision was not in either the House or Senateversion of H.R. 6 . Section 301: Permanent Authority to Operate the Strategic Petroleum Reserve. Congress authorized the Strategic Petroleum Reserve (SPR) in the Energy Policy and ConservationAct (EPCA, P.L. 94-163 ) to help prevent a repetition of the economic dislocation caused by the1973-74 Arab oil embargo. Physically, the SPR comprises five underground storage facilities,hollowed out from naturally occurring salt domes, located in Texas and Louisiana. In 2000, Congressalso authorized establishment of a Northeast Heating Oil Reserve (NHOR) where two million barrelsof home heating oil is kept in leased, above-ground storage, to be released if the price of heating oilexceeds a calculated historic average. The authorities governing the SPR and NHOR are includedin the Energy Policy and Conservation Act (EPCA, P.L. 94-163 ) and are currently authorizedthrough FY2008 by P.L. 108-7 . These authorities also provide for U.S. participation in emergencyactivities of the International Energy Agency (IEA) without risking violation of antitrust law andregulation. The conference bill would permanently reauthorize both programs, avoiding awkwardperiods such as occurred in 2000 when differences between the House and Senate over certain issuesresulted in a period of several months when the authorities were not in force. Section 302: National Oilheat Research Alliance. The National Oilheat Research Alliance(NORA) was established by the Energy Policy Act of 2000 ( P.L. 106-460 ), and assesses a fee of$.002 per gallon on home heating oil sold by retail distributors. The proceeds, among otherpurposes, are dedicated to research on improving the efficiency of furnaces and boilers, andproviding education and training resources to professionals in the industry. The conference billwould extend the authorization for NORA until nine years (2010) after the date on which theAlliance was established. Section 311: Definition of Secretary. In this subtitle, "Secretary" means Secretary of theInterior. Section 312: Program on Oil and Gas Royalties-In-Kind. The federal government wouldbe allowed to continue to receive physical quantities of oil and gas as royalty-in-kind payments ifit can receive market value for the product and revenues greater than or equal to the revenues itwould have received under a comparable cash-payment royalty. The royalty product would have tobe placed in marketable condition (as defined in H.R. 6 ) at no cost to the United States. Small refineries would receive preferential treatment if supplies on the market were insufficient. Areport to Congress in each year from FY2004-FY2013 would explain among, other things, how theSecretary determined whether the amount received was at least the amount that would have beentaken in cash and how a lease was evaluated as to whether royalty in kind were taken. This sectionwould have taken effect upon enactment of the act. In S. 2095 , this section wouldtake effect on October 1, 2004. Section 313: Marginal Property Production Incentives. The Secretary of the Interiorwould have the authority to reduce or terminate royalties for independent producers under certainconditions. The Secretary would be authorized to prescribe different standards for marginalproperties in lieu of those in this section. This section would take effect on October 1, 2004. Section 314: Incentives for Natural Gas Production From Deep Wells in the ShallowWaters of the Gulf of Mexico. Royalty reductions would be provided for shallow water deep gasproduction at certain depths not later than180 days after enactment. An "ultra-deep" well would alsobe defined in this section. This section would take effect on October 1, 2004. Section 315: Royalty Reductions for Deep Water Production. Royalty reductions wouldbe provided for deepwater areas at fixed production levels at certain depths. Section 316: Alaska Offshore Royalty Suspension. Planning areas in offshore Alaskawould be included under section 8(a)(3)(B) of the Outer Continental Shelf Lands Act (OCSLA, 43U.S.C. 1337(a)(3)(B)). This section of OCSLA currently provides a mechanism for the Secretary ofthe Interior to reduce or eliminate royalty or net profit share established in leases for oil and gasproduction in Gulf of Mexico planning areas. This provision was not in the House or Senate bills. Section 317: Oil and Gas Leasing in the National Petroleum Reserve in Alaska. Thecompetitive leasing system for oil and gas in the National Petroleum Reserve in Alaska would bemodified. Leases would be issued for successive 10-year terms if leases met specific criteria. Activeparticipation would be sought by the state of Alaska and Regional Corporations as defined under theAlaska Native Claims Settlement Act (43 U.S.C. 1602). The Secretary of the Interior could grantroyalty reductions if they were found to be in the public interest. This section was not in the Houseor Senate bills. Section 318: Orphaned, Abandoned, or Idled Wells on Federal Land. Within a year afterenactment, the Secretary would establish a technical assistance program to help states remediate andclose abandoned or idled wells. Technical and financial assistance would be made available over a10-year period to quantify and mitigate environmental dangers. A program would be established forreimbursing the private sector with credits against federal royalties for reclaiming, remediating, andclosing orphaned wells. Section 319: Combined Hydrocarbon Leasing. The Mineral Leasing Act would beamended to allow separate leases for tar sands and for oil and gas in the same area. Tar sands wouldbe leased under the same system as for oil and gas and would require a minimum accepted bid of $2per acre. Section 320: Liquefied Natural Gas. This section would amend the Natural Gas Act tolimit the criteria upon which FERC could reject a proposed liquefied natural gas (LNG) project.Under the conference bill, FERC could not deny a "certificate of convenience and necessity" solelybecause a facility would be at least partly dedicated to importing the project sponsor's own naturalgas. Current Law. Under the Natural Gas Act, FERC reviews jurisdictional project proposals(including those for natural gas importation) to determine if a public need would be met. A widevariety of criteria are applied in making such a determination. The Commission can reject a projectfor a range of reasons, including impact on the competitive nature of U.S. natural gas markets. Policy Context. Growth in U.S. natural gas demand has created a need for additional gassupplies, and imports from plentiful reserves abroad -- in the form of LNG -- have attracted recentinterest. An increasing number of projects are under consideration, and FERC may have to pick andchoose which to certificate. Section 321: Alternate Related Uses on the Outer Continental Shelf. The Secretarywould be authorized to grant rights-of-way or easements on the OCS for energy-related activity ona competitive or noncompetitive basis and would charge fees for such access. A surety bond or otherfinancial guarantee would be required. Section 322: Preservation of Geological and Geophysical Data. Under the proposed"National Geological and Geophysical Data Preservation Program Act of 2003," the InteriorDepartment through the U.S. Geological Survey would establish a program to archive geologic,geophysical, and engineering data, maps, well logs, and samples; provide a national catalog ofarchival material; and provide technical and financial assistance related to the archival material. State agencies that elect to be part of the data archive system that stores and preserves geologicsamples would receive 50% financial assistance, subject to the availability of appropriations. Privatecontributions would be applied to the non-federal share. Appropriations of $30 million per year fromFY2004 through FY2008 would be authorized. Section 323: Oil and Gas Lease Acreage Limitations. Lease acreage limits would bealtered so that additional federal lands would not fall under the Mineral Leasing Act's single-stateownership limitations. Section 324: Assessment of Dependence of State of Hawaii on Oil. Concern surfacesperiodically about the vulnerability of U.S. territories and Hawaii in the event of an oil supplydisruption. The conference bill would require a broad study that would assess the "economicimplication" of Hawaii's reliance upon oil in both the electricity and transportation sectors. Thereport would explore the technical and economic feasibility of displacing the use of residual fuel oilfor the generation of electricity with renewables and liquefied natural gas. Delivery of a report wouldbe required roughly 10 months after enactment. Section 325: Deadline for Decision on Appeals under the Coastal Zone ManagementAct. This section would replace language in Section 319 of the Coastal Zone Management Act of1972 (CZMA),as amended (16 U.S.C. 1465). Section 319 had been added as an amendment in 1996. It established a time line for appeals to the Secretary of Commerce on consistency determinationswhen a state and federal agency are unable to reach agreement. The consistency provisions, set forthin Section 307 of the CZMA, require federal activities in or affecting the coastal zone to beconsistent with the policies of a federally approved and state-administered coastal zone managementplan. (Federal activities include activities and development projects performed by a federal agencyor by a contractor on behalf of a federal agency, and federal financial assistance.) A proposal tomodify the appeals time line with deadlines very similar to this legislation was included in aproposed rule on federal consistency, published in the June 11, 2003, Federal Register . A final rulehas not been issued. The consistency provision creates an unusual relationship where states can halt most federalactions that are incompatible with state interests. When enacted, the consistency requirement wasviewed as a main reason why states would pursue development and implementation of coastal planssince the other incentive to participate, federal financial grants, always has been modest. This viewappears to have some validity as 34 or the 35 eligible states and territories are now administeringfederally approved coastal management programs. Current Law. The consistency provisions in Section 307 of the CZMA guides stateconsideration of whether a proposed federal activity will be compatible with a federally approvedand state-administered coastal zone management plan. Since the first state plan was approved in themid-1970s, there has been considerable friction between states and federal agencies over the reachof the consistency provisions. States have sought broader application to have a strong role indecisions about the largest possible array of proposed federal activities, while the federal governmenthas sought narrower interpretations, especially relating to offshore energy development. Determining an exact boundary separating actions on which the state is to have a primary role inhalting a proposal from actions on which the state does not have such powers has been a subject offederal appeals and litigation, including decisions by the U.S. Supreme Court (notably Secretary ofthe Interior v. California , 464 U.S. 312 (1984), in which the court determined that the sale of oil andgas leases on the outer continental shelf was not an act affecting the coastal zone). When a state and a federal agency cannot reach an agreement on a consistency determination,the law and regulations lay out an elaborate process for resolving that disagreement. Mostdisagreements are resolved through this process, but if no agreement can be reached, the final stepis an appeal to the Secretary of Commerce to make a decision. Appeals to the Secretary have notbeen common. According to citations of appeals posted on the website of the Office of Ocean andCoastal Resource Management in the National Oceanic and Atmospheric Administration (NOAA),as of December 30, 2003, 38 consistency determinations were appealed to the Secretary between1984 and 1999, and 19 of them involved proposed activities by oil companies. The appeals process,like all other aspects of consistency, is currently covered under a final rule issued by NOAA in theDecember 8, 2000, Federal Register. Section 319 in current law has less detail than the proposed amendment. It states that theSecretary will either issue a final decision on the appeal or publish a notice in the Federal Register stating why a decision cannot be reached within 90 days after the record has closed. If the Secretarypublishes a notice that a decision has not been made, that decision must be issued within 45 days ofthe date of publication of that notice. Conference Agreement. The conference agreement would replace the current Section 319of the CZMA with a new set of provisions that would stipulate three sequential deadlines, andthereby limit the overall length of this appeals process to a total of 270 days from the date when anappeal is filed. The first deadline would be for the Secretary of Commerce to publish an initialnotice of an appeal in the Federal Register within 30 days of the appeal's filing. The second deadlinewould be that the administrative record would be open for no more than 120 days. During that timeperiod, the Secretary could receive filings related to the appeal. The final deadline would give theSecretary up to 120 days to issue a decision after the administrative record had been closed. Thesecond and third deadlines would also apply to all pending appeals not resolved prior to the date ofenactment. Also, any appeals in which the record is open on the date of enactment would have tobe closed within 120 days of that date. Policy Context. Consistency appeals have been contentious and, in some instances, theappeals process has dragged on for long time periods. The 1996 amendments in Section 319 weremeant to address those delays by establishing some time limits. This has proved unsatisfactory tosome, who seek additional statutory language that would remove decisions about deadlines from theunpredictable rule-making process by defining the length of component steps in law, and thereforethe overall process, after an appeal to the Secretary has been filed. Section 326: Reimbursement for Costs of NEPA Analysis, Documentation, and Studies. The Minerals Leasing Act would be amended to provide reimbursement for costs of NEPA-relatedstudies under certain circumstances. This provision would not take effect until October 1, 2008. Section 327: Hydraulic Fracturing. This section would amend the Safe Drinking WaterAct (SDWA, 42 U.S.C. 300h(d)) to specify that the definition of "underground injection" excludesthe injection of fluids or propping agents used in hydraulic fracturing operations for oil and gasproduction. In response to a 1997 court ruling directing EPA to regulate hydraulic fracturing asunderground injection, Section 327 would expressly preclude EPA from regulating the undergroundinjection of fluids used in hydraulic fracturing for oil and gas production. The provision adoptslanguage from the House bill that exempts hydraulic fracturing from the definition of undergroundinjection. The Senate bill directed EPA to study the effects of hydraulic fracturing ofhydrocarbon-bearing formations on underground sources of drinking water, and to determinewhether regulation was necessary. The Senate bill also directed the National Academy of Sciencesto study the effects of coalbed methane production on surface and ground water resources. Current Law. The SDWA required EPA to promulgate regulations for state undergroundinjection control (UIC) programs that included minimum requirements for programs to preventunderground injection that endangers sources of drinking water. The Act specifies that UIC programregulations may not prescribe requirements that interfere with "any underground injection for thesecondary or tertiary recovery of oil or natural gas, unless such requirements are essential to assurethat underground sources of drinking water will not be endangered by such injection" (SDWA§1421(b)(2)). Policy Context. EPA reports that before 1997 it had not considered regulating hydraulicfracturing for oil and gas development, because the Agency did not view this well-productionprocess as an activity subject to regulation under SDWA's UIC program. In 1997, the 11th CircuitCourt of Appeals ruled that the injection of fluids for the purpose of hydraulic fracturing constitutedunderground injection as defined under the SDWA, that all underground injection must be regulated,and that hydraulic fracturing of coalbed methane wells in Alabama should be regulated under thestate's UIC program ( LEAF v. EPA , 118 F. 3d 1467). In 1999, EPA approved a revision toAlabama's UIC program to include regulations for hydraulic fracturing of coalbed methane wells. Following the court's decision, EPA decided it needed more information before makingfurther decisions regarding the regulation of hydraulic fracturing, and undertook a study to evaluateimpacts on drinking water sources from hydraulic fracturing practices used in coalbed methaneproduction. In 2002, EPA issued a draft report that identified water quality and quantity problemsattributed to hydraulic fracturing in several states in the West and Southeast, but tentativelyconcluded that the overall impact was small. (5) EPA is expected to issued a final report in early 2004. In 2003, EPA's National Drinking Water Advisory Council recommended that EPA (1) work,either through voluntary means or regulation, to eliminate the use of diesel fuel and related additivesin fracturing fluids that are injected into formations containing drinking water sources; (2) continueto study the health and environmental problems that could occur from hydraulic fracturing forcoalbed methane production; and (3) defend its authority and discretion to implement the UICprogram in a way that advances protection of groundwater resources from contamination. Section 328: Oil and Gas Exploration and Production Defined. This section wouldprovide a permanent exemption from Clean Water Act (CWA) stormwater runoff rules for theconstruction of exploration and production facilities by oil and gas companies or the roads thatservice those sites. Currently under that Act, the operation of facilities involved in oil and gasexploration, production, processing, transmission, or treatment is generally exempt from compliancewith stormwater runoff regulations, but the construction of associated facilities is not. Theamendment would modify the CWA to specifically include construction activities in the types of oiland gas facilities that are covered by the law's statutory exemption from stormwater rules. The issue arises from stormwater-permitting rules for small construction sites and municipalseparate storm sewer systems that were issued by the Environmental Protection Agency (EPA) in1999 and which became effective March 10, 2003. Those rules, known as Phase II of the CleanWater Act stormwater program, require most small construction sites disturbing one to five acresand municipal separate storm sewer systems serving populations of up to 100,000 people to have aCWA discharge permit. The permits require pollution-prevention plans describing practices forcurbing sediment and other pollutants from being washed by stormwater runoff into local waterbodies. Phase I of the stormwater program required construction sites larger than five acres(including oil and gas facilities) and larger municipal separate storm sewer systems to obtaindischarge permits beginning in 1991. (6) As the March 2003 compliance deadline approached, EPA proposed a two-year extensionof the Phase II rules for small oil and gas construction sites to allow the agency to assess theeconomic impact of the rule on that industry. EPA said the delay was needed to comply withPresident Bush's Executive Order 13211, which directed agencies to consider the effects of theiractions on energy-related production activities. EPA had initially assumed that most oil and gasfacilities would be smaller than one acre and thus excluded from the Phase II rules, but recentDepartment of Energy data indicate that several thousand new sites per year would be of sizessubject to the rule. The postponement did not affect other industries or small cities covered by the1999 rule. Conference Agreement. The provision in the conference bill is similar to one inHouse-passed H.R. 6 : It makes EPA's two-year delay permanent and makes it applicableto construction activities at all oil and gas development and production sites, regardless of size,including those covered by Phase I of the stormwater program. The Senate version included nosimilar provision. Industry officials contended that the EPA stormwater rule created costlypermitting requirements, even though the short construction period for drilling sites carried littlepotential for stormwater runoff pollution. Supporters said the provision was intended to clarifyexisting CWA language. Opponents argued that the provision did not belong in the energylegislation and that there was no evidence that construction at oil and gas sites caused less pollutionthan other construction activities. However, they were unsuccessful in efforts to remove theprovision during House consideration of H.R. 6 in April 2003 and also during conferencedeliberations. On November 7, by a 188-210 vote, the House defeated a motion offered byRepresentative Filner that would have instructed conferees to strike the oil and gas exemptionprovision from the bill. Section 329: Outer Continental Shelf Provisions. For applications to build deepwaterports, the Secretary of Transportation could use environmental impact statements or other studiesprepared by other federal agencies instead of conducting separate studies. Information from state andlocal governments and private-sector sources could also be used. This provision was not includedin the House and Senate bills. Section 330: Appeals Relating to Pipeline Construction or Offshore MineralDevelopment Projects. Appeals of decisions under the Coastal Zone Management Act on naturalgas pipelines and offshore energy projects would be based exclusively on the record compiled byFERC or the relevant permitting agency. It would be the sense of Congress that appeals relating tonatural gas pipeline construction would be coordinated within FERC's established timeframes undersections 3 and 7 of the Natural Gas Act (15 U.S.C. 717 b 717 (f). Section 331: Bilateral International Oil Supply Agreements. Prior to the Camp Davidaccords, the United States entered into treaties and agreements with Israel to provide oil to thatnation if Israel could not purchase all the oil it needed in the markets. This commitment wasrenewed in 1995 and requires reauthorization in early FY2005. This provision would have the effectof making these agreements permanent and with the force of law. Sections 332 and 333: Natural Gas Market Reform. These sections would address naturalgas price reporting issues in the wake of the Enron scandal. During extremely volatile marketepisodes in 2000-2001 -- when gas prices briefly soared to unprecedented levels -- it was alleged thatmarket participants reported false trading information to price-reporting services. Beyond creatinghigher prices for the market participants involved, these price-reporting schemes arguably resultedin higher transactions prices for unrelated gas deals whose prices were derived from published priceindices artificially escalated by the allegedly false reports. Section 332 , entitled "Natural Gas Market Reform," would modify the Commodity ExchangeAct (CEA, 7 U.S.C. 13), banning "knowingly false or knowingly misleading or knowingly inaccuratereports." It also increases the penalties for false reporting. Section 333 , entitled "Natural Gas Market Transparency," would direct FERC to issue rulescalling for the timely reporting of natural gas prices and availability and to evaluate the data foraccuracy. The language specifies that FERC not impinge on the role of commercial publishers ofnatural gas prices. Current Law. The Commodity Futures Trading Commission regulates public trading in gasunder a variety of securities laws, including the CEA FERC also has existing authority to preventmarket manipulation and issued Order 644 on November 13, 2003. Order 644 is designed to preventmarket abuse, set "rules of the road," and provide a more stable marketplace for both electricity andnatural gas. It establishes rules relating to market manipulation, data reporting, and record retention.It also makes sellers subject to disgorgement of unjust profits and revocation of FERC authoritiesto operate under market-based rules (i.e. without direct regulatory supervision) and/or to do business. The New York Mercantile Exchange (NYMEX) -- where much of the trading in natural gasfutures takes place -- also has some authority to prevent trading abuses on its platform. In November2003, it formulated a proposal regarding strict record keeping, price disclosure, and use of a commoncomputer-based data format, such that trading information could be electronically scanned to findtrading anomalies. Sections 341-348: Leasing and Permitting Processes. These sections would addressconcerns over delays in the permitting process for oil and gas development after leases are granted. Some lease stipulations are considered by the Administration to be impediments to domestic oil andgas development. However, concerns have also been raised that faster permitting could bypassimportant environmental protections. Current Law. The federal oil and gas leasing program is governed under the MineralLeasing Act of 1920, as amended (30 U.S.C. 181 et. seq.). Bureau of Land Management (BLM)procedures for an application for a permit to drill (APD) are contained in 43 CFR 3162.3-1. TheAPD is posted for 30 days. Within 5 working days after the 30-day period, the BLM consults withsurface-managing agencies whose consent is also required, then notifies the applicant of the results.The BLM is also required to process the application within the 35-day period. The BushAdministration has taken some action on this issue, including processing and conductingenvironmental analyses on multiple permit applications with similar characteristics, implementinggeographic area development planning for oil and gas fields or areas within a field, and allowing forblock surveys of cultural resources. Conference Agreement. An Office of Federal Energy Project Coordination (FEPC) wouldbe established to review and report on accomplishments that are considered more efficient andeffective for federal permitting (Sec. 341) . The Secretary of the Interior would perform an internalreview of the federal onshore oil and gas leasing and permitting process with particular focus onlease stipulations affecting the environment and conflicts over resource use (Sec. 342). TheSecretary would be required to ensure expeditious completion of environmental and other reviewsand implement "best management practices" that would lead to timely action on oil and gas leasesand drilling permits (Sec. 343) . The Secretaries of the Interior and Agriculture would be required tosign an MOU on the "timely processing" of oil and gas lease applications, surface use plans anddrilling applications, the elimination of duplication, and ensuring consistency in applying leasestipulations (Sec. 344) . The U.S. Geological Survey would be required to estimate onshore oil and gas resources andidentify impediments and restrictions that might delay permits. The Department of Energy wouldbe required to make regular assessments of economic reserves (Sec. 345) . Compliance withExecutive Order No. 13211 (42 U.S.C. 12301 note), requiring energy impact studies, would berequired before taking action on regulations having an effect on domestic energy supply (Sec. 346) . A pilot program would be established to demonstrate energy development on federal landin accordance with the multiple-use mandate; Wyoming, Montana, Colorado, Utah, and New Mexicowould be asked to participate (Sec. 347) . The Secretary of the Interior would have 10 days afterreceiving an application for a permit to drill (APD) to notify the applicant whether the APD wascomplete. The Secretary would have 30 days after a complete APD was submitted to issue or defera permit with correcting measures. If deferred, the applicant would have a two-year window tocomplete the application, as specified by the Secretary. If the applicant met the requirements, thenthe Secretary would issue a permit within 10 days. The Secretary would deny the permit if thecriteria were not met within the two-year period (Sec. 348) . Section 349: Fair Market Rental Value Determinations for Public Land and ForestService Rights-of-Way. The Secretaries of the Interior and Agriculture would annually revise andupdate rental fees for land encumbered by linear rights-of-way to reflect fair market value. Section 350: Energy Facility Rights-of-Way and Corridors on Federal Lands. Not laterthan one year after enactment, the Secretaries of the Interior and Agriculture, in consultation withSecretaries of Defense, Commerce, and Energy and FERC, would submit to Congress a reportaddressing the location of existing rights-of-way on federal land for oil and gas pipelines and electrictransmission and distribution facilities. Section 351: Consultation Regarding Energy Rights-of-Way on Public Land. Withinsix months after enactment, the Secretaries of the Interior and Agriculture would be required to enterinto an MOU to coordinate environmental compliance and processing of rights-of-way applications. Section 352: Renewable Energy on Federal Lands. The Secretaries of Agriculture and theInterior, in consultation with others, would prepare a five-year plan for encouraging renewableenergy development, including an analysis of rights of way and projected net benefits of governmentincentives. A National Academy of Sciences study would be required within two years to assessrenewable energy on the outer continental shelf. This provision is new to the conference report. Section 353: Electricity Transmission Line Right-of-Way in Cleveland National Forestand Adjacent Public Land. The Bureau of Land Management would become the lead federalagency for environmental and other necessary reviews for a high-voltage electricity transmission lineright-of-way through the Trabuco Ranger District of the Cleveland National Forest in California. Section 354: Sense of Congress Regarding Development of Minerals Under PadreIsland National Seashore. In recognition of the split estate on Padre Island National Seashore, itwould be the sense of Congress that the federal government owns the surface rights while themineral rights are held privately and also by the state of Texas. The implications of this section areuncertain. Section 355: Encouraging Prohibition of Offshore Drilling in the Great Lakes. Statesadjacent to the Great Lakes would be encouraged to prohibit off-shore drilling in the Great Lakes. Section 356: Finger Lakes National Forest Withdrawal. This provision would withdrawall federal land within the boundary of Finger Lakes National Forest in the state of New York fromentry, appropriation, or disposal under public land laws and disposition under all laws relating to oiland gas leasing. This section was not included in the House and Senate bills. Section 357: Study on Lease Exchanges in the Rocky Mountain Front. The Secretaryof the Interior would, among other things, consider opportunities for domestic oil and gas productionthrough the exchange of non-producing leases in defined areas of the Rocky Mountain Front forother comparable tracts, consider compensation for the exchange or cancellation of a non-producinglease, and assess the economic impact on the lessees and the state under a lease exchange orcancellation. Statutory guidelines would be provided for valuation of non-producing leases. Thissection was not included in the House and Senate bills. Section 358: Federal Coalbed Methane Regulation. States on the list of "affected states"under section 1339(b) of the Energy Policy Act of 1992 (42 U.S.C. 13368(b)) would be removed ifthey took specified actions within three years after enactment of H.R. 6 or hadpreviously taken action under section 1339(b). The list of "affected states" established under theEnergy Policy Act of 1992 (42 U.S.C. 13368 (b)) includes West Virginia, Pennsylvania, Kentucky,Ohio, Tennessee, Indiana, and Illinois. These states are on the list as a result of coalbed methane(CBM) ownership disputes, impediments to development, lack of a regulatory framework toencourage CBM development in the state, and no current extensive development of CBM. A statemay be removed from the list through a petitioning process initiated by the governor of that state. This provision was not included in the House and Senate bills. Section 359: Livingston Parish Mineral Rights Transfer. Section 102 of P.L. 102-562 is amended by striking the "Conveyance of Lands" provision, which maintains the reservation ofmineral rights held by the United States in specific areas of Livingston Parish, Louisiana. Thisprovision was not included in the House and Senate bills. This Subtitle would facilitate the construction of a pipeline to transport natural gas from theAlaskan North Slope (ANS) to the lower 48 states. Section 371: Short Title. Subtitle D would be cited as the Alaska Natural Gas Pipeline Act. Section 372: Definitions. ANS natural gas would be defined as lying north of 64 degreesnorth latitude; the Transportation Project would be defined as delivering this gas to theAlaska-Canada border by a route heading south from Prudhoe Bay. Section 373: Issuance of Certificate of Public Convenience and Necessity. FERC wouldbe directed to issue a certificate of convenience and necessity for an applicant seeking to build thispipeline under the terms the Natural Gas Act alone, presuming both a public need and that sufficienttransport capacity existed at the Canadian end of the pipe to deliver the gas to U.S. markets. Anexpedited hearing process would be provided for, directing FERC to issue a certificate within 60days after the issuance of a final environmental impact statement. Section 373 (d) would prohibit construction of a pipeline via a northerly route to Canadatransiting under the Beaufort Sea. This would preclude a proposal that was floated a few years agobut garnered little support. In order to elicit interest in the pipeline project, an "open season" for potential customerswould be held 120 days after the energy bill was enacted. An open season is a formalized proceedingin which the public demand for a project is gauged, giving an indication of the capacity that mightbe called for in an Alaska Gas Transport project. An assessment of Alaska in-state gas needs would also be made under this section, andaccess to the state's royalty gas for consumption within Alaska would be facilitated. Section 374: Environmental Reviews. This section would fast-track NEPA compliance bythe proposed Alaska gas pipeline. FERC would be designated as the lead agency under NEPA,setting the schedule and coordinating environmental reviews, rather than having each federal agencywith jurisdiction over an aspect of the project proceed separately with the review process. TheCommission would be responsible for consolidating the environmental reviews of all other federalagencies into one environmental impact statement (EIS), which would satisfy all NEPA requirementsfor the project. The section would require FERC to issue a draft EIS within one year after a projectapplication date, and a final EIS within 180 days after issuing the draft, unless there were delays "forgood cause." Section 375: Pipeline Expansion. This section would provide FERC with authority to orderthe capacity of the project to be expanded -- after holding a hearing -- on the basis of one or morerequests for additional capacity. The applicant would have to make a firm commitment for transportservices. The hearing would determine that tariffs were non-discriminatory, the expansion would notadversely impact other shippers, and that adequate downstream facilities existed that would deal withadditional throughput. Section 376: Federal Coordinator. An independent executive branch Office of the FederalCoordinator for Alaska Natural Gas Transportation Projects would be established, headed by apresidential appointee who would be confirmed by the Senate. The Secretary of Energy would holdthese authorities for up to 18 months while a coordinator was being put in place. The coordinatorwould be responsible for expeditious discharge of other agencies' responsibilities and ensuring thatthe provisions of the Alaska gas subtitle of this bill were complied with. The coordinator would not have authority to override or amend FERC decisions. He or shewould enter into an agreement with the state to jointly monitor Transportation System construction,with the state and federal governments having primary responsibility for sections of the projectcrossing their respective lands. Section 377: Judicial Review. The U.S. Court of Appeals for the District of Columbiawould be designated as having original and exclusive jurisdiction over disputes arising from thisproposed legislation. Claims arising under this subtitle would have to be brought not later than 60days after the action giving rise to the claim, and the court would be directed to give them expeditedconsideration. Section 378: State Jurisdiction Over In-State Delivery of Natural Gas. Were the Alaskapipeline project to be constructed, the state could benefit by using it as a backbone system fordistributing gas. This section would provide that the state hold jurisdiction over intrastatedistribution pipelines that might be supplied by the Transportation Project, ensuring that statepipelines and natural gas would not fall under FERC jurisdiction. Sec. 338 notes that FERC wouldhave tariff jurisdiction of the Transportation Project, and that the state should coordinate regardingrates for in-state consumers. Section 379: Study of Alternative Means of Construction. Were no application forTransportation Project construction to be filed within 18 months of the enactment of this act, theSecretary of Energy would be required to conduct a study of alternative construction approaches. Thebill calls for consideration of such factors as establishing a federal corporation, joint federal andprivate-sector ownership, and securing alternative means of financing. The Secretary would reportto Congress on the study's findings and make recommendations on how the project might beaccomplished. Section 380: Clarification of ANGTA Status and Authorities. The bill would not changeanything previously done under the Alaska Natural Gas Transportation Act of 1976 (ANGTA, 15U.S.C. 719g), but would provide authority for responsible agencies to update decisions made in prioryears to meet current project requirements. The project sponsor could be required to updateenvironmental impact studies and analyses and compliance plans. Section 381: Sense of Congress Concerning Use of Steel Manufactured in NorthAmerica and Negotiation of a Project Labor Agreement. The project sponsors should make"every effort" to use steel manufactured in North America and to negotiate a project labor agreement. Section 382: Sense of Congress and Study Concerning Participation by Small BusinessConcerns. Were the project to go forward, it would be the sense of Congress that small businesses-- as defined in the Small Business Act (15 U.S.C. 632(a)) -- should participate to the maximum. TheComptroller General would be directed to study the extent of possible participation and report toCongress not later than one year after enactment. An update every five years would also be calledfor. Section 383: Alaska Pipeline Construction Training Program. This section wouldauthorize grants to recruit and train adult workers in Alaska to work on the gas transport project. Itwould call for the Governor of Alaska to request funds after certifying that the constructions workwas reasonably expected to begin within two years. Section 384: Sense of Congress Concerning Natural Gas Demand. This section wouldexpress congressional concern that the demand for natural gas will outstrip supplies from NorthAmerican producing areas that already have pipeline connections. It would express the belief thatboth Alaskan and Canadian resources are needed to meet future demand, and that such demandwould be strong enough that historic Canadian and lower 48 U.S. producers would not be displacedin the marketplace. Section 385: Sense of Congress Concerning Alaskan Ownership. This section wouldconvey the sense of Congress that it is in the economic interest of Alaska to have local ownershipof a share of the pipeline, and that project sponsors would be encouraged to work with interestedlocal parties seeking to participate. Section 386: Loan Guarantees. The bill would grant authority to the Secretary of Energyto issue "Federal guarantee instruments," providing loan guaranties to pipeline certificate holders.The instruments would expire two years after the certificate had been issued, meaning that theproject sponsor would have to be in the project financing stage by that time. The loan or debtobligation would have to be issued by a qualified lender, the loan could not be for more than 30years, and the total amount of the guaranteed debt obligations would be limited to $18 billion,adjusted for inflation from the date of enactment. The guaranteed loan could cover all legitimatecomponents of the transport system. The bill also would authorize the Secretary to extend these loan guarantees to the Canadiansegment of the Alaska gas transportation project. Current Law. The basic law addressing the certification of pipelines is the Natural Gas Act,which gives FERC broad-based authority to certificate pipelines, facilitating their construction andensuring that their rates and tariffs are "just and reasonable." In addition to the NGA, the AlaskaNatural Gas Transportation Act of 1976 was enacted specifically to pave the way for the projectvisualized in H.R. 6 . Under ANGTA, a presidential finding specified the pipeline routethat is the focal point of Subtitle D. Policy Context. Significant amounts of proven ANS gas reserves lie in and around thePrudhoe Bay field and remain there because a transportation system has not been developed, despiteenactment of ANGTA in 1976. Demand for natural gas in the lower 48 states has grown in the recentpast, and supply has become tight, resulting in steadily increasing average prices and disruptive pricevolatility during high-demand winter months. While an Alaskan gas pipeline is many years off --even if construction began today -- the current supply-demand situation has become a source oflonger-term concern among policymakers. Proponents of the loan guarantees contend that the inherent risk is so high in building anAlaska pipeline, at an estimated cost of $20 billion, that it could not be financed by conventionalmeans. The conference bill's loan guarantees would offer those providing the project's capital someassurance that a certain amount of their investment would be repaid, although exposing the federalgovernment to potential losses. Other proposals have utilized commodity price guarantees or acombination of loan and price guarantees. Sections 401-404: Clean Coal Power Initiative. The Clean Coal Power Initiative (CCPI)is in its third year of funding under a 10-year, $2 billion program outlined by the BushAdministration. According to DOE, the program supports cost-shared projects with the privatesector to demonstrate new technologies that could boost the efficiency and reduce emissions fromcoal-fired power plants. Current Law. CCPI does not currently have a specific authorization, although it has beenfunded through the annual Interior and Related Agencies Appropriations bill. The programsupersedes the Clean Coal Technology Program, which has completed most of its projects and hasbeen subject to rescissions and deferrals since the mid-1990s. Conference Agreement. Funding for CCPI would be authorized for $200 million for eachyear from FY2004-FY2012 (Sec. 401) . The technical criteria would be established for coal-basedgasification and other projects. The federal share of financing for each clean coal project would notexceed 50% (Sec. 402) . A report on the projects' status and technical milestones would be submittedafter the first year and every two years by the Secretary of Energy to various congressionalcommittees (Sec. 403) . The program would include grants to universities to establish Centers ofExcellence for energy systems of the future (Sec. 404) . Policy Context. A key ingredient of President Bush's May 2001 National Energy Policy isto bolster U.S. energy supply. One of its goals is to use coal more efficiently, as coal is an abundantnational resource. The Administration contends that new technologies could cost-effectively reduceemissions from coal-fired power plants and overcome barriers to expanded coal use. Sections 411-416: Clean Power Projects. The Secretary of Energy would be authorized toprovide a $125 million loan to an experimental clean coal power plant in Healy, Alaska (Sec. 411) . Loan guarantees would be authorized for a power plant using integrated combined-cycle (IGCC)technology in a deregulated market and receiving no ratepayer subsidy (Sec. 412) . A power plantusing IGCC technology in a taconite-producing region of the United States could receive loanguarantees (Sec. 413) . Loan guarantees would be available for at least one petro-coke gasificationpolygeneration project, involving co-production of electricity and fuels (Sec. 414) . Loan guaranteeswould be authorized for an IGCC project using low-Btu coal that would be combined withrenewable energy sources, offer the potential to sequester carbon dioxide emissions, and providehydrogen for fuel-cell demonstrations. The facility would be located in the Upper Great Plains, andits goal would be to provide at least 200 megawatts of power at competitive rates (Sec. 415) . TheSecretary of Energy would be directed to use $5 million of appropriated funds to begin a projectmanaged by the DOE Chicago Operations Office to demonstrate high-energy electron scrubbingtechnology for high-sulfur coal emissions (Sec. 416) . Sections 421-427: Federal Coal Leases. This subtitle would modify federal coal leasingprocedures to encourage greater coal production on federal lands. Issues raised by these provisionsinclude their impact on regional competition and returns to the U.S. Treasury. Current Law. Under the Mineral Leasing Act of 1920 (30 U.S.C. 203), modifications to anexisting coal lease shall not exceed 160 acres or add acreage larger than that in the original lease.Coal leases are subject to diligent development requirements, but the Secretary of the Interior maysuspend the condition upon payment of advance royalties. Advance royalties are computed on a fixedproduction reserve ratio, and the aggregate number of years advance royalties may be accepted inlieu of production is 10. An operation and reclamation plan must be submitted within three yearsafter a lease is issued under the Leasing Act (30 U.S.C. 207). Financial assurance is required toguarantee payment of bonus bid installments (30 U.S.C. 201 (a)). Conference Agreement. The conference agreement would repeal the 160 acre limitation oncoal lease modifications. The total area added to an existing coal lease through a modification couldnot exceed 1,280 acres or add acreage larger than the original lease (Sec. 421) . Criteria would beestablished for extending the mine-out period of a coal lease beyond 40 years (Sec. 422) . TheSecretary may upon payment of an advance royalty, suspend a coal lessee's requirement forcontinuous operation. Advance royalties would be based on the average price of coal sold on the spotmarket from the same region, and the aggregate number of years advance royalties could be acceptedin lieu of production would be 20 (Sec. 423) . The current three-year deadline for submission of acoal lease operation and reclamation plan would be repealed (Sec. 424) . The financial surety bondor other financial guarantee for a bonus bid would no longer be required (Sec. 425) . The Secretaryof the Interior, in consultation with the Secretaries of Agriculture and Energy, would be required toassess coal on public lands, including low-sulfur coal and various impediments to developing suchresources (Sec. 426) . Amendments made under this provision would apply to any coal lease issuedbefore, on, or after the date of enactment (Sec. 427) . Section 441: Clean Air Coal Program. This section would amend the Energy Policy Actof 1992 with the addition of a clean air coal program to promote increased use of coal, acceptanceof new clean coal technologies, and advance deployment of pollution control equipment to meet theClean Air Act (42 U.S.C. 7402 et seq.). A total of $500 million over FY2005-FY2009 would be authorized for pollution controlprojects to control mercury, nitrogen dioxide, sulfur dioxide emissions, particulate matter, or morethan one pollutant; and allow use of the waste byproducts. Additional authorizations totaling $1.5billion over FY2006-FY2012 would be provided for projects using coal-based electrical generationequipment and processes, and associated environmental control equipment. Project selection criteria would be based on significantly improving air quality, replacing lessefficient units, and improving thermal efficiency. Up to 25% of projects would be cogeneration orother gasification projects. At least 25% of the projects would be solely for electrical generation,with priority for those generating less than 600 MW. Federal loans or loan guarantees would notexceed 30% of the total funds obligated during any fiscal year. The federal share of projects fundedwould not exceed 50%. No technology funded by the program, or level of emissions reduction achieved by fundedprojects, would be considered adequately demonstrated for purposes of Sections 111, 169, or 171of the Clean Air Act. Section 501: Short Title. The "Indian Tribal Energy Development and Self-DeterminationAct of 2003." Section 502: Office of Indian Energy Policy and Programs. Title II of the Departmentof Energy Organization Act (42 U.S.C. 7131 et. seq.) would be amended to create the Office ofIndian Energy Policy and Programs at the Department of Energy. Section 503: Indian Energy. Title 26 the Energy Policy Act of 1992 (25 U.S.C. 3501)would be replaced by this section, which outlines procedures whereby Indian tribes would be ableto develop and manage the energy resources located on, and rights-of-way through, tribal land. Within a year of enactment of the bill, the Department of the Interior (DOI) would issue regulationson the requirements for approval of tribal energy resource agreements. Under their own tribal energyresource agreements as approved by DOI, Indian tribes would be able to enter into leases or businessagreements for energy development and grant rights-of-way over tribal land for pipelines or electriclines. Assistance for tribal energy development would be provided through DOI by grants andlow-interest loans and through DOE by grants and loan guarantees. Federal agencies could givepreference to Indian energy when purchasing energy products and byproducts. DOI would be required to undertake a review and make recommendations regarding tribalopportunities under the Indian Mineral Development Act of 1982 (25 U.S.C. 2101 et. seq.). TheBonneville Power Administration and Western Area Power Administration would be authorized toassist in developing distribution systems that provide power to Indian tribes using the federaltransmission system. DOE, in coordination with the Army and DOI, would conduct a study of thefeasibility of obtaining a marketable, steady electricity source from wind energy generated on triballands connected with hydropower generated by the U.S. Army Corp of Engineers at Missouri Riverpowerplants. The language of the conference agreement combines and expands on both the House- andSenate-passed bills with regard to Indian Energy. Section 504: Four Corners Transmission Line Project. The Dine Power Authority, anenterprise of the Navajo nation, would be eligible to receive grants and other assistance to developa transmission line from the Four Corners Area to southern Nevada, including related generationfacilities. Section 505: Energy Efficiency in Federally Assisted Housing. The Department ofHousing and Urban Development (HUD) would be required to promote energy efficiency and energyconservation in federally assisted housing located on Indian land. This provision would expandcurrent law regarding affordable housing development for Native Americans to include use ofenergy-efficient technologies and innovations. (7) Section 506: Consultation with Indian Tribes. The Secretaries of Energy and of theInterior would be required to consult with Indian tribes in carrying out this title. Sections 601-611: Price-Anderson Nuclear Liability Coverage. The Price-AndersonAct, (8) which addressesliability for damages to the general public from nuclear incidents, would be extended through 2023. The Price-Anderson liability system was up for reauthorization on August 1, 2002, and it wasextended for commercial nuclear reactors through December 31, 2003, by the FY2003 omnibuscontinuing resolution ( P.L. 108-7 ). Even without an extension, existing reactors will continue tooperate under the current Price-Anderson liability system, but any new reactors would not becovered. Price-Anderson coverage for DOE nuclear contractors was extended through December 31,2004, by the National Defense Authorization Act for FY2003 ( P.L. 107-314 ). Current Law. Under Price-Anderson, the owners of commercial reactors must assume allliability for nuclear damages awarded to the public by the court system, and they must waive mostof their legal defenses following a severe radioactive release ("extraordinary nuclear occurrence"). To pay any such damages, each licensed reactor must carry financial protection in the amount of themaximum liability insurance available, which was increased by the insurance industry from $200million to $300 million on January 1, 2003. Any damages exceeding that amount are to be assessedequally against all covered commercial reactors, up to $95.8 million per reactor (most recentlyadjusted for inflation on August 20, 2003). Those assessments -- called "retrospective premiums"-- would be paid at an annual rate of no more than $10 million per reactor, to limit the potentialfinancial burden on reactor owners following a major accident. Including two that are not operating,105 commercial reactors are currently covered by the Price-Anderson retrospective premiumrequirement. Funding for public compensation following a major nuclear incident, therefore, wouldinclude the $300 million in insurance coverage carried by the reactor that suffered the incident, plusthe $95.8 million in retrospective premiums from each of the 105 currently covered reactors, totaling$10.4 billion. On top of those payments, a 5% surcharge may also be imposed, raising the totalper-reactor retrospective premium to $100.6 million and the total potential compensation for eachincident to about $10.9 billion. Under Price-Anderson, the nuclear industry's liability for an incidentis capped at that amount, which varies depending on the number of covered reactors, the amount ofavailable insurance, and an inflation adjustment that is made every five years. Payment of anydamages above that liability limit would require congressional approval under special proceduresin the act. The Price-Anderson Act also covers contractors who operate hazardous DOE nuclearfacilities. The liability limit for DOE contractors is the same as for commercial reactors, excludingthe 5% surcharge, except when the limit for commercial reactors drops because of a decline in thenumber of covered reactors. Because the most recent adjustments have raised the commercialreactor liability limit to a record high, the liability limit for DOE contractors is currently the sameas the commercial limit, minus the surcharge, or $10.4 billion. Price-Anderson authorizes DOE toindemnify its contractors for the entire amount, so that damage payments for nuclear incidents atDOE facilities would ultimately come from the U.S. Treasury. However, the law also allows DOEto fine its contractors for safety violations, and contractor employees and directors can face criminalpenalties for "knowingly and willfully" violating nuclear safety rules. However, Section 234A of theAtomic Energy Act specifically exempts seven non-profit DOE contractors and their subcontractors. Under the same section, DOE automatically remits any civil penalties imposed on non-profiteducational institutions serving as DOE contractors. Conference Agreement. Price-Anderson liability coverage for commercial reactors and forDOE contractors would be extended through December 31, 2023 (Sec. 602) . The total retrospectivepremium for each reactor would be set at the current level of $95.8 million and the limit onper-reactor annual payments raised to $15 million (Sec. 603) , with both to be adjusted for inflationevery five years (Sec. 607) . For the purposes of those payment limits, a nuclear plant consisting ofmultiple small reactors (100-300 megawatts, up to a total of 1,300 megawatts) would be considereda single reactor (Sec. 608) . Therefore, a power plant with six 120-megawatt modular reactors wouldbe liable for retrospective premiums of up to $95.8 million, rather than $574.8 million. The liabilitylimit on DOE contractors would be set at $10 billion per accident, also to be adjusted for inflation,under the conference agreement (Sec. 604) . The liability limit and maximum indemnification for DOE contractors for nuclear incidentsoutside the United States would be raised from $100 million to $500 million (Sec. 605) . However,Price-Anderson indemnification would be prohibited for contracts related to nuclear facilities incountries found to sponsor terrorism (Sec. 610) . None of the increased liability limits would applyto nuclear incidents taking place before the amendments are enacted (Sec. 609) . The NuclearRegulatory Commission (NRC) and DOE would have to report to Congress by the end of 2019 onthe need for further Price-Anderson extensions and modifications (Sec. 606) . For future contracts, the conference agreement would eliminate the civil penalty exemptionfor nuclear safety violations by the seven non-profit contractors listed in current law. DOE'sauthority to automatically remit penalties imposed on all non-profit educational institutions servingas contractors would also be repealed. However, the bill would limit the civil penalties against anon-profit contractor to the amount of management fees received under that contract (Sec. 611) . The House-passed version of H.R. 6 would have authorized the federalgovernment to sue DOE contractors to recover at least some of the compensation that thegovernment had paid for any accident caused by intentional DOE contractor managementmisconduct. Such cost recovery would have been limited to the amount of the contractor's profitunder the contract involved, and no recovery would have been allowed from nonprofit contractors. However, the conference agreement does not include that provision. Most of the major provisionsin the conference agreement are similar to provisions in both the House and Senate versions. Policy Context. The Price-Anderson Act's limits on liability were crucial in establishing thecommercial nuclear power industry in the 1950s. Supporters of the Price-Anderson system contendthat it has worked well since that time in ensuring that nuclear accident victims would have a securesource of compensation, at little cost to the taxpayer. However, opponents contend thatPrice-Anderson subsidizes the nuclear power industry by protecting it from some of the financialconsequences of the most severe conceivable accidents. Because no new U.S. reactors are currently planned, missing the deadline for extensionwould have little short-term effect on the nuclear power industry. However, any new DOE contractssigned during Price-Anderson expiration would have to use alternate indemnification authority. Section 621: Commercial Reactor License Period. The initial 40-year period for acommercial nuclear reactor license would begin when NRC authorized the reactor to commenceoperation. Under current law (Atomic Energy Act sections 103 and 185), the 40-year period maystart before construction of a reactor begins, when a combined construction permit and operatinglicense is issued. The conference provision was taken from the House bill, but the Senate versionincluded similar language. Section 622: NRC Training and Fellowship Program. Funding would be authorized forNRC to conduct a training and fellowship program to develop critical nuclear safety regulatory skills. This is nearly identical to a House provision. Section 623: Cost Recovery From Government Agencies. NRC would be authorized tocharge cost-based fees for all services rendered to other federal agencies. Such authority is limitedunder current law (Atomic Energy Act, Section 161 w.) This provision is identical to language inthe House bill. Section 624: Elimination of Pension Offset for Key NRC Personnel. When NRC has acritical need for the skills of a retired employee, NRC could hire the retiree as a contractor andexempt him or her from the annuity reductions that would otherwise apply. This is identical tolanguage in the House bill. Section 625: Antitrust Review Suspension. NRC would no longer have to submit nuclearreactor license applications to the Attorney General for antitrust reviews, as currently required byAtomic Energy Act, Section 105 c. The Senate bill would have replaced the existing antitrust reviewrequirement with modified procedures for new reactor applications; the House version had noprovision. Section 626: Decommissioning Fund Protection. NRC would be explicitly authorized toissue regulations ensuring that funds collected to decommission nuclear power plants would not beused for other purposes. This provision is particularly aimed at cases in which an original nuclearpower plant owner has sold the plant but retained control over decommissioning funds collectedbefore the ownership transfer. A similar but more detailed provision was included in the Senate bill. Section 627: Limitation on DOE Legal Fee Reimbursement. Except as required byexisting contracts, DOE would be prohibited from reimbursing its contractors for legal expensesincurred in defending against "whistleblower" complaints that are ultimately upheld. This provisionwas taken from the House bill. Section 628: Reactor Decommissioning Pilot Program. A DOE program would beestablished to decommission the sodium-cooled test reactor in northwest Arkansas. This provisionwas taken from the Senate bill. Section 629: Feasibility Study for Commercial Reactors at DOE Sites. The Secretary ofEnergy would be required to submit a study to Congress on the feasibility of developing commercialnuclear power plants at existing DOE sites. This provision was taken from the House bill. Section 630: Government Uranium Sales. With certain exceptions, DOE uranium saleswould be restricted to 3 million pounds per year from FY2004-FY2009, 5 million pounds per yearin FY2010-FY2011, 7 million pounds per year in FY2012, and 10 million pounds per year thereafter. Up to 21 million pounds could be transferred to the uranium enrichment company USEC Inc., aprivatized former government corporation. Similar provisions were included in both the House andSenate bills. Section 631: Uranium Mining Research and Development. Funding would be authorizedfor a cost-shared research and development program by DOE and domestic uranium producers onin-situ leaching mining technologies and related environmental restoration technologies. Thisprovision was taken from the House bill. Section 632: Whistleblower Protection. Existing whistleblower protections for employeesof nuclear power plants and other NRC licensees and employees of DOE contractors would beextended to employees of NRC contractors. An employee whose whistleblower retaliationcomplaint did not receive a final decision by the Secretary of Labor within 540 days could take thecase to federal court. The House bill would have further extended whistleblower protection to DOEand NRC employees and given the Secretary of Labor 180 days for a decision; the Senate bill hadno related provision. Section 633: Uranium Exports for Medical Isotope Production. Highly enriched uranium(HEU) could be exported to Canada, Belgium, France, Germany, and the Netherlands for productionof medical isotopes in nuclear reactors. Those countries would be exempt from existingrequirements (under Section 134 of the Atomic Energy Act) that they agree to switch to low-enricheduranium (LEU) as soon as possible and that LEU fuel for their reactors be under active development. Instead, those countries would have to agree to convert to suitable LEU fuel when it becameavailable. The exemption in the conference bill would terminate upon certification by the Secretaryof Energy that U.S. medical isotope demand could be reliably and economically met with productionfacilities that do not use HEU. The conference provision is based on language in the House bill,which would have allowed NRC to exempt additional countries from the HEU export restrictionsand did not include the termination procedure. The current HEU export restrictions are intended tospur foreign cooperation with U.S. efforts to convert all HEU reactors to LEU, but supporters of theexemption contend that the restrictions could disrupt the supply of medical isotopes produced inforeign HEU reactors. Section 634: Fernald Byproduct Material. DOE-managed material in the concrete silosat the Fernald uranium processing facility would be considered byproduct material (as defined bysection 11 e.(2) of the Atomic Energy Act of 1954 (42 U.S.C. 2014(e)(2)). DOE would dispose ofthe material in an NRC- or state-regulated facility. This section is new to the conference bill. Section 635: Safe Disposal of Greater-than-Class-C Radioactive Waste. DOE woulddesignate an office with the responsibility for developing a comprehensive plan for permanentdisposal of all low-level radioactive waste with concentrations of radionuclides that exceed the limitsestablished by the NRC for Class C radioactive waste. The plan would include developing a newfacility or use of an existing facility for disposal. This section is new to the conference bill. Section 636: Prohibition on Nuclear Exports to Terrorism Sponsors. Exports of nuclearmaterials, equipment, and sensitive technology would be prohibited to any country identified by theSecretary of State as a sponsor of terrorism. The President could waive the export restriction undercertain conditions. This provision, without the waiver, is similar to language in the House bill. It isintended to block implementation of a 1994 agreement under which North Korea was to receive aU.S.-designed nuclear power plant in return for abandoning its nuclear weapons program. Section 637: Uranium Enrichment Facilities. NRC would be required to issue a finaldecision on a license to build and operate a uranium enrichment facility within two years after anapplication is submitted. Various procedural requirements would be established to ensure that thetwo-year licensing schedule could be met. DOE would be required to take title to and possessionof any depleted uranium hexafluoride resulting from the enrichment process; the cost assessed byDOE could not exceed the amount assessed to USEC Inc., the sole existing U.S. enrichment firm. Residual material from depleted uranium would be considered low-level radioactive waste. Aproposed uranium enrichment plant in New Mexico could be the first to take advantage of thissection, which was not in the House and Senate bills. Section 638: National Uranium Stockpile. The Secretary of Energy would be authorizedto create a national low-enriched uranium stockpile. This provision is new to the conference bill. Sections 651-655: Idaho Hydrogen Production Reactor. DOE would be authorized todesign, construct, and operate an advanced hydrogen-producing nuclear reactor (Secs. 651-652) . Theproject would be managed by the DOE Office of Nuclear Energy, Science, and Technology, and thereactor would be located at the Idaho National Engineering and Environmental Laboratory (Sec.653) . Among other requirements, the project should begin producing hydrogen or electricity by 2010unless the Secretary of Energy finds that goal infeasible (Sec. 654) . Funding for the program wouldbe authorized at $635 million through FY2008, plus $500 million for construction (Sec. 655) . Thisprovision is similar to language in S. 14 , but there was no similar provision in the Houseand Senate versions of H.R. 6 . Section 661: Nuclear Facility Threats. In consultation with NRC and other appropriateagencies, the President would be required to identify types of security threats at nuclear facilities. The President would have to issue reports on the identified threats and on actions taken or to betaken to address the threats. NRC would be authorized to revise its regulations based on thePresident's threat-identification report. NRC would be required to conduct periodic force-on-forceexercises to test nuclear facility security. NRC would be authorized to issue regulations to protectinformation about nuclear facility security, and would be required to assign a security coordinator to each NRC region. This section is similar to language in the House bill. Section 662: Fingerprinting for Criminal Background Checks. The existing requirementthat individuals be fingerprinted for criminal background checks before receiving unescorted accessto nuclear power plants (Atomic Energy Act, Section 149) would be extended to individuals withunescorted access to any radioactive material or property that could pose a health or security threat. Other biometric methods could be used instead of fingerprinting. This section was not included inthe House and Senate bills. Section 663: Use of Firearms by Nuclear Licensees. NRC would be authorized to allowthe use of firearms by security personnel at nuclear power plants and other facilities licensed orregulated by NRC. Federal law currently authorizes NRC employees and contractors to use firearms,but not employees or contractors of nuclear licensees (Atomic Energy Act, Section 161 k.). Thisprovision would counter some state laws that preclude private guard forces from utilizing someweapons. The House version of H.R. 6 had included similar firearms language but hadalso provided arrest authority. Section 664: Unauthorized Introduction of Dangerous Weapons. Existing NRC controlson the entry of dangerous weapons or materials into Commission facilities (Atomic Energy Act,Section 229 a.) would be extended to commercial nuclear power plants and other NRC-regulatedfacilities. This provision was taken from the House bill. Section 665: Sabotage of Nuclear Facilities or Fuel. Maximum penalties for sabotage oflicensed nuclear facilities or materials (Atomic Energy Act, Section 236 a.) would be increased from$10,000 and 10 years in prison to $1 million and life imprisonment without parole. The languagewould clarify that the penalties could apply to facilities "certified" as well as "licensed" by NRC, andalso to sabotage of facilities under construction. This provision was taken from the House bill. Section 666: Secure Transfer of Nuclear Materials. Nuclear materials transferred orreceived in the United States pursuant to an import or export license would have to be accompaniedby a detailed manifest. Every worker involved in such shipments would have to undergo a federalsecurity background check. Language in the House bill would also have imposed those requirementson nuclear materials transferred from any NRC- or state-licensed facility. Section 667: Department of Homeland Security Consultation. Before issuing a licensefor a nuclear power plant, NRC would have to consult with the Department of Homeland Securityabout the vulnerability of the proposed plant location to terrorist attack. A similar provision wasincluded in the House bill. Under current law, most other NRC costs must be recovered throughlicensee fees. Appropriation of such sums as necessary to carry out this subtitle would be authorized. This section is new to the conference report. The sections of this subtitle refer to alternative fuel and vehicle purchase requirements underthe Energy Policy and Conservation Act (EPCA) ( P.L. 94-163 ) and the Energy Policy Act of 1992(EPAct, P.L. 102-486 ). Various requirements apply to federal vehicle fleets, as well as state fleetsand fleets operated by alternative fuel providers. Section 701: Use of Alternative Fuels by Dual-Fueled Vehicles. Section 400AA of EPCAwould be amended to require that all federal agencies operate dual-fueled vehicles on alternativefuels or petition the Secretary of Energy for a waiver from the requirement. Under current law,agencies are not required to file a petition to be exempted from the requirement. A dual-fuel vehicleis one that can be operated on either an alternative fuel (e.g., ethanol or natural gas) or a conventionalfuel (e.g., gasoline). Currently, most federally owned dual-fuel vehicles are operated on gasoline asopposed to alternative fuel. This provision is similar to a provision in the Senate version of the bill;the House version contained no similar provision. Section 702: Neighborhood Electric Vehicles. Section 301 of EPAct would be amendedto allow neighborhood electric vehicles to qualify as alternative fuel vehicles for fleet purchaserequirements under EPAct. A neighborhood electric vehicle is a small, low-speed, zero-emissionvehicle capable of operating on streets but not highways. This provision is similar to a provision inthe Senate version of the bill; the House version contained no similar provision. Section 703: Credits for Medium and Heavy-Duty Dedicated Vehicles. Section 508 ofEPAct would be amended to allow vehicle fleets operated by states and alternative fuel providersto claim extra credits for purchasing dedicated (operating solely on alternative fuels) medium- andheavy-duty vehicles in lieu of light-duty vehicles. The purchase of a dedicated medium-duty vehiclewould count as two light-duty vehicles in meeting EPAct fleet requirements; a heavy-duty vehiclewould count as three. Currently, Executive Order 13149 grants federal fleets (and only federalfleets) three credits for the purchase of a dedicated medium-duty vehicle, and four credits for thepurchase of a dedicated heavy-duty vehicle. The House and Senate versions of the bill contained nosimilar provision. Section 704: Incremental Cost Allocation. Section 303(c) of EPAct allows federalagencies to allocate the incremental cost of required alternative fuel vehicles across the wholevehicle fleet. The conference report would require agencies to do so. This provision is similar toa provision in the House version of H.R. 6 ; the Senate version contained no similarprovision. Section 705: Alternative Compliance and Flexibility. The conference report would amendEPAct to allow new ways for fleets to comply with the vehicle purchase requirements. First, undersubsection (a), vehicle fleets operated by states and fuel providers would be allowed to petition theSecretary of Energy for a waiver from the purchase requirements if they met certain criteria. Thefleet would be required to develop an alternative plan to reduce petroleum consumption. Thealternative plan must result in a reduction in petroleum consumption equal to or greater than if thefleet met its purchase requirement and fueled 100% of its alternative fuel vehicles on alternative fuel100% of the time. Second, subsection (b) would allow state and fuel provider fleets to generate vehicle purchasecredits through the purchase of hybrid-electric vehicles. Credits would be based on the performanceof the hybrid system; the purchase of one hybrid vehicle would qualify for between one-quarter ofa credit and one full credit. Under current law, hybrid vehicles do not qualify as alternative fuelvehicles because their primary fuel is gasoline. In addition, subsection (b) would allow fleets tocount investments in alternative fuel vehicle infrastructure toward vehicle purchase requirements. Each $25,000 in investments would qualify for one credit. Third, subsection (c) would amend the definition of alternative fuel to include leasecondensate (liquids recovered from natural gas separation) and fuels derived from lease condensate. Fleets could generate one vehicle purchase credit for the use of a certain volume (to be determinedby the Secretary of Energy) of lease condensate fuel in medium- and heavy-duty vehicles. Thisprovision is similar to the existing credit structure for the use of biodiesel. This section is significantly different from the House and Senate versions of H.R. 6 . Neither version provided for alternative compliance methods. Further, neitherversion permitted credits for the use of lease condensate fuel. However, the Senate version providedcredits for the purchase of hybrid vehicles and both versions provided credits for investment inalternative fuel infrastructure. Section 706: Review of Energy Policy Act of 1992 Programs. The Secretary of Energywould be required to conduct a study on the effectiveness of the alternative fuel vehicle programsunder EPAct. Specifically, the Secretary would be required to assess the effects on vehicletechnology, availability, and cost. Section 707: Report Concerning Compliance with Alternative Fuel Vehicle PurchasingRequirements. Each federal agency is required to report annually (through 2012) to Congress onits compliance with EPAct vehicle purchase requirements. The conference report would extend therequirement through 2018. Section 711: Hybrid Vehicles. Section 711 would require the Secretary of Energy toaccelerate research on technologies for hybrid vehicles. No new funds would be authorized. Sections 721-724: Advanced Vehicles. The Secretary of Energy would be authorized toprovide grants to state governments, local governments, and metropolitan transit authorities for thepurchase of alternative fuel, hybrid, fuel cell, and ultra-low sulfur diesel vehicles (defined in Sec.721 ), and the infrastructure to support them. The program would be administered through the CleanCities Program. Grants would be capped at $20 million per applicant. Between 20% and 25% ofall grant funds would be used for ultra-low sulfur diesel vehicles (Sec. 722) . The Secretary wouldbe required to submit reports to Congress identifying grant recipients and evaluating the program'seffectiveness (Sec. 723) . $200 million total would be authorized for the grant program (Sec. 724) . This provision is similar to a provision in the House version of H.R. 6 ; the Senate hadno similar provision. Section 731: Fuel Cell Transit Bus Demonstration. The Secretary of Energy would berequired to establish a program to demonstrate up to 25 fuel cell transit buses in various localities.$10 million annually would be authorized for FY2004 through FY2008. This provision is similarto a provision in the House version of H.R. 6 , but the House version would haveauthorized $40 million for the project. The Senate version contained no similar provision. Sections 741-744: Clean School Buses. A pilot program administered by theEnvironmental Protection Agency would be established to provide grants to local governments andcontractors that provide school bus service for public school systems. Grants would be provided toaid in the purchase of alternative fuel and advanced diesel buses (as defined in Sec. 741 ), and theinfrastructure necessary to support them. A total of $200 million would be authorized for FY2005through FY2007, and a maximum of 30% of the grant funds could be used to purchase advanceddiesel buses (Sec. 742) . A pilot program would also be established to provide grants for thedevelopment and application of retrofit technologies for diesel school buses. A total of $100 millionwould be authorized for FY2005 through FY2007 (Sec. 743) . In addition, a pilot program wouldbe established for the development and demonstration of fuel cell school buses. A total of $25million would be authorized for FY2004 through FY2006 (Sec. 744) . This subtitle is similar to provisions in both the House and Senate versions of H.R. 6 . However, the total authorized funding in the conference agreement ($325million) is greater than either the House version ($300 million) or the Senate version ($210 million). Section 751: Railroad Efficiency. A public-private research partnership would beestablished for the development and demonstration of locomotive engines that increase fueleconomy, reduce emissions, and lower costs. A total of $110 million would be authorized forFY2005 through FY2007. This provision is similar to provisions in the House and Senate versionsof H.R. 6 , but with differing authorizations. The House authorized $90 million totalfor the partnership; the Senate authorized $130 million. Section 752: Mobile Emission Reductions Trading. Within 180 days of enactment, theEPA Administrator would be required to submit a report to Congress on EPA's experience with thetrading of mobile source emission reduction credits to stationary sources to meet emission offsetrequirements within Clean Air Act nonattainment areas. Section 753: Aviation Fuel Conservation and Emissions. This section would require theFederal Aviation Administration and EPA to jointly study the impact of aircraft emissions on airquality in Clean Air Act nonattainment areas, and ways to promote fuel conservation measures andreduce emissions. Section 754: Diesel Fueled Vehicles. The Secretary of Energy would be required toaccelerate research on emissions control technologies for diesel motor vehicles. The objective ofthe research would be to enable diesel technology to meet Tier 2 emission standards not later than2010. (These standards will apply to cars and light trucks after the 2003 model year.) No newfunding would be authorized. Section 755: Conserve by Bicycling Program. The Department of Transportation (DOT)would be directed to conduct up to 10 pilot bicycling projects to conserve energy. A minimum of20% of each project's costs would have to be provided by state or local sources. Also, DOT wouldbe directed to engage the National Academy of Sciences to conduct a research study on the feasibilityof converting motor vehicle trips to bicycle trips. Some local governments have experimented withpolice bicycle patrols and other bicycling programs. This provision may help expand such uses ofbicycling. Section 756: Reduction of Engine Idling of Heavy-Duty Vehicles. EPA would be requiredto study whether existing models of air emissions accurately reflect emissions from idling vehicles. Further, EPA would be required to establish a program to support the deployment of idle-reductiontechnologies. A total of $95 million would be authorized for FY2004 through FY2006 for thedeployment program. This section of the conference report varies significantly from the provisions in the Houseand Senate versions of the bill. First, both the House and Senate versions would have required theSecretary of Energy to study the potential energy savings from idle-reduction technologies. Further,the Senate version would have given the Secretary of Energy the authority to require idle-reductiontechnologies on all new heavy-duty vehicles. Section 757: Biodiesel Engine Testing Program. The Secretary of Energy would berequired to study the effects of biodiesel and biodiesel blends on current and future emissions controltechnologies. $5 million would be authorized annually for FY2004 through FY2008. Section 758: High Occupancy Vehicle Exception. The Transportation Equity Act for the21st Century (TEA-21, P.L. 105-178 ) would be amended to allow states to exempt hybrid anddedicated alternative fuel vehicles from high occupancy vehicle (HOV) restrictions. ThroughSeptember 30, 2003, states had the authority to exempt certain types of alternative fuel vehicles fromthe restrictions. However, hybrid vehicles and some alternative fuel vehicles did not qualify. As theexisting authorization has expired, states do not currently have the authority to exempt any type ofalternative fuel vehicle from HOV restrictions. The Senate version of H.R. 6 wouldhave allowed states to exempt alternative fuel vehicles (but not hybrids); the House versioncontained no similar provision. Sections 771-774: Fuel Economy Standards. The conference bill would authorize $2million annually during FY2004-FY2008 for the National Highway Traffic Safety Administration(NHTSA) to carry out fuel economy rulemakings (Sec. 771) . It would expand the criteria that theagency would be required to take into account in setting maximum feasible fuel economy for carsand light trucks, including the effects of prospective standards on vehicle safety and automotiveindustry employment (Sec. 772) . In many instances, these additional factors may add specificity tobroader considerations that are already taken into account by NHTSA in developing its rules. The legislation would also extend corporate average fuel economy (CAFE) credits that accrueto manufacturers of dual-fueled vehicles. The cap to the credit of 1.2 miles per gallon (mpg) earnedby any individual manufacturer would be extended to model year (MY) 2008. It was otherwisescheduled to drop to a cap of 0.9 mpg beginning in MY2005. The bill would postpone institutionof the 0.9 cap until MY2009 and authorize it through MY2013 (Sec. 773) . It also would require astudy to explore the feasibility and effects of reducing automobile fuel consumption "a significantpercentage" by MY2012 (Sec. 774) . Current Law. The Energy Policy and Conservation Act ( P.L. 94-163 ) established CAFEstandards for passenger cars and light duty trucks. The current CAFE standards are 27.5 mpg forpassenger automobiles and 20.7 mpg for light trucks, a classification that also includes sport utilityvehicles (SUVs). A final rule issued by NHTSA on April 1, 2003, requires a boost in light truck fueleconomy to 22.2 mpg by MY 2007. Sections 801-809: Hydrogen Research and Development. Title VIII of the conferencereport would reauthorize hydrogen fuel research and development at the Department of Energy (Sec.803) . The title would establish an Interagency Task Force to coordinate federal research (Sec. 804) . Further, the title would require the Secretary of Energy to develop a plan for the development ofhydrogen fuel and fuel cells (Sec. 802) , and would establish a Hydrogen Technical and Fuel CellAdvisory Committee to advise the Secretary and review the development plan (Sec. 805) . DOE'splans for the hydrogen program would be reviewed by the National Academy of Sciences (Sec. 806) ,and the Secretary of Energy would represent U.S. interests related to hydrogen programs inconsultation with relevant agencies (Sec. 807) . Specified authorities of the Secretary ofTransportation would not be affected (Sec. 808) . A total of $2.15 billion would be authorized forFY2004 through FY2008 (Sec. 809) . (Definitions are provided in Sec. 801 .) Policy Context. There has been increased interest in hydrogen as a fuel in transportation,stationary, and mobile applications because of potential environmental and energy security benefits. In the State of the Union Address on January 28, 2003, President George W. Bush announced a newHydrogen Fuel Initiative to promote research and development on hydrogen and fuel cells. Alongwith the FreedomCAR initiative (announced in January 2002), the Administration is seeking a totalof $1.8 billion through FY2008. This request includes approximately $720 million in new funding. The conference report would authorize $2.15 billion over the same time frame, slightly higher thanthe President's request. The House version of H.R. 6 would have authorized fundingat the President's requested level ($1.8 billion), while the Senate version would have authorizedsignificantly less ($420 million). However, before it was replaced with the Senate version of H.R.6, S. 14 would have authorized nearly double the President's request ($3.0billion). In addition to the above provisions on funding, the Senate version of H.R. 6 would have required the Secretary of Energy to develop a program to promote the availability of100,000 fuel cell vehicles by 2010 and 2.5 million vehicles by 2020. Neither the House version northe conference report on H.R. 6 contained this provision. Section 901: Goals. DOE would be directed to conduct energy research, development,demonstration, and commercial application programs to support federal energy policy. As part ofeach annual budget request, the Secretary of Energy would be required to publish measurablefive-year cost and performance-based goals that cover energy efficiency, electricity generation,renewable energy, fossil energy, and nuclear energy programs. These programs are currently funded. Both the House and Senate versions of H.R. 6 had more specific goals, such as toreduce national energy intensity. Section 902: Definitions. For Title IX, this section provides several definitions, includingmission, institution of higher education, and national laboratories. Section 904: Energy Efficiency. Funding for DOE energy efficiency programs would beauthorized for five fiscal years. Funding authorizations for most of these programs have expired.Constraints and prohibitions on funding, such as the exclusion of funding for issuing energyefficiency regulations, would be established. The Senate version had also included some goals forenergy efficiency programs. Section 905: Next Generation Lighting Initiative. A DOE program would be created thataims to develop advanced white light-emitting diodes (LEDs) for high efficiency lighting. TheseLEDs are expected to be more efficient than incandescent and fluorescent lights. Both the House andSenate versions had a specific target date for LED development. Also, DOE would be directed toarrange for the National Academy of Sciences to conduct periodic reviews of the initiative. Section 906: National Building Performance Initiative. An interagency group would beestablished to address energy efficiency R&D for buildings. The National Institute of Standards andTechnology would be directed to provide administrative support. This provision would increasecoordination among already existing programs. Section 907: Secondary Electric Vehicle Battery Use Program. A program would beestablished at DOE for R&D on applications of used electric vehicle batteries for utility andcommercial power storage and power quality. Section 908: Energy Efficiency Science Initiative. A program of competitive grants forresearch on energy efficiency would be created. An annual report would be filed with each DOEbudget request. Section 909: Electric Motor Control Technology. DOE would be required to conduct aprogram on advanced electronic control devices to improve the energy efficiency of electric motors;heating, ventilation, and air conditioning systems; and related equipment. Section 911: Distributed Energy and Electric Energy Systems. Five years of fundingauthorizations would be provided for distributed energy, electric energy, and micro-cogenerationprograms. Section 912: Hybrid Distributed Power Systems. DOE would be directed to prepare astudy (strategy) and identify barriers for hybrid distributed power systems that use renewables,storage, and interconnection equipment. Section 913: High Power Density Industry Program. DOE would be required to createa research, development, and demonstration (RD&D) program to improve energy efficiency and loadmanagement of data centers, computer server farms, and other high power density facilities. Section 914: Micro-Cogeneration Energy Technology. DOE would be directed to makecompetitive grants to consortia to develop micro-cogeneration technology, including systems thatcould be used for residential heating. Section 915: Distributed Energy Technology Demonstration Program. DOE would beauthorized to provide financial assistance to consortia for demonstrations to accelerate the use ofdistributed energy technologies in highly energy-intensive commercial applications. This provisiondid not appear in either the House or Senate version. Section 916: Reciprocating Power. DOE would be required to create a program for fuelsystem optimization and emissions reduction after-treatment technologies for industrial reciprocatingengines, including retrofits for natural gas or diesel engines. This provision did not appear in eitherthe House or Senate version. Section 918: Renewable Energy. Funding for DOE renewable energy programs would beauthorized for five fiscal years. Also, specific authorizations would be provided for bioenergy,concentrating solar power, and public buildings. Funding for Renewable Support andImplementation would be excluded. Section 919: Bioenergy Programs. DOE would be directed to conduct programs onbiopower, biofuels, bio-based products, integrated biorefineries, feedstocks, enzymes, and economicanalysis. Program goals would include the development of technologies that could make biofuelsthat are price competitive with gasoline or diesel fuel. Section 920: Concentrating Solar Power Research and Development Program. DOEwould be required to conduct a program to use concentrating solar power to produce hydrogen,including coordination with the Advanced Reactor Hydrogen Cogeneration Project established bySection 651. An assessment of the potential impact of this technology would be required. Also, areport would be required that examines the economic and technical feasibility of a pilot facility thatcould produce electricity or hydrogen. This provision did not appear in either the House or Senateversion. Section 921: Miscellaneous Projects. DOE would be empowered to conduct programs onocean and wave energy, combinations of renewable energy technologies with one another, andcombinations with other energy technologies, including the combined use of wind power and coalgasification technologies. Section 922: Renewable Energy in Public Buildings. DOE would be required to conductan innovative program to put renewable energy equipment in state and local buildings, providing upto 40% of a project's incremental costs. All applicants would be required to show a continuingcommitment to renewable energy use. Section 923: Study of Marine Renewable Energy Options. DOE would be required toarrange with the National Academy of Sciences to conduct a study on renewable energy generationfrom the ocean, including energy from waves, tides, currents, and from the variation in watertemperature with ocean depth (ocean thermal energy). Section 924: Nuclear Energy Authorizations. Funding would be authorized throughFY2008 for nuclear energy research, development, demonstration, and commercial applicationactivities, including DOE nuclear R&D infrastructure support. Similar authorizations were includedin the House and Senate bills. Section 925: Nuclear Energy Research and Development Programs. DOE would berequired to carry out a Nuclear Energy Research Initiative, a Nuclear Energy Plant OptimizationProgram, a Nuclear Power 2010 Program (to encourage deployment of new commercial reactors assoon as possible), and a Generation IV Nuclear Energy Systems Initiative (for longer-term reactordeployment), and nuclear infrastructure support. These programs, which were included in both theHouse and Senate bills, are currently conducted by DOE without specific funding authorizations. Section 926: Advanced Fuel Cycle Initiative. DOE's Office of Nuclear Energy, Science,and Technology would be required to conduct an R&D program on advanced technologies for thereprocessing of spent nuclear fuel. The technologies should be resistant to nuclear weaponsproliferation and support alternative spent fuel disposal strategies and Generation IV advancedreactor concepts. DOE is currently implementing the Advanced Fuel Cycle Initiative without aspecific funding authorization. Spent fuel recycling or reprocessing involves the extraction ofplutonium and uranium from spent nuclear fuel for use in new fuel. Supporters contend that it couldextend domestic energy supplies and reduce the hazard posed by nuclear waste, while opponents areconcerned that the extracted plutonium could be used for weapons. The House and Senate versionsof H.R. 6 had similar provisions. Section 927: University Nuclear Science and Engineering Support. DOE would berequired to support human resources and infrastructure in nuclear science and engineering andrelated fields. The program would include fellowship and faculty assistance programs and supportfor fundamental and collaborative research. The program would also be authorized to help convertresearch reactors to low-enriched fuels, provide technical assistance for relicensing and upgradingresearch reactors, and provide funding for reactor improvements. DOE funding for research projectscould be used for some of the operating costs of research reactors used in those projects. Thissection would add new statutory requirements to the existing DOE University Reactor FuelAssistance and Support Program. Similar provisions were included in the House and Senate bills. Section 928: Security of Reactor Designs. DOE's Office of Nuclear Energy, Science, andTechnology would be required to carry out an R&D program on technology for increasing the safetyand security of reactor designs. This provision was not in the House and Senate bills. Section 929: Alternatives to Industrial Radioactive Sources. After studying the currentmanagement of industrial radioactive sources and developing a program plan, DOE would berequired to establish an R&D program on alternatives to large industrial radioactive sources. Thisprovision was not in the House and Senate bills. Section 930: Deep Borehole Disposal of Spent Nuclear Fuel. DOE would be required tostudy the feasibility of deep borehole disposal of spent nuclear fuel and high-level radioactive waste. Boreholes could potentially go much deeper than the currently planned underground repository atYucca Mountain, Nevada. This provision was taken from the House bill. Section 931: Fossil Energy Authorizations. Funding levels would be authorized for fossilenergy R&D activities for FY2004-FY2008, including extended authorization for the Office ofArctic Energy for FY2004-FY2012. Institutions of higher learning would receive not less than 20%of funding during each fiscal year. Section 932: Oil and Gas Research Programs. Oil and gas R&D programs would includegas hydrates, ultra-clean fuels, heavy oil, oil shale, and environmental research. Research into fuelcells and technology transfer are also specified. This section would require a report to Congress onnatural gas reserves and resource estimates in federal and state waters off the coast of Louisiana andTexas. Based on the existing Clean Power and Energy Research Consortium, a national center orconsortium of excellence in clean energy and power generation would be established to focus on gasturbines for power generation, emissions reduction, energy conservation, and education. Section 933: Technology Transfer. A competitive program would be established to transferDOE offshore oil and gas technology to the private sector. Section 934: Coal Mining Technology. An R&D program on coal mining technologieswould be established at DOE. Activities would reflect priorities of the Mining Industry of the FutureProgram along with guidance from National Academy of Sciences reports on mining technology. R&D would seek to minimize environmental contaminants, and develop techniques for horizontaldrilling in coal beds for more efficient methane recovery. Section 935: Coal and Related Technologies Programs. In addition to the clean coalprograms authorized in Title IV, the Secretary of Energy would be required to conduct an R&Dprogram on integrated gasification combined-cycle systems, turbines for synthesis gas from coal,carbon sequestration, and other coal-related technologies. Cost and performance goals would beestablished for the cost-competitive use of coal for electricity generation, as chemical feedstock, andas transportation fuel. Section 936: Complex Well Technology Facility. This facility would be established at theRocky Mountain Oilfield Testing Center to increase the range of extended drilling technologies. Section 937: Fischer-Tropsch Diesel Fuel Loan Guarantee Program. Loan guaranteeswould be authorized for five years for facilities using the Fischer-Tropsch process to produce dieselfuel from coal. Sections 941-949: Ultra-Deepwater and Unconventional Natural Gas and OtherPetroleum Resources. Part II of Subtitle E would authorize and provide funding for a DOE oil andgas research awards program. Advances in seismic surveying, improved drilling methods, and othernew technology have allowed oil and gas drilling at greater depths on the outer continental shelf andgreater production of unconventional on-shore resources. While the OCS is a major source ofdomestic oil and gas supply, offshore drilling proposals often generate substantial environmentalcontroversy. Current Law. DOE R&D programs for natural gas and petroleum technologies are fundedin the annual Department of the Interior and Related Agencies appropriations bill. Conference Report. R&D would be directed toward the demonstration and commercialapplication of technology for ultra-deepwater oil and gas production, including unconventional oiland gas resources. The R&D program would be designed to benefit "small producers" and addressenvironmental concerns. Complementary research would be carried out through DOE's NationalEnergy Technology Laboratory (Sec. 941) . The Secretary of Energy could contract with a consortiumto recommend ultra-deepwater research projects and manage funding awarded under this program (Sec. 942) . The Secretary would make competitive awards to research consortia for conducting R&Don advanced technologies for recovering coalbed methane and other unconventional resources (Sec.943) . The Secretary could reduce or eliminate the non-federal cost-share requirement for awardsunder this program, 2.5% of each award would be designated for technology transfer, and variousadditional award requirements would be stipulated (Sec. 944) . An Ultra-Deepwater AdvisoryCommittee and an Unconventional Resources Technology Advisory Committee would beestablished (Sec. 945) as would criteria for foreign participation (Sec. 946) . The authority in thispart would terminate at the end of FY2011 (Sec. 947) . The terms deepwater, ultra-deepwater,unconventional oil and gas, independent producers of oil and gas, and others would be defined (Sec.948) . The Ultra-Deepwater and Unconventional Natural Gas and Other Petroleum Research Fundwould be established. Revenues derived from federal oil and gas leases, after all previouslymandated distributions of those revenues had been made, would be deposited in the fund, up to $150million annually during FY2004-FY2013. During the same period, an additional $50 million peryear (such sums as necessary) would be authorized to be appropriated to the fund. The Secretaryof Energy could obligate money from the fund for programs in this part without an overall annuallimit, although annual percentage allocations among the programs would be spelled out (Sec. 949) . Section 951: Science Authorizations. Appropriations would be authorized for the Officeof Science for FY2004 through FY2008, with increases of 10%-15% per year. Within these totals,appropriations would be authorized for specific programs and activities of the Office. This provisionis similar to the House bill but specifies more detailed allocations and incorporates changes in someof the funding levels. Section 952: United States Participation in ITER. Authority would be given for theUnited States to participate in the international fusion energy experiment known as ITER. Criteriawould be specified for any agreement on U.S. participation. DOE would be directed to develop aplan for ITER participation and have it reviewed by the National Academy of Sciences. Funds couldnot be expended for construction until the plan and other reports were provided to Congress. Ifconstruction of ITER appeared unlikely, DOE would be directed to submit a plan for an alternativeexperiment known as FIRE. This provision was in the House bill. A related provision was in theSenate bill. The United States withdrew from the design phase of ITER in 1998 at congressionaldirection, largely because of concerns about cost and scope. The project has since been restructured,and in January 2003, the Administration announced its intention to reenter the project. Otherinternational partners include the European Union, Japan, Russia, and China. Section 953: Plan for the Fusion Energy Science Program. Competitiveness in fusionenergy, including a demonstration of electric power or hydrogen production, would be declared tobe U.S. policy. DOE would be directed to submit a plan to carry out that policy, subject to certainrequirements. This provision, with some wording differences, was in the House bill. A relatedprovision was in the Senate bill. Section 954: Spallation Neutron Source. DOE would be directed to report on theSpallation Neutron Source (SNS), including its cost and schedule, in its annual budget submissions.DOE obligations for the SNS, including prior year costs, could not exceed $1.2 billion (constructiononly) or $1.4 billion (total). This provision, with some wording differences, was in the House bill. Construction of the SNS is scheduled to be completed in 2006. Funding for the project beganin FY1999. Section 955: Support for Science and Energy Facilities and Infrastructure. DOE wouldbe directed to develop, implement, and report on a strategy for its nondefense laboratories andresearch facilities. The House bill contained a similar provision, but the strategy called for by theHouse provision would only have covered the laboratories and facilities of the Office of Science,whereas the conference language also covers the Office of Energy Efficiency and Renewable Energy;Office of Fossil Energy; and Office of Nuclear Energy, Science, and Technology. Section 956: Catalysis Research and Development Program. The Office of Sciencewould be directed to support a program of catalysis R&D, which would conduct research on usingprecious metals in catalysis, design new catalytic compounds using molecular knowledge, and pursueother specified objectives. The National Academy of Sciences would review the program every threeyears. This provision of the conference report is essentially new, although the House and Senate billscontained less detailed provisions authorizing appropriations for certain types of catalysis research. Section 957: Nanoscale Science and Engineering Research, Development,Demonstration, and Commercial Application. The Office of Science would be directed to supporta program of research, development, demonstration, and commercial application in nanoscience andnanoengineering, with specified goals and characteristics. The program would include support forresearch centers and major instrumentation. The House and Senate bills contained similar provisions. Section 958: Advanced Scientific Computing for Energy Missions. DOE would bedirected to support advances in the nation's computing capability through research on grandchallenge computational science problems. The Networking and Information Technology Researchand Development Program would conduct research on topics specified in the bill and would becoordinated with related activities in DOE and elsewhere. DOE would have to report to Congressbefore undertaking any new initiative to develop advanced architectures for high-speed computing.This provision, with some wording differences, was in the House bill. A similar provision was in theSenate bill. Section 959: Genomes to Life Program. DOE would be directed to establish a research,development, and demonstration program in genetics, protein science, and computational biology,with specified goals. DOE would have to submit a research plan for this program to Congress withinone year and contract with the National Academy of Sciences to review the plan within an additional18 months. Biomedical research and research related to humans would not be permitted as part ofthe program. A similar provision was in the House bill. The conference report broadened the Houselanguage to include national security among the program's goals and to specify in more detail theprogram's support for research facilities and equipment. Section 960: Fission and Fusion Energy Materials Research Program. DOE would bedirected to establish, in its FY2006 budget request, an R&D program on materials science foradvanced fission reactors and fusion energy. This provision is new in the conference report. A relatedprovision in the House bill called for a report on the status of materials for fusion energy. Section 961: Energy-Water Supply Program. This section would establish, within theDepartment of Energy, the Energy-Water Supply Program for the purpose of studying (1)energy-related and other issues associated with the supply of drinking water and the operation ofcommunity water systems, and (2) water supply issues related to energy. The program would bedirected to develop methods, means, procedures, equipment, and improved technologies in threeareas: (1) arsenic removal; (2) desalination; and (3) water and energy sustainability. The arsenicresearch program would be required, to the extent practicable, to evaluate the means to: reduceenergy costs of arsenic removal technologies; minimize operating and maintenance costs; andminimize waste resulting from use of such technologies. The desalination program provisions woulddirect the Secretary to work with the Commissioner of Reclamation of the Department of the Interioron a desalination R&D program, and would authorize funds to be used for construction projects. Thissection also would direct the Secretary to develop a water and energy sustainability program toidentify methods, means, and technologies necessary to ensure that sufficient quantities of water areavailable to meet energy needs and that sufficient energy is available to meet water needs. TheSecretary would be required to assess future water resource and energy needs, and develop a programplan and a technology development roadmap for the Water and Energy Sustainability Program. Section 962: Nitrogen Fixation. DOE would be directed to support a program of research,on nitrogen fixation. This provision was in the House bill. Section 964: U.S.-Mexico Energy Technology Cooperation. A collaborative research,development, and demonstration (RD&D) program would be established in the DOE Office ofEnvironmental Management to promote energy-efficient and environmentally sound economicdevelopment along the U.S.-Mexico border. This provision aims to minimize public health risksfrom industrial activities in the border region. A five-year authorization would be provided. Section 965: Western Hemisphere Energy Cooperation. The Secretary of Energy wouldbe directed to conduct a cooperative effort with other nations of the Western Hemisphere to assistin formulating economic and other policies that increase energy supply and energy efficiency. Also,the Secretary would be directed to assist with the development and transfer of energy supply andefficiency technologies that would have a beneficial impact on world energy markets. To increasethe program's credibility with other Western Hemisphere countries, the Secretary would be directedto seek participation from universities, including Hispanic-serving institutions and Historically BlackColleges and Universities. A five-year authorization would be established. This provision did notappear in either the House or Senate version. Section 966: Waste Reduction and Use of Alternatives. DOE would be authorized tomake a single grant to a university to study the feasibility of burning post-consumer carpet in cementkilns. A $500,000 authorization would be established. Section 967: Report on Fuel Cell Test Center. The Secretary of Energy would be requiredto study the establishment of a test center for advanced fuel cells at an institution of higher education. The report would present a conceptual design and cost estimates for the center. Section 968: Arctic Engineering Research Center. DOE, with DOT and the U.S. ArcticResearch Commission, would provide annual grants of $3 million for FY2004-FY2009 through theDOE Arctic Energy Office to an adjacent university to establish and operate an Arctic EngineeringResearch Center in Fairbanks, Alaska. The Center would conduct research on improved methods ofconstruction and materials to improve Arctic region roads, bridges, and other infrastructure. Section 969: Barrow Geophysical Research Facility. The Department of Commerce, withDOE, DOI, EPA, and the National Science Foundation, would establish the Barrow GeophysicalResearch Facility to support Arctic scientific research activities. Appropriations of $61 millionwould be authorized for the planning, design, construction, and support of the facility. Section 970: Western Michigan Demonstration Project. EPA, in consultation with theState of Michigan and affected local officials, would be required to conduct a demonstration projectto address the effect of transported ozone and ozone precursors on air quality in southwesternMichigan. The project would assess any difficulties the area may experience in meeting the 8-hournational ambient air quality standard for ozone due to the effect of transported ozone or ozoneprecursors. EPA would be required to complete the demonstration project within two years of thedate of enactment and would be prohibited from imposing any requirement or sanction that mightotherwise apply during the pendency of the demonstration project. Section 971: Availability of Funds. Funds authorized under this title would remainavailable until expended. This provision was in the House bill. Section 972: Cost Sharing. Cost sharing would be required for programs carried out underthis title. The minimum non-federal share would be 20% for R&D programs and 50% fordemonstration and commercial application programs, but DOE could lower or waive theserequirements in certain circumstances. Similar provisions were in the House and Senate bills. Section 973: Merit Review of Proposals. Awards of funds authorized under this title wouldbe permitted only after an impartial review of scientific and technical merit. This provision was inthe House bill. The Senate bill included a similar provision but specified an "independent review ...by the Department" rather than an "impartial review ... by or for the Department." Section 974: External Technical Review of Departmental Programs. Advisory boardswould be established for DOE programs in energy efficiency, renewable energy, nuclear energy, andfossil energy. The requirement could be met by existing DOE boards or by boards established byarrangement with the National Academy of Sciences. Existing advisory committees would continuefor the programs of the Office of Science. The chairs of the Office of Science committees wouldconstitute a Science Advisory Committee for the Director of the Office. This provision was in theHouse bill. A similar provision in the Senate bill would establish an additional advisory board forclimate change technology and would omit the Science Advisory Committee of existing committeechairs. Section 975: Improved Coordination of Technology Transfer Activities. A TechnologyTransfer Working Group would be established, made up of representatives from DOE's nationallaboratories and single-purpose research facilities. A Technology Transfer Coordinator would bedesignated to coordinate the working group's activities and oversee DOE technology transferactivities generally. This provision was in the House bill. A similar provision was in the Senate bill. Section 976: Federal Laboratory Educational Partners. The Stevenson-WydlerTechnology Innovation Act of 1980 would be amended so that royalties to the government fromlicensing of inventions and income to the government from cooperative R&D agreements(CRADAs) could be used for educational assistance as well as for scientific R&D and other currentlypermitted purposes. This provision was in the House bill. Section 977: Interagency Cooperation. DOE and NASA would be directed to holddiscussions leading to an interagency agreement that would make NASA expertise in energy morereadily available to DOE. This provision was in the House bill. Section 978: Technology Infrastructure Program. DOE would be directed to establisha program to help national laboratories and single-purpose research facilities stimulate thedevelopment of technology clusters, leverage and benefit from commercial activities, and exchangescientific and technological expertise with other organizations. A report would be required in 2006on whether the program should continue and, if so, how it should be managed. A similar provisionwas in the Senate bill. Section 979: Reprogramming. Within 60 days after any appropriation authorized under thistitle, DOE would be required to report to the appropriate authorizing committees on how theappropriated amounts would be distributed. Subsequent reprogramming would be limited to 5%unless reported to the same committee with at least 30 days' notice. This provision was in the Housebill. Section 980: Construction with Other Laws. DOE would be directed to carry out theprograms under this title in accordance with other statutes that govern the operations of DOE andits programs. This provision was in the House bill. Section 981: Report on Research and Development Evaluation Methodologies. DOEwould be directed to arrange with the National Academy of Sciences for a study of evaluationmethodologies for DOE's scientific and technical programs. This provision is new in the conferencereport. Section 982: Department of Energy Science and Technology Scholarship Program. DOE would be authorized to establish a scholarship program to help recruit and prepare students forcareers in DOE. Scholarship recipients would be required to work for DOE for 24 months per yearof scholarship received. This provision, except a final subsection that authorizes appropriations, wasin the House bill. The Senate bill contained a related provision regarding postdoctoral and seniorresearch fellowships. Section 983: Report on Equal Employment Opportunity Practices. DOE would berequired to report to Congress every two years on equal employment opportunity practices at thenational laboratories. This provision was in the House bill. Section 984: Small Business Advocacy and Assistance. Each national laboratory wouldbe required to establish a program of assistance to small businesses and to designate a small businessadvocate to increase the participation of small businesses in programs and to provide them withtraining and technical assistance. DOE could also require small business assistance and advocatesat single-purpose research facilities. A similar provision was in both the House and the Senate bills. Section 985: Report on Mobility of Scientific and Technical Personnel. DOE would berequired to report on disincentives to the transfer of scientific and technical personnel among thecontractor-operated national laboratories and single-purpose research facilities. This provision wasin the House bill. A similar provision was in the Senate bill. Section 986: Report on Obstacles to Commercial Application. DOE would be directedto arrange with the National Academy of Sciences for a study of obstacles to acceleratingcommercial application of energy technology and of DOE policies for technology transfer-relateddisputes between DOE contractors and the private sector. This provision was in the House bill. TheSenate bill included a related provision on acceleration of the energy R&D cycle. Section 987: Outreach. DOE would be directed to include an information outreachcomponent in each program authorized by this title. This provision was in the House bill. Section 988: Competitive Award of Management Contracts. Management and operatingcontracts for DOE non-military energy laboratories would have to be awarded competitively unlessthe Secretary of Energy granted a waiver on a case-by-case basis. The Secretary would not bepermitted to delegate his waiver authority and would have to give Congress 60-days' notice beforeawarding a non-competitive contract. This provision was in the House bill. In the past, management contracts at most DOE laboratories have been extended withoutcompetition. In some cases, laboratories have been managed by the same contractor for 50 years ormore. In November 2003, DOE released the report of a blue-ribbon commission that it establishedto examine this issue. The commission's report is available online at http://www.seab.doe.gov/publications/brcDraftRpt.pdf . It states, "the issue of whether competitionshould be routinely used for research and development laboratories is subject to wide and variedopinions." Section 989: Educational Programs in Science and Mathematics. Competitive events forstudents, designed to encourage interest in science and mathematics, would be added to the list ofauthorized education activities that may be conducted through DOE R&D facilities. This provisionis new in the conference report. Section 1001: Additional Assistant Secretary Position. The DOE Organization Act (42U.S.C. 7133) would be amended to increase the number of assistant secretary positions from six toseven. It would be the sense of Congress that DOE nuclear programs, currently headed by a director,be headed by an assistant secretary. This provision was taken from the Senate bill. Section 1002: Other Transactions Authority. This would amend Section 646 of the DOEOrganization Act (42 U.S.C. 7256) to allow the Energy Secretary to enter into additional transactionsfurthering research, development, or demonstration without requiring that title to inventions bevested in the federal government as currently specified by Section 9 of the Federal NonnuclearEnergy Research and Development Act of 1974 (42 U.S.C. 5908) or section 152 of the AtomicEnergy Act of 1954 (42 U.S.C. 2182). This section is similar to a provision in the Senate versionof H.R. 6 . Section 1101: Training Guidelines for Electric Energy Industry Personnel. TheSecretary of Energy, in consultation with the Secretary of Labor, along with electric industryrepresentatives and employee representatives, would be required to develop model personnel trainingguidelines to support the reliability and safety of the electric system. Section 1102: Improved Access to Energy-Related Scientific and Technical Careers. DOE education programs would be required to give priority to activities that encourage women andminorities to pursue scientific and technical careers. DOE national laboratories (and other DOEscience facilities if so directed by the Secretary) would be directed to increase the participation ofHistorically Black Colleges and Universities, Hispanic-serving institutions, and tribal colleges inactivities such as research, equipment transfer, training, and mentoring. DOE would be required toreport on activities under this section within two years of enactment. The Senate bill included asimilar provision. Section 1103: National Power Plant Operations Technology and Education Center. DOE would establish a National Power Plant Operations Technology and Education Center foron-site and Internet-based training of certified operators for non-nuclear electric power generationplants. Section 1104: International Energy Training. DOE, with the Departments of Commerce,Interior, and State, and FERC, would coordinate training and outreach efforts for internationalcommercial energy markets in countries with developing and restructuring economies. Annualappropriations of $1.5 million for FY2004-FY2007 would be authorized. Title XII of the H.R. 6 conference report deals with electric power issues. Inpart, this title would create an electric reliability organization (ERO) that would enforce mandatoryreliability standards for the bulk-power system. All ERO standards would be approved by the FederalEnergy Regulatory Commission (FERC). Under this title, the ERO could impose penalties on a user,owner, or operator of the bulk-power system that violates any FERC-approved reliability standard. This title also addresses transmission infrastructure issues. The Secretary of Energy would be ableto certify congestion on the transmission lines and issue permits to transmission owners. Permitholders would be able to petition in U.S. District Court to acquire rights-of-way for the constructionof transmission lines through the exercise of the right of eminent domain. FERC's Standard Market Design notice of proposed rulemaking would be remanded to theCommission. The conference report would clarify native load service obligation. Federal utilitieswould be allowed to participate in regional transmission organizations. The electricity title would repeal provisions of the Public Utility Regulatory Policies Act(PURPA) (9) that requireutilities to purchase power from specified outside sources for a price equal to the cost they wouldhave incurred to generate the additional power themselves, as determined by utility regulators. ThePublic Utility Holding Company Act of 1935 (PUHCA, 15 U.S.C. 79 et seq.) would be repealed. FERC and state regulatory bodies would be given access to utility books and records. FERC would be required to issue rules to establish an electronic system that providesinformation about the availability and price of wholesale electric energy and transmission services. For wholesale electric rates that the Commission finds to be unjust, unreasonable, or undulydiscriminatory, the effective date for refunds would begin at the time of the filing of a complaint withFERC but not later than five months after filing of a complaint. Criminal and civil penalties wouldbe increased. The Secretary of Energy would be required to transmit to Congress a study on whetherFERC's merger review authority duplicates other agencies' authority. The Federal Power Act (FPA,16 U.S.C. 791 et seq.) would be amended to give FERC review authority for transfer of assets valuedin excess of $10 million. Section 1201: Short Title. This title may be cited as the "Electric Reliability Act of 2003." Section 1211: Electric Reliability Standards. This section would require the FederalEnergy Regulatory Commission (FERC) to promulgate rules within 180 days of enactment to createa FERC-certified electric reliability organization (ERO). The ERO would develop and enforcereliability standards for the bulk-power system. All ERO standards would be approved by FERC. Under this title, the ERO could impose penalties on a user, owner, or operator of the bulk-powersystem that violates any FERC-approved reliability standard. In addition, FERC could ordercompliance with a reliability standard and could impose a penalty if FERC finds that a user, owner,or operator of the bulk-power system has engaged in, or is about to engage in, a violation of areliability standard. This provision would not give an ERO or FERC authorization to orderconstruction of additional generation or transmission capacity. This section would also require that FERC establish a regional advisory body if requestedby at least two-thirds of the states within a region that have more than half of their electric loadserved within that region. The advisory body would be composed of one member from eachparticipating state in the region, appointed by the governor of each state, and could provide adviceto the ERO or FERC on reliability standards, proposed regional entities, proposed fees, and any otherresponsibilities requested by FERC. The entire reliability provision would not apply to Alaska orHawaii. Section 1221: Siting of Interstate Electric Transmission Facilities. Every three years, theSecretary of Energy would be required to conduct a study of electric transmission congestion. Basedon the findings, the Secretary could designate a geographic area as being congested. Under certainconditions, FERC would be authorized to issue construction permits. Under proposed new FederalPower Act Section 216(d), affected states, federal agencies, Indian tribes, property owners, and otherinterested parties would have an opportunity to present their views and recommendations withrespect to the need for, and impact of, a proposed construction permit. However, there is norequirement for a specific comment period. New FPA section 216(e) would allow permit holdersto petition in U.S. District Court to acquire rights-of-way through the exercise of the right ofeminent domain. Any exercise of eminent domain authority would be considered to be takings ofprivate property for which just compensation is due from permit holders. New FPA Section 216(g)does not state whether property owners would be required to reimburse compensation paid by permitholders if the rights-of-way were transferred back to the owner. Under this section, an applicant for federal authorization to site transmission facilities onfederal lands could request that the Department of Energy, rather than the Department of the Interioror other land-managing agency, be the lead agency to coordinate environmental review and otherfederal authorization. Once a completed application was submitted, all related environmentalreviews would be required to be completed within one year unless another federal law makes thatimpossible. FPA section 216(h) would give the Department of Energy (DOE) new authority toprepare environmental documents and appears to give DOE additional decision-making authorityfor rights-of-way and siting on federal lands. This could give DOE input into the decision processfor creating rights-of-way. By allowing reliance on prior analysis, this section could shorten orotherwise affect review under Section 503 of the Federal Land Policy and Management Act. If afederal agency has denied an authorization required by a transmission or distributions facility, thedenial could be appealed by the applicant or relevant state to the Secretary of Energy. The Secretaryof Energy would be required to issue a decision within 90 days after the filing of an appeal. Statescould enter into interstate compacts for the purposes of siting transmission facilities and theSecretary of Energy could provide technical assistance. This section would not apply to the ElectricReliability Council of Texas (ERCOT). A similar provision was included in the House-passed H.R. 6 . Section 1222: Third-Party Finance. The Western Area Power Administration (WAPA)and the Southwestern Power Administration (SWPA) would be able either to continue to design,develop, construct, operate, maintain, or own transmission facilities within their regions or toparticipate with other entities for the same purposes if: the Secretary of Energy designated the areaas a National Interest Electric Transmission Corridor and the project would reduce congestion, orthe project was needed to accommodate projected increases in demand for transmission capacity. The project would need to be consistent with the needs identified by the appropriate regionaltransmission organization (RTO) or independent system operator (ISO). No more than $100 millionfrom third-party financing may be used during fiscal years 2004 through 2013. This section was notincluded in either the House- or Senate-passed H.R. 6 . Section 1223: Transmission System Monitoring. Within six months of enactment, theSecretary of Energy and the Federal Energy Regulatory Commission would be required to completea study and report to Congress on what would be required to create and implement a transmissionmonitoring system for the Eastern and Western interconnections. The monitoring system wouldprovide all transmission system owners and regional transmission organizations real-timeinformation on the operating status of all transmission lines. This section was not included in eitherthe House- or Senate-passed H.R. 6 . Section 1224: Advanced Transmission Technologies. FERC would be directed toencourage deployment of advanced transmission technologies. This section was not included ineither the House- or Senate-passed H.R. 6 . Section 1225: Electric Transmission and Distribution Programs. The Secretary ofEnergy acting through the Director of the Office of Electric Transmission and Distribution wouldbe required to implement a program to promote reliability and efficiency of the electric transmissionsystem. Within one year of enactment, the Secretary of Energy would be required to submit toCongress a report detailing the program's five-year plan. Within two years of enactment, theSecretary of Energy would be required to submit to Congress a report detailing the progress of theprogram. The Secretary of Energy would be directed to establish a research, development,demonstration and commercial application initiative that would focus on high-temperaturesuperconductivity. For this project, appropriations would be authorized for FY2004 throughFY2008. In part, a similar provision was included in the House-passed H.R. 6 . Section 1226: Advanced Power System Technology Incentive Program. A programwould be established to provide incentive payments to owners or operators of advanced powergeneration systems. Eligible systems would include power generation or storage facilities using "anadvanced fuel cell, turbine, or hybrid power system." A total of $140 million would be authorizedfor FY2004 through FY2008. A similar provision was included in the House-passed H.R. 6 . In the House-passed version, $70 million would have been authorized forFY2004 through FY2010. Section 1227: Office of Electric Transmission and Distribution. This section wouldamend Title II of the Department of Energy Organization Act (10) and would establish anOffice of Electric Transmission and Distribution. The Director of the office would, in part,coordinate and develop a strategy to improve electric transmission distribution, implementrecommendations from the Department of Energy's National Transmission Grid Study, overseeresearch, development, and demonstration to support federal energy policy related to electricitytransmission and distribution, and develop programs for workforce training and power transmissionengineering. This section was not included in either the House- or Senate-passed H.R. 6 . Section 1231: Open Nondiscriminatory Access. FERC would be authorized, by rule ororder, to require unregulated transmitting utilities (power marketing administrations, state entities,and rural electric cooperatives) to transmit electricity for others at rates comparable to what theycharge themselves and would require that the terms and conditions of such transactions also becomparable. Exemptions would be established for utilities selling less than 4 millionmegawatt-hours of electricity per year, for distribution utilities, and for utilities that own or operatetransmission facilities that are not necessary to facilitate a nationwide interconnected transmissionsystem. This exemption could be revoked to maintain transmission system reliability. FERC wouldnot be authorized to order states or municipalities to take action under this section if such actionwould constitute a private use under section 141 of the Internal Revenue Code of 1986. FERC mayremand transmission rates to an unregulated transmitting utility if the rates do not comply with thissection. FERC is not authorized to order an unregulated transmitting utility to join a regionaltransmission organization or other FERC-approved independent transmission organization. Thissection is often referred to as "FERC-lite." Provisions on open access were included in both theHouse- and Senate-passed H.R. 6 , but the conference language differed. Terminationof exemptions for reliability purposes does not appear in either the House- or Senate-passed H.R. 6 . Section 1232: Sense of Congress on Regional Transmission Organizations. This sectionwould establish a sense of Congress that utilities should voluntarily become members of regionaltransmission organizations. A similar provision was included in the House- and Senate-passed H.R. 6 . Section 1233: Regional Transmission Organization Applications Progress Report. FERC would be required to report to Congress within 120 days of enactment the status of allregional transmission organization applications. Similar language was included in the House-passed H.R. 6 . Section 1234: Federal Utility Participation in Regional Transmission Organizations. Federal utilities (power marketing administrations or the Tennessee Valley Authority) would beauthorized to participate in regional transmission organizations. A law allowing federal utilities tostudy formation and operation of a regional transmission organization would be repealed. (11) A similar provision wasincluded in the House-passed H.R. 6 . Section 1235: Standard Market Design. FERC's proposed rulemaking on standard marketdesign (SMD) would be remanded to FERC for reconsideration (Docket No. RM01-12-000). SMDis a proposed system to provide uniform market procedures for wholesale electric powertransactions. No final rulemaking, including any rule or order of general applicability to the standardmarket design proposed rulemaking, could be issued before October 31, 2006, or could take effectbefore December 31, 2006. This section would retain FERC's ability to issue rules or orders and acton regional transmission organization or independent system operator filings. H.R. 6 ,as passed by the House and Senate, did not include a similar provision. Section 1236: Native Load Service Obligation. This section would amend the FederalPower Act to clarify that a load-serving entity is entitled to use its transmission facilities or firmtransmission rights to serve its existing customers before it is obligated to make its transmissioncapacity available for other uses. FERC would not be able to change any approved allocation oftransmission rights by an RTO or ISO approved prior to September 15, 2003. A similar provisionwas included in the House-passed H.R. 6 . Section 1237: Study on the Benefits of Economic Dispatch. The Secretary of Energy, inconsultation with the states, would be required to issue an annual report to Congress and the stateson the current status of economic dispatch. Economic dispatch would be defined as "the operationof generation facilities to produce energy at the lowest cost to reliably serve consumers, recognizingany operational limits of generation and transmission facilities." This section was included in theHouse-passed H.R. 6 . Section 1241: Transmission Infrastructure Investment. FERC would be required toestablish a rule to create incentive-based transmission rates. FERC would be authorized to revisethe rule. The rule would promote reliable and economically efficient electric transmission andgeneration, provide for a return on equity that would attract new investment in transmission,encourage use of technologies that increased the transfer capacity of existing transmission facilities,and allow for the recovery of all prudently incurred costs that are necessary to comply withmandatory reliability standards. In addition, FERC would be directed to implement incentiverate-making for utilities that join a regional transmission organization or Independent SystemOperator. The House-passed H.R. 6 did not include reliability in the proposed FERCrule. Section 1242: Voluntary Transmission Pricing Plans. This would amend the FederalPower Act to allow any transmission provider including a regional transmission organization orIndependent System Operator to determine how the cost of new transmission facilities would beallocated. The cost of all transmission expansion, except what is required for reliability purposes,would be assigned so that those who benefit from the addition of the transmission would pay anappropriate share of the costs. This is referred to as participant funding. This provision wouldprotect native load customers from paying for transmission upgrades needed for new generatorinterconnection if the new generation is not required by the native load (the demand of the utility'sexisting customers.) Participant funding was included in the House-passed H.R. 6 . Section 1251: Net Metering and Additional Standards. States that have not consideredimplementation and adoption of net metering standards would be required within three years ofenactment to consider such implementation. Net metering service is defined as: service to an electricconsumer under which electric energy generated by that electric consumer from an eligible on-sitegenerating facility (e.g., solar or small generator) and delivered to local distribution facilities maybe used to offset electric energy provided by the electric utility to the electric consumer during theapplicable billing period. Net metering provisions were included in the House- and Senate-passed H.R. 6 . Section 1252: Smart Metering. For states that have not considered implementation andadoption of a smart metering standard, state regulatory authorities would be required to initiate aninvestigation within one year of enactment, and issue a decision within two years of enactmentwhether to implement a standard for time-based meters and communications devices for all electricutility customers. These devices would allow customers to participate in time-based pricing rateschedules. This section would amend the Public Utility Regulatory Policies Act of 1978 (12) (PURPA) and wouldrequire the Secretary of Energy to provide consumer education on advanced metering andcommunications technologies, to identify and address barriers to adoption of demand responseprograms, and issue a report to Congress that identifies and quantifies the benefits of demandresponse. The Secretary of Energy would provide technical assistance to regional organizations toidentify demand response potential and to develop demand response programs to respond to peakdemand or emergency needs. FERC would be directed to issue an annual report, by region, to assessdemand response resources. A provision for real-time pricing and time-of-use metering standardswas included in the House- and Senate-passed H.R. 6 . Section 1253: Cogeneration and Small Power Production Purchase and SaleRequirements. This section would repeal the mandatory purchase requirement under Section 210of PURPA for new contracts if FERC finds that a competitive electricity market exists and aqualifying facility has access to independently administered, auction-based, day-ahead, and real-timewholesale markets, and long-term wholesale markets. Qualifying facilities would also need to haveaccess to transmission and interconnection services provided by a FERC-approved regionaltransmission entity that provides non-discriminatory treatment for all customers. Ownershiplimitations under PURPA would be repealed. Repeal of the mandatory purchase requirement wasincluded in the House- and Senate-passed H.R. 6 . Section 1261: Short Title. This subtitle may be cited as the "Public Utility HoldingCompany Act of 2003." Section 1262: Definitions. This section would provide definitions for: affiliate, associatecompany, commission, company, electric utility company, exempt wholesale generator and foreignutility company, gas utility company, holding company, holding company system, jurisdictionalrates, natural gas company, person, public utility, public-utility company, state commission,subsidiary company, and voting security. Section 1263: Repeal of the Public Utility Holding Company Act of 1935. The PublicUtility Holding Company Act of 1935 (PUHCA) would be repealed. The provision to repealPUHCA was included in both the House- and Senate-passed H.R. 6 . Section 1264: Federal Access to Books and Records. Federal access to books and recordsof holding companies and their affiliates would be provided. Affiliate companies would have tomake available to FERC books and records of affiliate transactions. Federal officials would haveto maintain confidentiality of such books and records. A similar provision was included in theHouse-and Senate-passed H.R. 6 . Section 1265: State Access to Books and Records. A jurisdictional state commissionwould be able to make a reasonably detailed written request to a holding company or any associatecompany for access to specific books and records, which would be kept confidential. Response tosuch a request would be mandatory. Compliance with this section would be enforceable in U.S.District Court. This section would not apply to an entity that was considered to be a holdingcompany solely by reason of ownership of one or more qualifying facilities. A similar provisionwas included in the House -and Senate-passed H.R. 6 . Section 1266: Exemption Authority. FERC would be directed to promulgate rules to makequalifying facilities, exempt wholesale generators, and foreign utilities exempt from the requirementfor federal access to books and records in Section 1264 . A similar provision was included in theHouse- and Senate-passed H.R. 6 . Section 1267: Affiliate Transactions. FERC would retain the authority to preventcross-subsidization and to assure that jurisdictional rates are just and reasonable. FERC and statecommissions would retain jurisdiction to determine whether associate company activities could berecovered in rates. A similar provision was included in the House- and Senate-passed H.R. 6 . Section 1268: Applicability. Except as specifically noted, this subtitle would not apply tothe U.S. government, a state or any political subdivision of the state, or foreign governmentalauthority operating outside the U.S. A similar provision was included in the House- andSenate-passed H.R. 6 . Section 1269: Effect on Other Regulations. FERC or state commissions would not beprecluded from exercising their jurisdiction under otherwise applicable laws to protect utilitycustomers. A similar provision was included in the House- and Senate-passed H.R. 6 . Section 1270: Enforcement. FERC would have authority to enforce this provision undersections 306-317 of the Federal Power Act. A similar provision was included in the House- andSenate-passed H.R. 6 . Section 1271: Savings Provisions. Persons would be able to continue to engage in legalactivities in which they have been engaged, or are authorized to engage in, on the effective date ofthis Act. This subtitle would not limit the authority of FERC under the Federal Power Act or theNatural Gas Act. A similar provision was included in the House- and Senate-passed H.R. 6 . Section 1272: Implementation. Not later than 12 months after enactment, FERC would berequired to promulgate regulations necessary to implement this subtitle and submit to Congressrecommendations for technical or conforming amendments to federal law that would be necessaryto carry out this subtitle. A similar provision was included in the House- and Senate-passed H.R. 6 . Section 1273: Transfer Resources. The Securities and Exchange Commission would berequired to transfer all applicable books and records to FERC. However, no time frame for transferof books and records is provided. A similar provision was included in the House- and Senate-passed H.R. 6 . Section 1274: Effective Date. Twelve months after enactment, this subtitle would takeeffect. Section 1275: Service Allocation. FERC would be required to review and authorize costallocations for non-power goods or administrative or management services provided by an associatecompany that was organized specifically for the purpose of providing such goods or services. Thissection would not preclude FERC or state commissions from exercising their jurisdiction under otherapplicable laws with respect to review or authorization of any costs. FERC would be required toissue rules within six months of enactment to exempt from the section any company and holdingcompany system if operations are confined substantially to a single state. This section was notincluded in either the House- or Senate-passed H.R. 6 . Section 1276: Authorization of Appropriations. Necessary funds to carry out this subtitlewould be authorized to be appropriated. A similar provision was included in the House- andSenate-passed H.R. 6 . Section 1277: Conforming Amendments to the Federal Power Act. The Federal PowerAct would be amended to reflect the changes to the Public Utility Holding Company Act of1935. (13) Section 1281: Market Transparency Rules. Within 180 days after enactment, FERCwould be required to issue rules to establish an electronic system that provides information aboutthe availability and price of wholesale electric energy and transmission services. FERC wouldexempt from disclosure any information that, if disclosed, could be detrimental to the operation ofthe effective market or jeopardize system security. FERC would be required to assure thatconsumers in competitive markets are protected from adverse effects of potential collusion or otheranti-competitive behaviors that could occur as a result of untimely public disclosure oftransaction-specific information. This section would not affect the exclusive jurisdiction of theCommodity Futures Trading Commission with respect to accounts, agreement, contracts, ortransactions in commodities under the Commodity Exchange Act. FERC would not be allowed tocompete with, or displace, any price publisher or regulate price publishers or impose anyrequirements on the publication of information. Creation of market transparency rules was includedin the House- and Senate-passed H.R. 6 . Section 1282: Market Manipulation. It would be unlawful to willfully and knowingly filea false report on any information relating to the price of electricity sold at wholesale or theavailability of transmission capacity with the intent to fraudulently affect data being compiled by afederal agency. It would be unlawful for any individual, corporation, or government entity(municipality, state, or power marketing administration) to engage in round-trip electricity trading. Round-trip trading is defined to include contracts in which purchase and sale transactions have nospecific financial gain or loss and are entered into with the intent to distort reported revenues, tradingvolumes, or prices. Section 1283: Enforcement. The Federal Power Act would be amended to allow electricutilities to file a complaint with FERC and to allow complaints to be filed against transmittingutilities. Criminal and civil penalties under the Federal Power Act would be increased. Criminalpenalties would not exceed $1 million and/or five years imprisonment. In addition, a fine of $25,000could be imposed. A civil penalty not exceeding $1 million per day per violation could be assessedfor violations of sections 211, 212, 213, or 214 of the Federal Power Act. Section 1284: Refund Effective Date. Section 206(b) of the Federal Power Act would beamended to allow the effective date for refunds to begin at the time of the filing of a complaint withFERC but not later than five months after such a filing. If FERC does not make its decision withinthe time-frame provided, FERC would be required to state its reasons for not acting in the providedtime-frame for the decision. A similar provision was included in the House- and Senate-passed H.R. 6 . Section 1285: Refund Authority. Any entity that is not a public utility (including an entityreferred to under Section 201(f) of the Federal Power Act) and enters into a short-term sale ofelectricity would be subject to the FERC refund authority. A short-term sale would include anyagreement to the sale of electric energy at wholesale that is for a period of 31 days or less. Thissection would not apply to electric cooperatives, or any entity that sells less than 8 million megawatthours of electricity per year. FERC would have refund authority over voluntary short-term sales ofelectricity by Bonneville Power Administration if the rates charged are unjust and unreasonable. FERC would have authority over all power marketing administrations and the Tennessee ValleyAuthority to order refunds to achieve just and reasonable rates. Refund authority was provided forin the House-passed H.R. 6 . Section 1286: Sanctity of Contract. Upon determining that failure to take action would becontrary to protection of the public interest, FERC would be authorized to modify or abrogate anycontract entered into after enactment of this section. FERC would not be able to abrogate or modifycontracts that expressly provide for a standard of review other than the public interest standard. Asimilar provision was included in the House-passed H.R. 6 . Section 1287: Consumer Privacy and Unfair Trade Practices. The Federal TradeCommission would be authorized to issue rules to prohibit slamming and cramming. Slammingoccurs when an electric utility switches the customer's electric provider without the consumer'sknowledge. Cramming occurs when an electric utility adds additional services and charges to acustomer's account without permission of the customer. If the Federal Trade Commission determinesthat a state's regulations provide equivalent or greater protection, then the state regulations wouldapply in lieu of regulations issued by the Federal Trade Commission. The House-and Senate-Passed H.R. 6 would have required the Federal Trade Commission to issue rules to prohibitslamming and cramming. Section 1291: Merger Review Reform and Accountability. Within 180 days of enactment,the Secretary of Energy would be required to transmit to Congress a study on whether FERC'smerger review authority is duplicative with other agencies' authority and that would includerecommendations for eliminating any unnecessary duplication. FERC would be required to issuean annual report to Congress describing all conditions placed on mergers under section 203(b) of theFederal Power Act. FERC would also be required to include in its report whether such a conditioncould have been imposed under any other provision of the Federal Power Act. A similar provisionwas included in the House-passed H.R. 6 . Section 1292: Electric Utility Mergers. The Federal Power Act would be amended to giveFERC review authority for transfer of assets valued in excess of $10 million. FERC would berequired to give state public utility commissions and governors reasonable notice in writing. FERCwould be required to establish rules to comply with this section. A similar provision was includedin the Senate-passed H.R. 6 . Section 1295: Definitions. The definitions for "electric utility" and "transmitting utility"under the Federal Power Act would be amended. Definitions for the following terms would beadded to the Federal Power Act: electric cooperative, regional transmission organization,independent system operator, and commission. Section 1297: Conforming Amendments. The Federal Power Act would be amended toconform with this title. Sections 1300-1366. These sections are not addressed in this report. For information onthese sections, see CRS Report RL32042, Energy Tax Incentives in H.R. 6: TheConference Agreement as Compared with the House Bill and Senate Amendment . Section 1401: Denali Commission. Established in 1998 by P.L. 105-277 , the DenaliCommission is a federal-state partnership designed to provide critical utilities, infrastructure, andeconomic support throughout Alaska. The conference report would authorize up to $5 millionannually to the Commission during FY2005-FY2011 for the Power Cost Equalization Program. Thelegislation also would make available up to $50 million annually during the period FY2004-FY2013,drawing upon federal royalties, rents, and bonuses from oil and gas leases in the NationalPetroleum Reserve in Alaska (NPR-A). This funding must be appropriated. These funds wouldbe used, among other purposes, for energy generation and development ranging from alternativesources to fossil fuels. Section 1402: Rural and Remote Community Assistance. This section encourages grantsand loans to help rural communities where the electricity cost per kilowatt-hour is 150% of thenational average, grants and loans to the Denali Commission for similar purposes, and grants forareas where fuel cannot be shipped by surface transportation. Section 1411: Royalty Payments Under Certain Leases. The lessee of a "covered leasetract" off the coast of Louisiana would be allowed to withhold royalties due to the United States ifit paid the state of Louisiana 44 cents for every dollar of the federal royalty withheld. This royaltyrelief would end when certain drainage claims were satisfied. This provision was taken from theHouse bill. The date that this section takes effect is changed from 2004 to 2008. Section 1412: Domestic Offshore Energy Reinvestment. This would add a new Section32 at the end of the Outer Continental Shelf Lands Act (43 U.S.C. 1331 et. seq.) to return a portionof the federal revenues from offshore energy activities to affected coastal states to fund specifiedactivities. Representatives of states with offshore energy development have been seeking to returna significant portion of the federal revenues generated to these states, and particularly the coastalareas within these states that may be more affected by onshore and near-shore activities that supportthat development. Proponents of these proposals look to the rates at which funds are given tojurisdictions where energy development occurs within those jurisdictions on federal lands, and seekrevenues that will help coastal states respond to adverse onshore effects of offshore energydevelopment. Coastal destruction has received more attention in Louisiana, where many squaremiles of wetlands are being lost to the ocean each year. A federal program to address the impacts of coastal energy development was enacted duringthe energy crisis of the late 1970s. Called the Coastal Energy Impact Assistance Program, it operatedbriefly, providing loans and grants to states through the federal Coastal Zone Management Program. Current Law. There is no comparable program operating under in current law. Conference Agreement. The conference agreement would create a new Domestic OffshoreEnergy Reinvestment Program. The program would be funded from a new Secure EnergyReinvestment Fund. The fund would receive deposits of all qualified revenues from energy activitieson the outer continental shelf (OCS). All spending from the fund would be subject toappropriation. These revenues would include $35 million in royalty income each year, plus allroyalty income above a specified amount that would generally increase annually (starting at $3.455billion in FY2004 and ending at $5.120 billion in FY2013), bonus bid income above $1 billion eachyear, interest income earned by the fund, authorized appropriations of up to $500 million annually,and repayments made because a recipient did not follow an approved plan when spending the money. If the royalty income were inadequate, deposits into this fund and two other federal funds thatalready receive money from this source (Land and Water Conservation Fund and HistoricPreservation Fund) would be reduced by the same proportion. The Congressional Budget Office hasreportedly estimated that the fund would total about $1 billion, and that Louisiana would receivealmost 50% of this amount. However, any changes in assumptions could make the estimate varygreatly. Coastal states where energy activities occur offshore and coastal political subdivisions inthose states would be eligible to receive money from the fund. Eligible states and politicalsubdivisions are defined in the legislation. Allocations among eligible states would be determinedby a formula that accounts for energy revenues generated offshore in federal waters that lie betweenoutward extensions of the state's lateral boundaries over the past 10 years. Each coastal state is topass along 35% of the total it receives to eligible coastal political subdivisions, with the allocationamong these subdivisions in each state to be based on a formula that considers population, lengthof coastline, distance from leased tracts, and amount of outer continental shelf support activitieswithin that subdivision. Each state could use these funds to implement a plan it develops that would improveenvironmental quality and address the impacts of offshore energy activities. All plans must beapproved by the Secretary of the Interior before states could receive funds. Plans must describe howrecipients will evaluate the effectiveness of their implementation efforts. Each eligible state withan approved plan would receive at least 5% of the total available amount each year. Authorized usesof the funds would be limited to (1) conserving, protecting or restoring coastal areas, includingwetlands; (2) mitigating damage to or protecting fish, wildlife, or natural resources; (3) payingreasonable planning assistance and administrative costs; (4) implementing federally approved plansor programs to minimize the effects of natural disasters, and; (5) funding onshore infrastructure andpublic service projects that mitigate impacts of outer continental shelf activities. Revisions andamendments to plans would have to be approved by the Secretary. In addition, a new coastalrestoration program would be established using 2% of the funds available each year to assess theeffects of coastal habitat restoration techniques and develop new technologies, develop improvedmodels to predict ecosystem change, and identify economic options to address socio-economicconsequences of coastal degradation. This program would be administered by the Secretaries of theInterior and Commerce. In addition to the 2% funding, an appropriation of $10 million annuallywould be authorized. Policy Context. This is the most recent of repeated efforts to allocate a portion of federaloffshore oil and gas revenues to coastal states to assist them in addressing the impacts of theseactivities. Recent Congresses, starting with the 105th, considered numerous similar legislativeproposals. These proposals came to be known as CARA, or the Conservation and Reinvestment Act. In the 106th Congress, the House passed a version of CARA on May 11, 2000 ( H.R. 701 ). Some of these proposals were also reflected in the Clinton Administration's Lands LegacyInitiative proposal in 2000, and also a one-time $150 million appropriation provided in the FY2001Commerce appropriations legislation ( P.L. 106-553 ) for coastal impact assistance. Support for the CARA proposals, which would also have funded many related federal naturalresource protection programs, grew as the deficit of the early and mid-1990s was replaced byforecasts of a surplus, as protecting natural resources came to be viewed as part of the effort toaddress sprawl, and as efforts and support to secure federal funding for coastal resource protectionand restoration efforts grew. With the replacement of the surplus forecast with deficit forecasts andchanging national priorities since the 9/11 terrorist attacks, broad support for wide-ranginglegislation like CARA has declined, but interest has remained in returning a portion of the moneycurrently paid to the federal government by private companies leasing offshore areas to thoselocations most affected by the offshore activity. Sections 1431-1434: Changes to Board of Directors and Staff Appointments. Currently,three people are appointed by the President to serve on the Tennessee Valley Authority (TVA) Boardfor nine-year terms. The President also designates the chairman. Historically, the board membershave been involved in the day-to-day operation of TVA. The conference bill would establish a ChiefOperating Officer (CEO), who would have the authority to offer competitive salaries to topexecutives. The number of presidential appointments to the TVA Board would expand to nine;however, the term length would be shortened to five years, and board members would meet quarterlyto serve principally in an oversight function. The board members would designate the chairman. Section 1441: Continuation of Transmission Security Order. On August 28, 2003, theSecretary of Energy issued Order No. 202-03-2, allowing the Cross Sound Cable betweenConnecticut and Long Island to begin transmitting electric power. The conference bill would requirethe order to remain in effect unless rescinded by federal statute. Section 1442: Review of Agency Determinations on Gas Projects. This section wouldamend the Natural Gas Act, giving the D.C. Circuit Court of Appeals exclusive jurisdiction overdisputes involving "unreasonable delay" of a natural gas pipeline project certificated by FERC. Unreasonable delay would mean the failure of a permitting agency to take action within a year afterthe date of filing for the permit in question, or within 60 days after the issuance of a FERCcertificate. There is no explicit timeline in existing law for issuance of ancillary permits andlicenses, and that would consolidate authority in one court. This fast-tracking measure wouldaddress delays occurring after FERC had issued a certificate giving a pipeline project the go-ahead.The provision is directed at delays by other agencies in issuing environmental permits and otherapprovals needed to begin construction of a certificated project. Section 1443: Attainment Dates for Downwind Ozone Nonattainment Areas. Thissection, which was not in the House or Senate versions of the bill but was added during theconference, would extend Clean Air Act deadlines for areas that have not attained ozone air qualitystandards if upwind areas "significantly contribute" to their nonattainment. Under the 1990 CleanAir Act Amendments ( P.L. 101-549 ), ozone nonattainment areas were classified in one of fivecategories: Marginal, Moderate, Serious, Severe, or Extreme. Areas with higher concentrations ofthe pollutant were given more time to reach attainment. In return for the additional time, they wererequired to implement more stringent controls on emissions. Failure to reach attainment by thespecified deadline was to result in reclassification of an area to the next higher category and theimposition of more stringent controls. Areas such as Dallas-Fort Worth, for example, classified asSerious, were required to reach attainment by 1999. If they did not do so, the law required that theybe reclassified (or "bumped up") to the Severe category, with a new deadline of 2005, and morestringent controls. For a variety of reasons, EPA has generally not reclassified areas when they failed to reachattainment by the statutory deadlines. In several cases, the agency granted additional time to reachattainment on the grounds that a significant cause of the area's continued nonattainment waspollution generated outside the area and transported into it by prevailing winds. EPA was sued overits failure to bump up five of these areas; in the first three cases decided (Washington, D.C., St.Louis, and Beaumont-Port Arthur, Texas), the agency lost. As a result, EPA has taken steps toreclassify the three areas. The conference bill would roll back these reclassifications and extend attainment deadlinesin areas affected by upwind pollution to the date on which the last reductions in pollution necessaryfor attainment in the downwind area are required to be achieved in the upwind area. While this datemight vary, it would appear to be 2004, 2005, or 2007 in most areas affected by the current standard. The language in the conference bill may give EPA flexibility to extend the deadlines beyond thosedates, however, and it would also apply to the agency's new standard for average ozone levels duringan eight-hour period. Deadlines for attainment of the 8-hour ozone standard have not yet beenestablished, so it is difficult to say how this section might affect them. Section 1444: Energy Production Incentives. Congress may regulate interstate commerceunder Article 1, Section 8, Clause 3 (the Commerce Clause) of the Constitution. The states may notunduly burden interstate commerce even in the absence of federal regulation. However, Congressmay expressly authorize the states to take an action that would otherwise be an unconstitutionalburden on interstate commerce. State tax incentives that offer benefits solely to energy producedwithin the state may, depending on their design, raise constitutional concerns. The conference billwould expressly authorize the states to offer certain tax incentives that may otherwise be animpermissible burden on interstate commerce. Under the bill, the states would be allowed to providetax incentives for the in-state production of (1) electricity from in-state coal burned at a power plantusing clean coal technology, (2) electricity from renewable sources, and (2) ethanol. Section 1445: Use of Granular Mine Tailings. This section, which was added inconference, amends the Solid Waste Disposal Act (SWDA, 42 U.S.C. 6961 et seq.) and affects onlythe Tar Creek Mining District. Located in northeastern Oklahoma, Tar Creek is a former lead andzinc mining area of approximately 40 square miles and is one of the largest Superfund hazardouswaste cleanup sites. The mine tailings (residue, referred to as "chat") are deposited in hundreds ofpiles and ponds in the area, and contain lead and other heavy metals. Residential communities arelocated among the piles, some of which are nearly 200 feet high, and approximately 25% of thechildren living on the site have elevated lead concentration levels in their blood, according to aMarch 2000 EPA report. (14) The conference bill would direct the EPA Administrator to establish criteria for the safe andenvironmentally protective use of the granular mine tailings for cement or concrete projects, and forfederally funded highway construction projects. The criteria would include an evaluation of whetherto establish numerical standards for the concentration of lead and other hazardous substances in thetailings, and EPA would be required to consider their current and past use as an aggregate forasphalt, as well as the environmental and public health risks and benefits of their use intransportation projects. Section 1501: Renewable Content of Motor Vehicle Fuel. Section 1501 would require theuse of renewable fuel in gasoline. Renewable fuels include ethanol, biodiesel, and natural gasproduced from landfills and sewage treatment plants. The conference report would require the useof 3.1 billion gallons of renewable fuel in 2005, increasing to 5.0 billion gallons in 2012. After2012, the percentage of renewable fuel in gasoline would be required to equal the percentage in2012. The Environmental Protection Agency would be required to promulgate regulations for thegeneration and trading of credits between entities; in this manner refiners and blenders who couldnot meet the requirement would be able to purchase credits from those refiners or blenders whoexceeded their requirement. This provision is similar to provisions in the House and Senate versions of H.R. 6 . The House version, however, would have required only 2.7 billion gallons in 2005, increasing to5.0 billion gallons in 2015. The Senate version would have required 2.3 billion gallons in 2004,increasing to 5.0 billion gallons in 2012. Ethanol production was approximately 2.1 billion gallonsin 2002. Policy Context. The Clean Air Act Amendments of 1990 established the ReformulatedGasoline (RFG) program. Among its provisions is a requirement that RFG contain oxygen. The twomain ways to meet the requirement are the use of MTBE and ethanol. However, MTBE (methyltertiary butyl ether) has been found to contaminate groundwater, and there is interest in banning thesubstance (see Sec. 1504). Because some states have acted to limit the use of MTBE, and becauseof the potential federal ban, there is interest in eliminating the oxygen standard as well (see Sec.1506). The ethanol industry has benefitted significantly from the oxygen requirement, and some areconcerned about the future of ethanol in the absence of the requirement. Further, proponents of thefuel see ethanol use as a way to limit petroleum consumption and dependence on foreign oil. Thus,the interest in establishing a renewable fuels standard. However, opponents of ethanol have raisedconcerns that the fuel is too costly, that the efficiency of the ethanol fuel cycle is questionable, andthat the potential for groundwater contamination by ethanol-blended fuels has not been fully studied. Section 1502: Fuels Safe Harbor . This section would provide a "safe harbor" for renewablefuels and fuels containing MTBE (i.e., such fuels could not be deemed defective in design ormanufacture by virtue of the fact that they contain renewables or MTBE). The effect of thisprovision would be to protect anyone in the product chain, from manufacturers to retailers, fromliability for cleanup of MTBE and renewable fuels or for personal injury or property damage basedon the nature of the product (a legal approach that has been used in California to require refinersto shoulder liability for MTBE cleanup). Were liability for manufacturing and design defects ruledout, plaintiffs would need to demonstrate negligence in the handling of such fuels to establishliability -- a more difficult legal standard to meet. The conference version provides a safe harbor for renewable fuels, MTBE, and fuelscontaining them, as did the House bill. The Senate bill did not include MTBE, or fuels containingit, in the safe harbor. The conference version also differs from the House- and Senate-passed billsin setting an effective date of September 5, 2003, for the safe harbor, rather than the date ofenactment. This effective date would protect oil and chemical industry defendants from defectiveproduct claims in about 150 lawsuits that were filed in 15 states after that date. Section 1502 (1503) : MTBE Transition Assistance. This section would amend the CleanAir Act to authorize $2 billion ($250 million in each of FY2005-FY2012) for grants to assistmerchant U.S. producers of MTBE in converting to the production of other fuel additives (includingrenewable fuels), unless EPA determines that such fuel additives may reasonably be anticipated toendanger public health or the environment. Both the House and Senate versions of the billauthorized a smaller program ($750 million). Appropriations would remain available until expended. Sections 1503-1504 (1504-1505) : Ban on the Use of MTBE. The use of MTBE in motorvehicle fuel would be prohibited after December 31, 2014, except in states that specifically authorizeits use. In the Senate version of the bill, a ban would have been implemented four years after the dateof enactment; there was no ban in the House bill. EPA could allow MTBE in motor vehicle fuel inquantities up to 0.5% in cases the Administrator determines to be appropriate (Sec. 1503 (1504) ) . The bill would also allow the President to make a determination, not later than June 30, 2014, thatthe restrictions on the use of MTBE should not take place. The National Academy of Sciences wouldconduct a review of MTBE's beneficial and detrimental effects on environmental quality or publichealth or welfare, including costs and benefits by May 31, 2014 (Sec. 1504 (1505) ) . Section 1505 (1506) : Elimination of Oxygen Requirement and Maintenance of ToxicEmission Reductions. This section would amend the Clean Air Act to eliminate the requirementthat reformulated gasoline contain at least 2% oxygen. This requirement has been a major stimulusto the use of MTBE. The provision would take effect 270 days after enactment, except in California,where it would take effect immediately upon enactment. The section would also amend the Clean Air Act to require that each refinery or importer ofgasoline maintain the average annual reductions in emissions of toxic air pollutants achieved by thereformulated gasoline it produced or distributed in 1999 and 2000. This provision is intended toprevent backsliding, since the reductions actually achieved in those years exceeded the regulatoryrequirements. A credit trading program would be established among refiners and importers foremissions of toxic air pollutants. In addition, the section would require EPA to promulgate final regulations to controlhazardous air pollutants from motor vehicles and their fuels by July 1, 2004. It would also eliminatethe less stringent requirements for volatility applicable to reformulated gasoline sold in northernstates, by applying the more stringent standards of VOC (15) Control Region 1 (southern states). Sections 1506-1507 (1507-1508) : Analyses and Data Collection. EPA would be requiredto publish an analysis of the effects of the fuels provisions in the Clean Air Act on air pollutantemissions and air quality, within five years of enactment (Sec. 1506 (1507) ) . DOE would berequired to collect and publish monthly survey data on the production, blending, importing, demand,and price of renewable fuels, both on a national and regional basis (Sec. 1507 (1508) ) . Section 1508 (1509) : Reducing the Proliferation of State Fuel Controls. Section 211 ofthe Clean Air Act allows states to establish their own fuel standards with approval from EPA. Theconference report would bar the EPA Administrator from approving a state fuel restriction unlessthe Administrator, after consultation with the Secretary of Energy, determined that the fuel standardwould not cause fuel supply disruptions or adversely affect the ability to produce fuel for nearbyareas in other states. Section 1509 (1510) : Fuel System Requirements Harmonization Study. The EPAAdministrator and the Secretary of Energy would be required to study all federal, state, and localmotor fuels requirements. They would be required to analyze the effects of various standards onconsumer prices, fuel availability, domestic suppliers, air quality, and vehicle emissions. Further,they would be required to study the feasibility of developing national or regional fuel standards. Thisprovision is similar to provisions in the House and Senate versions of the bill. Section 1510 (1511) : Commercial Byproducts from Municipal Solid Waste andCellulosic Biomass Loan Guarantee Program. The Secretary of Energy would be required toestablish a loan guarantee program for the construction of facilities to produce fuel ethanol and othercommercial byproducts from municipal solid waste and cellulosic biomass. This provision is similarto provisions in the House and Senate versions, except that the House and Senate versions appliedonly to municipal solid waste (not cellulosic biomass). Section 1511 (1512) : Bioconversion Resource Center. Subsection (b) would authorize $4million annually for FY2004 through FY2006 for the development of a resource center at theUniversity of Mississippi and the University of Oklahoma. The center would focus on thedevelopment of bioconversion technology using low-cost biomass for the production of ethanol. Subsection (c) would authorize $25 million annually for FY2004 through FY2008 for research,development, and implementation of renewable fuel production technologies in states with lowethanol production. Section 1512 (1513) : Cellulosic Biomass and Waste-Derived Ethanol ConversionAssistance. The conference report would allow the Secretary of Energy to provide grants for theconstruction of ethanol plants. To qualify, the ethanol must be produced from cellulosic biomass,municipal solid waste, agricultural waste, or agricultural byproducts. A total of $750 million wouldbe authorized for FY2004 through FY2006. Neither the House nor the Senate version contained anysimilar provision. Section 1513 (1514) : Blending of Compliant Reformulated Gasolines. This provisionwould allow reformulated gasoline (RFG) retailers to blend batches with and without ethanol as longas both batches were compliant with the Clean Air Act. In a given year, retailers would be permittedto blend batches over any two 10-day periods in the summer months. Currently, retailers must draintheir tanks before switching from ethanol-blended RFG to non-ethanol RFG (or vice versa). TheHouse and Senate versions contained no similar provision. Sections 1521-1533: Underground Storage Tank Provisions. Title XV, Subtitle B, wouldmake extensive amendments to Subtitle I of the Solid Waste Disposal Act, to enhance the leakprevention and enforcement provisions of the federal underground storage tank regulatory program,and to broaden the allowable uses of the Leaking Underground Storage Tank (LUST) Trust Fund.The conference report essentially incorporates the language of H.R. 3335 , theUnderground Storage Tank Compliance Act of 2003, which shares many similarities withSenate-passed S. 195 . The provisions would add new tank inspection (Sec. 1523) andoperator training requirements (Sec. 1524) ; prohibit fuel delivery to ineligible tanks (Sec. 1527) ;expand underground storage tank (UST) compliance requirements for federal facilities (Sec. 1528) ;and require EPA, with Indian tribes, to develop and implement a strategy to address releases on triballands (Sec. 1529) . The provisions also would authorize states to use funds from the LUST Trust Fund to helpUST owners or operators pay the costs of remediating tank leaks in cases where the cost of cleanupwould significantly impair the ability of the owner or operator to continue in business (Sec. 1522) . EPA and states also would be authorized to use LUST funds to remediate oxygenated fuelcontamination (Sec. 1525) and conduct inspections and enforce federal and state UST releaseprevention and detection requirements (Sec. 1526) . Section 1531 would authorize LUST Trust Fund appropriations of $200 million annually,FY2004 through FY2008, for remediating tank leaks generally, and another $200 million annuallyfor the same period for responding to leaks containing methyl tertiary butyl ether (MTBE) or otheroxygenated fuel additives (e.g., ethanol). (Other MTBE-related provisions are discussed above inSubtitle A.) Conforming and technical amendments are also included (Secs. 1532-1533) . The House version of H.R. 6 would have authorized the use of $850 millionfrom the LUST Trust Fund for cleaning up underground storage tank leaks of fuels containingoxygenates (e.g., MTBE and ethanol). The Senate version of H.R. 6 proposed to authorizethe appropriation of $200 million from the Trust Fund for cleaning up MTBE and other ether fuelcontamination (from tanks and other sources). The Senate bill also would have authorized the useof LUST funds for enforcing the UST leak prevention program, and authorized new research andtechnical assistance programs. Section 1601: Study on Inventory of Petroleum and Natural Gas Storage. The Secretaryof Energy would have to report to Congress within a year of enactment on the amount of storagecapacity for petroleum and natural gas. While the oil and gas industry is subject to broad reportingrequirements under a variety of laws, this language would call for a comprehensive study of thenation's storage capability and the role it plays in the marketplace. The relationship between storagecapacity and price volatility could be significant in the current context of oil and natural gas markets-- which are experiencing another winter price spike. Section 1602: Natural Gas Supply Shortage Report. Within six months of enactment, theSecretary of Energy would be charged with preparing a report on natural gas supply and demand. Thereport should contain recommendations on policies that would maintain the supply-demand balancein a growing market to provide reasonable and stable prices, encourage energy conservation anddevelopment of alternative energy sources, reduce pollution, and improve access to domestic naturalgas supplies. Section 1603: Split-Estate Federal Oil and Gas Leasing and Development Practices. The Secretary of the Interior would conduct a review of how management practices by federalsubsurface oil and gas development activities affect privately owned surface users. The review woulddetail the rights and responsibilities of surface and subsurface owners, compare consent provisionsunder the Surface Mining Control and Reclamation Act of 1977 with provisions for oil and gasdevelopment, and make recommendations that would address surface owner concerns. Section 1604: Resolution of Federal Resource Development Conflicts in the PowderRiver Basin. The Secretary of the Interior would report to Congress on plans to resolve conflictsbetween development of coal and coalbed methane in the Powder River Basin. Section 1605: Study of Energy Efficiency Standards. DOE would be directed to have theNational Academy of Sciences study whether the goals of energy efficiency standards are best servedby focusing measurement at the site (energy end-use) or at the source (the full fuel cycle). Thisprovision relates to a previous Executive Order, which found that federal agencies should get credittoward meeting energy efficiency goals even where "source energy use declines but site energy useincreases." (16) Section 1606: Telecommuting Study. DOE would be directed to study and report on theenergy conservation potential of widespread adoption of telecommuting by federal employees. Inthis effort, DOE would be required to consult with the Office of Personnel Management, GeneralServices Administration, and National Telecommunications and Information Administration. Section 1607: LIHEAP Report. The Department of Health and Human Services (HHS)would be directed to report on how the Low-Income Home Energy Assistance Program could beused more effectively to prevent loss of life from extreme temperatures. In this effort, HHS wouldbe directed to consult with state officials. Section 1608: Oil Bypass Filtration Technology. DOE and EPA would be required tojointly study the benefits of oil bypass filtration technology in reducing demand for oil and protectingthe environment. This study would include consideration of its use in federal motor vehicle fleetsand an evaluation of products and manufacturers. Section 1609: Total Integrated Thermal Systems. DOE would be directed to study thepotential for integrated thermal systems to reduce oil demand and to protect the environment. Also,DOE would study the feasibility of using this technology in Department of Defense and other federalmotor vehicle fleets. Section 1610: University Collaboration. DOE would be directed to report on the feasibilityof promoting collaboration between large and small colleges through grants, contracts, andcooperative agreements for energy projects. DOE would also be directed to consider providingincentives for the inclusion of small colleges in grants, contracts, and cooperative agreements. Thisprovision was in the House bill. Section 1611: Reliability and Consumer Protection Assessment. Within five years ofenactment, and every five years thereafter, FERC would be required to assess the effects of electriccooperative and government-owned utilities' exemption from FERC ratemaking regulation undersection 201(f) of the Federal Power Act. If FERC found that the exemption resulted in adverseeffects on consumers or electric reliability, FERC would be required to make recommendations toCongress. Table 1. Authorizations in H.R. 6 Conference Report and S. 2095 (in millions of dollars)Inthis table, text in italics indicates subcategories. Changes made by S. 2095 are in bold. Source: Table prepared by CRS using the text of the Conference agreement of H.R. 6. Table Notes: This table shows funding that would be authorized including loans but not loan guarantees under the conference agreement for H.R. 6. The section number in the far left hand column is location in the bill of the authorizing language. When an activity is described a separatesection of the bill from where it is authorized, it is indicated in parentheses after the program title in column two. The fourth column from the right, labeled "FY2004 -FY2008," provides a five-year subtotal for each line. This column has been included sothat amounts may be compared to similar five-year subtotals shown in the authorization tables for the House and Senate bills in CRS Report RL32033, Omnibus Energy Legislation (H.R. 6): Side-by-side Comparison of Non-tax Provisions. Items that have been changed in S. 2095 are shown in bold. In the respective column, the old amount is shown in brackets. In theendnotes, details that were dropped from S. 2095 are placed in brackets and new information is in bold. ss. Such sums as may be necessary. a. Lump sum. No fiscal year indicated. Endnotes: 1. Sec. 756. Funds go to the Environmental Protection Agency. 2. Sec. 771. Funds go to the National Highway Traffic Safety Administration in the Department of Transportation. 3. Sec. 949. [Plus up to $150 million per fiscal year for FY2004 - FY2013 from federal oil and gas leases issued under the Outer ContinentalShelf Lands Act (OCS) and the Mineral Leasing Act would be deposited into the fund. Revenues fluctuate year-to-year as a result of oil andgas prices and lease sales.] This provision was dropped in S. 2095. 4. Sec. 1401. Denali Commission also would receive up to $50 million per fiscal for FY2004 - FY2013, [from the federal share of federal oiland gas leases in the National Petroleum reserve in Alaska (NPR-A).] Funding is now subject to appropriations. 5. Sec. 1412. [Secure Energy Reinvestment Fund also would be funded from FY2004 to FY2013 by royalties under the Outer Continental ShelfLands Act.] An appropriation must be passed before funding may be drawn. 6. Sec. 1412. [Coastal Restoration and Enhancement would also receive 2% of amount deposited into the Secure Energy Reinvestment Fundper fiscal year.] An appropriation must be passed before funding may be drawn. | House and Senate conferees approved an omnibus energy bill ( H.R. 6 , H.Rept.108-375 ) on November 17, 2003, and the House approved the measure the following day (246-180).However, on November 21, 2003, a cloture motion to limit Senate debate on the conference reportfailed (57-40). On February 12, 2004, Senator Domenici introduced a revised version of the bill( S. 2095 ) with a lower estimated cost and without a controversial provision on the fueladditive MTBE. Major non-tax provisions in the conference measure and S. 2095 include: Ethanol. An increase in ethanol production to 3.1 billion gallons annually by 2005 and 5billion gallons by 2012 would be mandated. However, states could petition for a waiver if themandate would have severe economic or environmental repercussions, other than loss of revenueto the highway trust fund. MTBE. Methyl tertiary butyl ether (MTBE), a gasoline additive widely used to meet CleanAir Act requirements, has caused water contamination. The conference bill would ban the use ofMTBE by 2015 with some possible exceptions, provide funds for MTBE cleanup, and provideprotection for fuel producers and blenders of renewable fuels and MTBE from defective productlawsuits. The liability protection was not included in S. 2095 . Electricity. In part, the electricity section would repeal the Public Utility Holding CompanyAct (PUHCA) and establish mandatory standards for interstate transmission. Standard market design(SMD) would be remanded to the Federal Energy Regulatory Commission (FERC); no rule wouldbe allowed before the end of FY2006. Alaska Gas Pipeline. The bill would provide $18 billion in loan guarantees for constructionof a natural gas pipeline from Alaska to Alberta, where it would connect to the existing midwesternpipeline system. Energy Efficiency Standards. New statutory efficiency standards would be established forseveral consumer and commercial products and appliances. For certain other products andappliances, DOE would be empowered to set new standards. For motor vehicles, funding would beauthorized for the National Highway Traffic Safety Administration (NHTSA) to set CorporateAverage Fuel Economy (CAFE) levels as provided in current law. Energy Production on Federal Lands. Royalty reductions would be provided for marginaloil and gas wells on federal lands and the outer continental shelf. Provisions are also included toincrease access by energy projects to federal lands. For a discussion of the tax provisions in the bills, see CRS Issue Brief IB10054, Energy TaxPolicy . This report will not be updated. |
The estimated 4.1 million barrels of oil released during the 2010 Deepwater Horizon oil spill is considered to be the largest accidental marine oil spill in the history of the petroleum industry and will have an impact on the natural resources of the Gulf region for the foreseeable future. Under the Oil Pollution Act of 1990 (OPA), federal, state, tribal, and foreign governments may seek compensation for the costs of restoring damaged natural resources from the parties responsible through the Natural Resource Damage Assessment (NRDA) process. Under the NRDA process, damages are assessed to restore the natural resources to their prior condition and to compensate the public for their lost use of these resources. This report examines the NRDA process under the OPA in the context of the Deepwater Horizon spill. In particular, this report describes the statutory requirements of OPA, the NRDA process under the implementing regulations, and developments in the Gulf of Mexico. OPA (sometimes known as OPA 90) applies to discharges of oil into the navigable waters of the United States, adjoining shorelines, and the exclusive economic zone of the United States. It was enacted partially in response to the Exxon Valdez spill in 1989, where liability was imposed primarily through the Clean Water Act (CWA). OPA amended the CWA and several other statutes imposing oil spill liability to create a unified oil spill liability regime, to expand the coverage of such statutes, increase liability, to strengthen federal response authority, and to establish a fund to ensure that claims are paid up to a stated amount. Several federal district courts have held that OPA preempts other general maritime remedies. Pursuant to OPA, the parties responsible for causing the oil spill are responsible for damages to natural resources. In the case of offshore drilling, a responsible party is the lessee or permittee of the area in which the facility is located. When the Coast Guard receives information of an incident, it is required to designate the responsible parties. Liability under OPA is strict, and joint and several. Joint and several liability means that where there are multiple responsible parties, each is potentially liable for the whole amount of the damages, regardless of its share of blame. Responsible parties, however, can bring separate actions for subrogation to resolve reimbursement issues among themselves. Strict liability means liability is assigned regardless of fault or blame. There does not have to be a mistake, negligence, or a willful action for a party to be responsible. It is important to note that while OPA provides a federal remedy for natural resource damages, it does not preclude liability under other laws. For instance, the federal government may impose criminal liability for harming protected species. Moreover, OPA specifically allows states to impose additional liability for oil spills and/or requirements for removal activities. Under OPA, each responsible party for an oil spill is liable for removal costs and six specified categories of damages. One of these categories is natural resource damages, which replaced the CWA natural resource damages provisions for oil spills. OPA defines natural resource damages as "[d]amages for injury to, destruction of, loss of, or loss of use of, natural resources, including the reasonable costs of assessing the damage, which shall be recoverable by a United States trustee, a State trustee, an Indian tribe trustee, or a foreign trustee." Removal is defined as "containment and removal of oil or a hazardous substance from water and shorelines or the taking of other actions as may be necessary to minimize or mitigate damage to the public health or welfare." Thus, harm to natural resources is categorized as a damage under OPA; removal is separate. In the case of natural resource damages, OPA provides that responsible parties are liable to the United States government, states, Indian tribes, or foreign governments for damages to natural resources under each of their respective jurisdictions. OPA provides three factors for measuring natural resource damages. The first allows for "the cost of restoring, rehabilitating, replacing, or acquiring the equivalent of, the damaged natural resources." The second considers "the diminution in value of those natural resources pending restoration." And the third allows for recovery of the reasonable costs incurred in "assessing those damages." Damages are capped under OPA unless one of the enumerated statutory exceptions applies. For offshore facilities, a responsible party's liability for economic damages is limited to $75 million, but there is no cap on removal costs. Exceptions that would nullify the cap include gross negligence, willful misconduct, or violating an applicable federal regulation. The governmental entities with jurisdiction over resources—federal, state, tribal, and foreign—are the Trustees throughout the NRDA process. Under OPA, the function of the Trustees is to assess natural resource damages, as well as to "develop and implement a plan for the restoration, rehabilitation, replacement, or acquisition of the equivalent, of the natural resources under their trusteeship." Accordingly, they are charged with acting "on behalf of the public." The Trustees must give a written invitation to the responsible parties to participate in the NRDA process, and if the responsible parties accept, they must do so in writing. Significantly, OPA requires presenting NRDA claims to the responsible parties before any suit can be filed or other action taken to allow for pre-trial settlement. Under Section 1006(e)(2) of OPA, if the Trustees satisfy the NOAA's NRDA regulations in estimating damages, their assessment is treated as having a rebuttable presumption of accuracy in any judicial or administrative proceeding. This means that a responsible party would have the burden of proving that the assessment is wrong, rather than the Trustees having to show that the assessment is right. Typically, Trustees form a Trustee Council, to develop a restoration plan that addresses the damages to all of the Trustees' resources. These Trustees must reach consensus on the extent of damages and restoration when issuing a unified plan. When the goal is to have one plan to address all of the impacts, which is how NRDA generally operates, the Trustees must work cooperatively to determine the magnitude and extent of injury to natural resources and create a plan to restore those injured resources to baseline (pre-spill) levels. When more than one state's natural resources are involved, each state gets one vote on these issues, even if a state has multiple state agencies represented among the Trustees. Each federal department also gets one vote, despite the number of subagencies involved. Litigation may be avoided altogether if the responsible parties consent to the Trustees' restoration plan. Once money is recovered by a Trustee under OPA, including to cover the costs of assessing the damages, it is deposited in a special trust account in order "to reimburse or pay costs by the trustee ... with respect to the damaged natural resource." By establishing a collaborative process for resolving liability issues, NRDA is thus designed to avoid litigation. According to discussion on the House floor about OPA, "[OPA] is intended to allow for quick and complete payment of reasonable claims without resort to cumbersome litigation." OPA also includes a citizen suit provision for natural resource damages. It states that "any person" is permitted to sue a federal official "where there is alleged to be a failure of that official to perform a duty ... that is not discretionary with that official." OPA provides for an Oil Spill Liability Trust Fund (OS Trust Fund), which is financed chiefly by a per-barrel tax on crude oil produced in or imported to the United States. Administered by the National Pollution Funds Center, an independent Coast Guard unit that serves as its fiduciary, the OS Trust Fund can be used to remedy natural resource damages if the responsible parties refuse to accept the Final Restoration Plan and the Trustees choose not to sue. The OS Trust Fund can likewise be used in the interim period before the responsible parties are identified, as well as in circumstances where the responsible parties cannot be identified. OS Trust Fund monies are available for a range of remedial and compensatory uses, including the payment of removal costs and costs incurred by Trustees during the NRDA process. For example, the Trustees may use the Fund for assessing natural resource damages and for developing and implementing restoration plans. Money for the Trustees' immediate assessment of the natural resource damage may come from the OS Trust Fund until the responsible parties are identified and provide reimbursement to the Fund. The OS Trust Fund has compensation limits for damaged natural resources. It can be used to pay damages up to its per-incident cap of $1 billion. However, only $500 million of that amount can go toward natural resource damage assessments and claims in connection with any single incident. The remaining money from the OS Trust Fund can be used for the payment of removal costs and the other costs, expenses, claims, and economic damages included in OPA. The money available from the OS Trust Fund exceeds an offshore facility's liability limit of $75 million for economic damages under OPA. With some exceptions, a claim for removal costs or damages must first be presented to a responsible party or its guarantor before it may be presented to the National Pollution Funds Center for payment from the Fund. The OS Trust Fund could also be used if the responsible parties are not known, insolvent, or refuse to give money for assessment before they are found responsible by a court. The National Oceanic and Atmospheric Administration (NOAA) of the Department of Commerce oversees the NRDA process under OPA. Currently, NOAA is involved in 13 other NRDA oil spill cases in the Gulf in addition to the BP spill. Although Trustees are not obligated to follow NOAA's NRDA regulations, Trustees have an incentive to comply with the regulations because of the rebuttable presumption accorded such determinations. Under the OPA regulations, the Trustees may take emergency restoration action before completing the NRDA process, provided that (1) the action is needed to avoid irreversible loss of natural resources; (2) the action will not be undertaken by the lead response agency; (3) the action is feasible and likely to succeed; (4) delay would result in increased damages; and (5) the costs of the action are not unreasonable. The regulations also provide that settlement for natural resource damages may occur at any time, if the terms of the settlement are adequate to satisfy the goal of OPA and are "fair, reasonable, and in the public interest." Under the OPA regulations, the Trustees are required to invite the responsible parties to participate in the NRDA process "as soon as practicable" but not later than the delivery of a Notice of Intent to Conduct Restoration Planning. The regulations further state that the Trustees and responsible parties should consider entering into binding agreements to facilitate their interactions and resolve any disputes. Once the responsible parties accept an invitation to participate, the Trustees determine the scope of their participation in accordance with the regulations. Furthermore, the regulations allow Trustees to take other actions to expedite the restoration of injured natural resources, including pre-incident planning and the development of regional restoration plans. The Trustees' work occurs in three steps: a Preassessment Phase, the Restoration Planning Phase, and the Restoration Implementation Phase. These phases are discussed in detail below. In the Preassessment Phase, the Trustees initially establish whether there is jurisdiction under OPA and whether it is appropriate to try to restore the damaged resources. Under 15 C.F.R. Section 990.42, the Trustees must determine that there are injuries, that those injuries have not been remedied, and that there are feasible restoration actions available to fix the injuries. If any of those evaluations result in a negative finding, the NRDA process ends. Determining whether injuries exist involves data gathering, and the Trustees use multiple sources, including the public, to obtain the information they need. Once injuries have been found, the Trustees complete the second step of the Preassessment Phase—preparation of a Notice of Intent to Conduct Restoration Planning Activities. This Notice is published in the Federal Register and also is delivered directly to the responsible parties. Finally, the Trustees open a publicly available administrative record, which includes the documents considered by the Trustees throughout the process. This record stays open until the Final Restoration Plan is delivered to the responsible parties. The second phase in the NRDA process, known as the Restoration Planning Phase, focuses on designing the restoration plan. This phase is composed of two primary steps: (1) injury assessment and (2) developing restoration alternatives. First, the Trustees determine if the injuries to natural resources resulted from the incident. An injury is defined by the regulations as "an observable or measurable adverse change in a natural resource or impairment of a natural resource service." The Trustees will also evaluate harm resulting from the response actions, such as the in situ burning, the use of dispersants, or vehicle damage to shores and marshes. These injuries are also compensable under OPA. The Trustees must likewise quantify the injuries and identify possible restoration projects. In particular, they must quantify the degree, and spatial and temporal injuries relative to the baseline. The baseline is the level the Trustees agree the resources were at prior to the injury and to which they will be restored under NRDA. The regulations allow the Trustees to use historical data, reference data, control data, and/or data on incremental changes to establish the baseline. Thus, the activities that occur in the Restoration Planning Phase may include field studies, data evaluation, modeling, injury assessment, and quantification of damage, either in terms of money needed to restore the resource or in terms of habitat or resource units. To quantify injury, the Trustees are required to estimate the time for natural recovery without restoration, but including any response actions. Information from the injury assessment is used to develop a restoration plan that includes specific projects for remediation. Restoration can include restoring, replacing, rehabilitating, or acquiring the equivalent of the natural resource harmed or destroyed by the incident. Once the information on the injuries justifies restoration, the Trustees must "consider a reasonable range of restoration alternatives before electing their preferred alternative." Only alternatives considered technically feasible can be included in a restoration plan. The regulations indicate that each restoration alternative is composed of primary and/or compensatory restoration components that will address one or more of the specific injuries resulting from an oil spill incident. For each alternative, the trustees must consider primary restoration actions, which is action taken to return injured natural resources and services to the baseline. This must include a natural recovery alternative, in which no intervention would be taken to restore injured natural resources and services to baseline. At the same time, the Trustees must consider compensatory restoration actions for the interim loss of natural resources or services pending recovery. For compensatory restoration, the Trustees are first directed to consider actions that would provide services of the same type and quality as the injured resources. If these cannot provide a reasonable range of alternatives, the Trustees should then identify actions that "provide natural resources and services of comparable type and quality as those provided by the injured natural resources." According to the House Conference Report, the priority in planning restoration is "to restore, rehabilitate and replace damaged resources. The alternative of acquiring equivalent resources should be chosen only when the other alternatives are not possible, or when the cost of those alternatives would, in the judgment of the trustee, be grossly disproportionate to the value of the resources involved." Once the range of alternatives is chosen, the Trustees evaluate the alternatives and choose one as the basis of the restoration plan. At a minimum, the proposed alternatives must be evaluated based on (1) the cost to carry out the alternative; (2) the extent to which each alternative is expected to meet the trustees' goals; (3) the likelihood of success for each alternative; (4) the extent to which each alternative will prevent future injury and avoid collateral injury; (5) the extent to which each alternative benefits more than one natural resource; and (6) the effect of each alternative on public health and safety. The Trustees are required to select a "preferred" restoration alternative, and if the Trustees conclude that two or more are equally preferable, they must select the most cost-efficient alternative. The regulations set forth what the Draft Restoration Plan should include, such as a summary of the injury assessment procedures, a description of the injuries, the range of restoration alternatives considered, and the objectives of restoration. The regulations also require that the Trustees "establish restoration objectives that are specific to the injuries," which "should clearly specify the desired outcome, and the performance criteria by which successful restoration will be judged." OPA requires the Trustees to provide opportunities for public involvement during the development of restoration plans. A Draft Damage Assessment and Restoration Plan is submitted to the public for formal comment. Those comments are addressed within the Final Restoration Plan. NEPA requires that major federal actions that significantly affect the human environment must be reviewed to assess the impacts of the action. The extent of the environmental review depends on the extent of the impacts on the environment. Final Restoration Plans that have significant impacts on the human environment will require an environmental impact statement, which will evaluate the impacts, provide alternatives to the chosen activity, consider possible mitigation, and involve the public in the process. Lesser impacts may mean that an environmental assessment is appropriate. Once the Trustees have agreed on a Final Restoration Plan, they begin phase three, Restoration Implementation. Within a "reasonable time" after completed restoration planning, the Trustees must close the administrative record and present a written demand in writing to the responsible parties. The demand must invite the responsible parties to implement the Final Restoration Plan subject to Trustee oversight and reimburse the Trustees for their assessment and oversight costs. In the alternative, the demand may invite the responsible parties to advance a specified sum to the Trustees, representing all of their direct and indirect costs of assessment and restoration. The regulations require that the demand identify the incident, identify the trustees, describe the injuries, provide an index to the administrative record, and provide the Final Restoration Plan. The responsible parties then have 90 days to respond. They may respond "by paying or providing binding assurance that they will reimburse trustees' assessment costs and implement the plan or pay assessment costs and the trustees' estimate of the costs of implementation." If the responsible parties do not agree to the demand within 90 days, the trustees may either file a judicial action for damages or present the uncompensated claim for damages to the Oil Spill Liability Trust Fund. Pursuant to the regulations, judicial actions and claims must be filed within three years after the Final Restoration Plan is made publicly available. At least one court has held that the responsible parties could demand a jury for such a trial. The regulations further provide that sums recovered by the Trustees in satisfaction of a natural resource damage claim must be placed in a revolving trust account. Moreover, sums recovered for past assessment costs and emergency restoration costs may be used to reimburse the Trustees. All other sums must be used to implement the Final Restoration Plan. Lastly, the regulations state several measures the Trustees can take to facilitate the implementation of restoration. These include establishing a Trustee committee, developing more detailed workplans, monitoring and overseeing restoration, and evaluating the success of the restoration, as well as the need for corrective action. For the 2010 Deepwater Horizon oil spill, the responsible parties identified are BP Exploration and Production, Inc., Transocean Holdings Inc., Triton Asset Leasing GmbH, Transocean Offshore Deepwater Drilling Inc., Transocean Deepwater Inc., Anadarko Petroleum, Anadarko E&P Company LP, and MOEX Offshore 2007 LLC. As of April 2012, BP was the only responsible party participating in the cooperative NRDA process. The federal government Trustees include the following: U.S. Department of the Interior, as represented by the National Park Service, U.S. Fish and Wildlife Service, and the Bureau of Land Management; NOAA, on behalf of the U.S. Department of Commerce; U.S. Department of Agriculture; U.S. Department of Defense (DOD); EPA; various agencies of the state of Louisiana, including the Coastal Protection and Restoration Authority, Oil Spill Coordinator's Office, Department of Environmental Quality, Department of Wildlife and Fisheries, and Department of Natural Resources; state of Mississippi Department of Environmental Quality; state of Alabama Department of Conservation and Natural Resources, and Geological Survey of Alabama; state of Florida Department of Environmental Protection, and Fish and Wildlife Conservation Commission; and various agencies of the state of Texas, including the Texas Parks and Wildlife Department. The Federal Lead Administrative Trustee is the Department of the Interior. The state Trustees are the governors and various agencies of the states affected by the spill: Alabama, Florida, Louisiana, Mississippi, and Texas. Federally recognized Indian tribes may be Trustees for affected tribal lands; at least one state recognized Indian tribe has sued BP for alleged fishing losses and damages to ancestral lands. No foreign governments appear to have been affected, but Canada might have a claim if the habits of migratory birds are disrupted; damage to Mexican resources is also a possibility, but the search for potential harms in Mexican territory remains inconclusive. Past NRDA processes have occurred on a much smaller scale with fewer Trustees. Accordingly, the size of the 2010 spill and the diverse range of federal and state Trustees may make consensus more difficult. Because the range of natural resources do not conform to political boundaries, it is also possible that different Trustees may argue the same resources belong to them. OPA doesn't appear to prohibit separate NRDA processes resulting from one spill, and the implementing regulations allow Trustees to operate independently from one another. OPA does not explicitly state whether the Trustees are required to work together to develop a single plan, or whether multiple plans are permitted. It states only that the act will not provide double compensation for the same loss. At the same time, Section 2706(c) of OPA assigns each type of Trustee (federal, state, tribal, and foreign) the responsibility of developing its plan for the restoration of the resources it oversees, rather than requiring all the Trustees to develop just one plan for all damaged resources. In the legislative history of OPA, Congress identified these issues and recognized that separate plans may result, while indicating that cooperation was the preferred method. After acknowledging that in some cases more than one Trustee may share control over a natural resource, the House Conference Report on OPA states that "trustees should exercise joint management or control over the shared resources. The trustees should coordinate their assessments and the development of restoration plans, but [OPA] does not preclude different trustees from conducting parallel assessments and developing individual plans." However, the NOAA regulations state that "[i]f an incident affects the interests of multiple trustees, the trustees should act jointly" to ensure that full restoration is achieved without double recovery of damages. The regulations also provide that the Trustees may act independently where the resources can reasonably be divided. If separate NRDA processes conducted pursuant to these regulations were challenged, a court would likely defer to NOAA's interpretation of OPA to allow multiple damage assessments in some circumstances. For the Gulf oil spill NRDA process, the Trustees have formed a Trustee Council. It appears that a joint restoration plan may enhance the Trustees' negotiating position with responsible parties. However, as the NRDA process evolves, individual interests may diverge because of different restoration priorities and related individual interests. The natural resources under the jurisdiction of the federal and state Trustees have been and continue to be threatened as a result of discharged oil from the Deepwater Horizon spill and the subsequent removal efforts. While the full extent of the potential injuries is presently unknown, exposure to oil discharges has resulted in adverse effects on aquatic organisms, birds, wildlife, vegetation, and natural habitats. In particular, over 950 miles of shoreline habitats, including salt marshes, sandy beaches, and mangrove areas have been jeopardized. A variety of visibly oiled wildlife, including birds, sea turtles, and marine mammals has been captured or collected dead. Meanwhile, the human use associated with natural resources in the Gulf region has declined, including fishing, swimming, beach-going, and viewing birds and wildlife. The NRDA process in the Gulf is currently in the Restoration Planning Phase. On October 1, 2010, the Trustees announced its Intent to Conduct Restoration Planning regarding the discharge of oil from the Deepwater Horizon into the Gulf of Mexico. As discussed above, pursuant to OPA, federal and state Trustees are authorized to (1) assess natural resource injuries resulting from the discharge of oil, and (2) develop and implement a plan for the restoration of the injured resources. The Notice of Intent also includes the Trustees' determination of jurisdiction to pursue restoration under OPA, as well as their determination that the injuries to natural resources in the Gulf resulted from the incident. The Notice of Intent further lists the types of response actions already employed for this spill and indicates that feasible restoration actions exist to address the natural resource injuries and losses. Later, on February 17, 2011, NOAA announced its plans to develop a Programmatic Environmental Impact Statement (PEIS) in cooperation with its state co-trustees, as part of the ongoing NRDA process. The PEIS will assess the environmental, social, and economic attributes of the affected environment and the potential consequences of alternative actions to restore, rehabilitate, replace, or acquire the equivalent of natural resources potentially injured by the oil spill. The initial step in the PEIS process included public scoping meetings in each of the affected Gulf Coast states and the District of Columbia. The purpose of the scoping process was "to identify the concerns of the affected public and federal agencies, states, and Indian tribes, involve the public early in the decision making process, facilitate an efficient PEIS preparation process, define the issues and alternatives that will be examined in details, and save time by ensuring that draft documents adequately address relevant issues." The comments provided during scoping helped to define the parameters of a draft PEIS, on which the public will be allowed to comment. The scoping meetings also gave the public the opportunity to learn more about damage assessment and the environmental impacts of the spill. Early in the NRDA process, BP provided $45 million to state and federal trustees for NRDA preassessment and assessment activities. At that time, BP acknowledged that the Trustees retain the right to obtain additional payments for assessment costs that may exceed the initial payments. DOI Trustees have received an additional $12.4 million in reimbursement from BP for actual costs. DOI also has an Interagency Agreement with the U.S. Coast Guard for OS Trust Fund money totaling $47.8 million to support initial baseline data collection, and has used $5.9 million of DOI NRDA funding for assessment activities. DOI has presented a claim of $67.5 million to the responsible parties for estimated costs to implement selected assessment procedures. Trustees are required to submit claims to the responsible parties before funds can be advanced by the OS Trust Fund. On April 21, 2011, the Trustees for the Deepwater Horizon oil spill announced that BP agreed to provide $1 billion toward early restoration projects in the Gulf of Mexico to address injuries to natural resources caused by the spill. Under the agreement, DOI, NOAA, and the five Gulf states affected by the spill each will receive $100 million to implement projects. The remaining $300 million will be allocated by NOAA and DOI for projects proposed by state trustees. All projects must then conform to the requirements of the agreement and be approved by BP and the Trustee Council. NOAA has stated that the money: represents a first step toward fulfilling BP's obligation to fund the complete restoration of injured public resources, including the loss of use of those resources by the people living, working and visiting the area. The Trustees will use the money to fund projects such as the rebuilding of coastal marshes, replenishment of damaged beaches, conservation of sensitive areas for ocean habitat for injured wildlife, and restoration of barrier islands and wetlands that provide natural protection from storms. The Trustees have since selected and planned 10 early restoration projects costing nearly $71 million. BP's agreement, however, does not limit the authority of the Trustees to perform assessments, engage in other early restoration planning, or select and implement additional restoration projects. BP additionally established a $20 billion escrow fund known as the Gulf Coast Claims Facility, targeted toward individual and business losses from the oil spill. The Gulf Coast Claims Facility has since ceased operations, with a court-supervised claims settlement program having begun on June 4, 2012. During the 112 th Congress, President Obama signed the Moving Ahead for Progress in the 21 st Century Act (MAP-21). Included in MAP-21 is the Resources and Ecosystems Sustainability, Tourist Opportunities, and Revived Economies of the Gulf Coast States Act of 2012 (RESTORE Act). It would appear that the requirements under the new law would overlap with NRDA. Significantly, the RESTORE Act establishes in the Treasury the Gulf Coast Restoration Trust Fund, which is available to restore the Gulf Coast region. It requires the Secretary of the Treasury to deposit into this fund 80% of all administrative and civil penalties paid by responsible parties in connection with the Deepwater Horizon oil spill under the Clean Water Act. Amounts in the fund are available for expenditure without further appropriation for eligible activities and are to remain available until expended. The RESTORE Act specifies that 35% of the fund must be available to the states of Alabama, Florida, Louisiana, Mississippi, and Texas "in equal shares for expenditure for ecological and economic restoration of the Gulf Coast region." In particular, these funds may be used for a variety of enumerated activities, including restoration and protection of natural resources, mitigation of damages, implementation of certain federally approved plans, workforce development and job creation, infrastructure projects, coastal flood protection, and, in certain circumstances, activities to promote tourism and seafood. Meanwhile, with 30% of funds from the Gulf Coast Restoration Trust Fund, the RESTORE Act additionally established the Gulf Coast Ecosystem Restoration Council, consisting of members appointed by the President from federal agencies. The Council is required, among other things, to develop a comprehensive plan and identify certain projects with respect to the restoration of the ecosystem and natural resources of the Gulf Coast Region, as well as collect and consider related scientific research. Also of importance, the RESTORE Act requires an additional 30% of the Gulf Coast Restoration Trust Fund to be disbursed to the five Gulf Coast states using a formula that weighs the mileage of oiled shoreline, the distance from the affected shoreline to the Deepwater Horizon drilling unit, and the population of coastal counties. Lastly, the RESTORE Act requires 5% of funds to be distributed for a marine research program and for making certain research grants. The NRDA process has been successful in the past, but it has never been tested on such a large scale as the 2010 Deepwater Horizon oil spill. In this case, more oil was spilled; a greater geographic area is involved; and more Trustees are involved than in past spills. The Trustees may have difficulty agreeing on the assessment of damages, baseline conditions, the value of the damaged resources, and the proper method of restoring them. If a unified restoration plan is sought, the Trustees must make unanimous decisions on these issues, and then BP has the option not to accept the Final Restoration Plan. If BP rejects the Trustees' Plan, the Trustees may sue BP under NRDA to resolve these issues, extending the final conclusion, which could delay restoration of the natural resources. | The 2010 Deepwater Horizon oil spill leaked an estimated 4.1 million barrels of oil into the Gulf of Mexico, damaging the waters, shores, and marshes, and the fish and wildlife that live there. The Oil Pollution Act (OPA) allows state, federal, tribal, and federal governments to recover damages to natural resources in the public trust from the parties responsible for the oil spill. Under the public trust doctrine, natural resources are managed by the states for the benefit of all citizens, except where a statute vests such management in the federal government. In particular, OPA authorizes Trustees (representatives of federal, state, and local government entities with jurisdiction over the natural resources in question) to assess the damages to natural resources resulting from a spill, and to develop a plan for the restoration, rehabilitation, replacement or acquisition of the equivalent, of the natural resources. The types of damages that are recoverable include the cost of replacing or restoring the lost resource, the lost value of those resources if or until they are recovered, and any costs incurred in assessing the harm. OPA caps liability for offshore drilling units at $75 million for economic damages, but does not limit liability for the costs of containing and removing the oil. The process established by OPA for assessing the damages to natural resources is known as Natural Resources Damage Assessment (NRDA). In the three steps of the NRDA process, the Trustees are required to solicit the participation of the responsible parties and design a restoration plan. This plan is then paid for or implemented by the responsible parties. If the responsible parties refuse to pay or reach an agreement with the Trustees, the Trustees can sue the responsible party for those damages under OPA. In the alternative, the Trustees may seek compensation from the Oil Spill Liability Trust Fund, but there is a cap of $500 million from the Fund for natural resources damages. The federal government may then seek restitution from the responsible parties for the sums taken from that Fund. The Trustees are not required to adhere to the NRDA process set forth in the OPA regulations. However, they are accorded a rebuttable presumption in court for any determination or assessment of damages conducted pursuant to the regulations. Of course, the Trustees and the responsible parties are permitted to enter into settlement agreements at any point throughout the NRDA process. The NRDA process in the Gulf is in the Restoration Planning Phase. The caps on the Oil Spill Liability Trust Fund and on OPA liability have captured Congress's attention, as has Gulf restoration. In 2012, President Obama signed the RESTORE Act, which establishes from Clean Water Act penalties the Gulf Coast Restoration Trust Fund, which is available for restoration activities in the Gulf Coast region. |
In 2003, the United States exported about 1.3 million metric tons (MMT) of beef, veal and beef variety meats, valued at $3.9 billion. This was equivalent to approximately 10% of the farm value of U.S. cattle and calves. U.S. beef exports had grown rapidly during the decade beginning in 1992, increasing by 85%, while domestic beef consumption grew by just 14%. After USDA's 2003 BSE ("mad cow") announcement, most countries banned or restricted some or all imports of U.S. beef and cattle products. These included Japan, South Korea, Mexico, and Canada, which together had purchased approximately 90% of U.S. beef exports. Canada and Mexico resumed importing some U.S. beef in 2004. Japan and Korea reopened their markets in July and November 2006, respectively. In 2003, the United States was the world's third largest beef/veal exporter, claiming 18% of the world beef/veal market. Australia and Brazil ranked one and two, with 1.3 MMT and 1.2 MMT in exports, respectively. U.S. market share plummeted to 3% in 2004 (209,000 MT). Meanwhile, Brazil became the top beef/veal exporter in 2007 with 32% of the world market share, followed by Australia with 19%. Imports have represented about 13% of total beef consumption in the United States, the largest world beef importer. Imports from Canada (and Mexico) reflected an integrated North American market. Prior to its own May 2003 BSE event, Canada was the United States' major source of beef and cattle imports. In 2002 Canada sent about 1.7 million cattle to the United States, where large feeding and slaughter capacity readily absorbed them. The World Animal Health Organization (known by its historical acronym, OIE) is the internationally recognized standard-setting agency for animal health. The OIE's International Committee unanimously adopted a resolution on May 22, 2007 recommending that the United States, along with Canada, Switzerland, Taipei-China, Chile and Brazil, be recognized as having "controlled risk" status for BSE. Controlled risk status recognizes that regulatory controls for BSE are in place and effective. The OIE classification is reviewed annually. The Administration argues that all beef importing countries should acknowledge this OIE determination and more fully reopen their markets to U.S. beef. U.S. exports continue to recover gradually. U.S. market share for beef climbed to almost 9% in 2007. USDA reported that beef, veal, and beef variety meat exports reached more than 771,000 MT and were valued at more than $2.7 billion in 2007. However, Mexico took nearly 360,000 MT, or 47%, of the 2007 total volume; Canada took 132,000 MT, or 17%. By contrast, Japan and Korea, combined, imported 72,000 MT, or 9%, of all U.S. beef, veal, and variety meat exports, behind Egypt, which took more than 86,000 MT, or 11%. (See sections on Korea, Japan, and Canada, below.) Korea has been the last of the four major foreign markets to accept U.S. beef. Korea's prohibition, which had been in place since December 2003, was first lifted on September 11, 2006, under a Korea-U.S. health protocol negotiated in January 2006. Under this protocol, only boneless beef from cattle under 30 months of age were to be acceptedâeven though OIE guidelines do not consider any type of bone from these younger animals to be specified risk materials (SRMs, a rule-defined list of cattle parts most likely to harbor the BSE agent). Even so, only about 25,000 MT of U.S. beef has been exported to Korea since then. Korea rejected renewed shipments of U.S. beef first because they found bone fragments, albeit very small ones typically acceptable in commercial trade, and, later, for what they said were unacceptable dioxin levels. No beef has entered since October 2007. On April 18, 2008, the United States and Korea announced a new agreement to fully reopen Korea's market consistent with OIE guidelines. Specifically, the agreement was to allow all U.S. beef and beef products from cattle of all ages, to include bone-in as well as boneless beef, along with offals, variety meats, and processed beef products. This was dependent upon the removal of the following SRMs: the tonsils and part of the small intestine of all cattle; and the brain, eyes, spinal cord, skull, dorsal root ganglia, and vertebral column from all cattle of 30 months and older, again consistent with OIE guidelines. In a two-stage reopening, Korea was to open first to beef from under-30-month old cattle. It next was to allow beef from all cattle, upon publication of final rules, promulgated by the U.S. Food and Drug Administration (FDA), expanding the restrictions on feeding SRMs to animals and pets. Because these feed rules were published in the April 25, 2008, Federal Register , the hope was that the Korean market would soon be opened fully rather than in stages. U.S. officials said Korea had promised not to close its entire market again due to violations by a single plant, among other assurances intended to open and then maintain beef trade. The United States agreed to permit Korea, during the first 90 days, to audit and/or reject U.S. decisions on which of its plants could export. Special labeling requirements applied to T-bone and Porterhouse steak exports for the first 180 days, and there are restrictions on beef from Canadian-sourced cattle. Although the protocol was expected to take effect on May 15, 2008, two days after a Korean public comment period on it ended, market reopening has been delayed as officials there reportedly cope with a furious backlash among many consumers and opposition politicians. The Korean President first promised them he would halt all U.S. imports if another BSE case is reported here (which could contradict OIE guidelines), and renegotiate the agreement. By June 3, 2008, the Korean government asked that beef from cattle older than 30 months not be shipped. Although several beef companies said they would begin providing age information on their shipments to Korea, U.S. government officials expressed disappointment in the Korean decision and indicated they did not want to renegotiate the April agreementâso the market remained closed in early June 2008. The U.S. meat industry has stressed the importance of fully implementing the agreement: the U.S. Meat Export Federation has estimated that the United States has lost $3.5 billion to $4 billion in sales to Korea since December 2003. A National Cattlemen's Beef Association (NCBA) economist estimated that the agreement could lead to a $1 billion annually in sales there. Still, the United States is a long way from attaining its historic annual share of Korean beef imports, which amounted to around 50% of the export market for beef prior to the 2003 BSE event. Last year, Australia, the main U.S. competitor for the Korean beef market, had a 72% share of beef imports there. In the 110 th Congress, U.S. access to Korea's beef market has become a key issue in the debate over implementation of the U.S.-Korea free trade agreement (FTA). The FTA phases out Korean tariffs on beef over 15 years, but does not address animal health related barriers; the U.S. International Trade Commission has estimated that FTA itself could increase U.S. beef exports by $600 million to $1.8 billion. Nonetheless, a number of lawmakers have signaled that their support for legislation to implement the FTA is contingent on Korea fully opening its market for U.S. beef. After months of negotiations, the United States and Japan announced on October 23, 2004, an interim U.S. marketing program to certify that only beef products from cattle of 20 months or younger are shipped. Also, the United States agreed to an expanded definition (for the Japanese only) of potentially higher-risk cattle parts. These SRMs includeâfor cattle of all ages âthe entire head except tongues and cheek meat; tonsils; spinal cords; distal ileum; and part of the vertebral column. This is broader than the U.S. SRM definition, which applies mainly to cattle over 30 months old. The United States also agreed to permit Japanese beef, previously banned because of animal disease including BSE there, into the U.S. market following U.S. rule-making. USDA's Animal and Plant Health Inspection Service (APHIS) published a final rule on December 14, 2005, permitting such imports (whole boneless beef cuts under specified conditions). Japan finalized its decision to permit U.S. beef imports in December 2005, after its independent Food Safety Commission (FSC) certified the adequacy of U.S. safeguards, at which point shipments resumed. The Japanese abruptly halted imports from all U.S. importers again on January 20, 2006, after they found vertebral column bones in several boxes of veal from one U.S. processor. Following Japan's review of the eligibility of U.S. slaughter facilities to export to Japan, the market reopened on July 27, 2006. U.S. officials continue to press the Japanese to expand eligibility for more types of beef products, as acceptable under OIE guidelines. But U.S. exports have encountered continuing beef safety concerns among some consumers, strict port scrutiny of U.S. shipments, uncertainty about U.S. supplies of age-qualified animals, a shift in consumer choice of protein from beef to pork, and competition for the Japanese market from Australia, a BSE-free exporter. Australia currently provides about 88% of Japanese imports of chilled and frozen beef. FAS said another potential constraint to expanding U.S. beef exports to Japan is that country's possible imposition of a beef import safeguard (a 50% tariff) should imports in 2008 exceed trigger levels. The current beef import safeguard is set at a level that would not trigger imposition of the safeguard, but it is possible that the safeguard, established annually, could be set at a level in 2008 that could seriously curtail U.S. beef exports. Legislative initiatives in the 110 th Congress will depend in large part on the pace of resumption of U.S. beef imports by Japan. On July 18, 2005, the U.S. border reopened to imports from Canada of live cattle under 30 months old, under USDA's Initial Minimal Risk Rule. The reopening was the first time in more than two years, since Canada's BSE incident in May 2003, that live cattle from Canada were eligible to enter the United States. On September 14, 2007, USDA announced its Minimal Risk Rule 2 (MRR2), a final rule that allows for the importation of live cattle and other bovine species (e.g., bison) for any use (including breeding animals born on or after March 1, 1999, a date APHIS had determined to be the effective enforcement of Canada's ruminant-to-ruminant feed ban). The final rule became effective November 19, 2007. Also in effect as of November 19, 2007, is a measure allowing imports of meat from Canadian cattle older than 30 months; this was a suspended part of a USDA rule issued in January 2005. The Ranchers-Cattlemen Action Legal Fund United Stockworkers of America (R-CALF USA) did not succeed in court action to block the border opening, although the court has yet to rule on R-CALF's request for a temporary restraining order that could result in putting on hold the MRR2 cattle rule until the court rules on its legality. R-CALF's legal efforts to block issuance of earlier rules also did not meet with success. One major concern of some cattlemen has been that MRR2 would result in a flood of Canadian cull cattle exports to the United States. Analysis by USDA, however, suggests that, for a variety of reasons, this was unlikely to occur. FAS lists, among factors that will impede the flow of cull cattle from Canada to the United States, an increase in Canadian slaughter capacity for cull cattle that reduces the supply of culled animals available for export; a large number of Canadian cull cattle that are currently older than eight years and thus disqualified from export eligibility by the age requirements in MRR2; and a strengthening of Canadian cattle prices as the MRR2 rule goes into effect. U.S. imports of Canadian cattle had fallen to 512,000 head in 2003, and virtually none in 2004, but recovered to approximately 1.4 million in 2007, still somewhat below their pre-BSE annual level of 1.7 million, according to USDA data. Besides concerns about competition from increased Canadian live cattle imports, there were worries that opening the border to what some believe are potentially risky Canadian animals will undermine efforts to regain the Japanese and Korean markets. Others counter that moving forward with the Canada rules was necessary for the United States to convince other countries that North American beef is safe, and that all countries should, like the United States, base their import policies on international standards. In the 110 th Congress, resolutions of disapproval of MRR2 have been introduced in both chambers ( H.J.Res. 55 and S.J.Res. 20 ). If passed and signed by the President, MRR2 would have no force or effect. Another bill introduced in the 110 th Congress, S. 1308 , would prohibit imports of Canadian cattle over 30 months of age or of beef derived from such cattle, until mandatory retail country-of-origin labeling (COOL) is implemented. The current statutorily set deadline for COOL for fresh meats is September 30, 2008 (see CRS Report RS22955, Country-of-Origin Labeling for Foods , by [author name scrubbed]). Industry analysts believe that the BSE experience has been much less devastating economically in the United States than it has been in other countries. One reason is that the United States, learning from Europe, was able to put BSE safeguards into place prior to its own first case. Also, the U.S. beef industry is much less dependent on export demand than the Canadians, cushioning the price effects. Before the BSE events, Canada exported 37% of its beef production, whereas the United States exported 9%. In 2003, the U.S. ban on Canadian beef and cattle, coupled with already tight U.S. supplies and strong demand, had driven up U.S. beef and cattle prices substantially. After the December 2003 BSE case was announced, cattle prices fell but quickly stabilized. Continuing demand, plus lower U.S. cattle inventories due in part to widespread drought in cattle country, kept cattle and beef prices high during 2004, helping to offset the effects of the BSE-related foreign bans. USDA reported average U.S. fed steer (i.e., slaughter-ready cattle) prices at nearly $85 per cwt. for all of 2004, compared with average fed steer prices of $85 in 2003 and $67 in 2002. By 2007 they reached nearly $92. A study by Kansas State University of the impact that BSE has had on the U.S. beef industry found that average U.S. wholesale boxed beef prices during 2004 were 12 to 17 cents per pound lower than they would have been if all the export markets had been open. The loss of beef export markets also meant that by-product prices were lower than they would have been. The total estimated U.S. beef industry losses attributable to loss of beef and by-product exports in 2004 ranged from $3.2 to $4.7 billion, according to the study. | The 110 th Congress has been monitoring U.S. efforts to regain foreign markets that banned U.S. beef when a Canadian-born cow in Washington state tested positive for bovine spongiform encephalopathy (BSE) in December 2003. The four major U.S. beef export markets, Canada, Mexico, Japan, and Korea, are again open to U.S. products. However, resumption of beef trade with Japan and Korea has not gone smoothly. For example, Korea briefly readmitted but then suspended U.S. beef imports. Now, Korea's delays in implementing an April 2008 agreement to end its ban are a key issue in congressional consideration of the Korea-U.S. Free Trade Agreement. |
The federal government has recognized the need to organize and coordinate the collection and management of geospatial data since at least 1990. In that year, the Office of Management and Budget (OMB) revised Circular A-16—which provides guidance regarding coordination of federal surveying, mapping, and related spatial data activities—to establish the Federal Geographic Data Committee (FGDC) and to promote the coordinated use, sharing, and dissemination of geospatial data nationwide. OMB Circular A-16 also called for the development of a national resource for digital spatial information to enable the sharing and transfer of spatial data between users and producers, linked by criteria and standards. Executive Order 12906, issued in 1994, strengthened and enhanced Circular A-16 and specified that the FGDC shall coordinate development of the National Spatial Data Infrastructure (NSDI). Historically, the federal government has been a primary provider of authoritative geospatial information; however, the federal government has shifted, with some important exceptions, to consuming rather than providing geospatial information from a variety of sources. As a result, the federal government's role also has shifted toward coordinating and managing geospatial data and facilitating partnerships among the producers and consumers of geospatial information in government, the private sector, and academia. There are long-standing challenges to coordinating how geospatial data are acquired and used at the local, state, and federal levels—avoiding duplicative data sets, for example—and in collaboration with the private sector. Past Congresses have recognized these challenges. For example, the 108 th Congress explored issues of cost, duplication of effort, and coordination of geospatial information in a series of hearings. Bills introduced in previous Congresses would have addressed aspects of the geospatial enterprise, but none were enacted. Until enactment of the Geospatial Data Act of 2018, the executive branch had led nearly all efforts to better coordinate and share geospatial data within the federal government. In the 114 th Congress, Senator Orrin Hatch introduced S. 740 , the Geospatial Data Act of 2015, a bill that essentially would have codified Circular A-16 and provided Congress with additional capabilities to oversee the federal geospatial enterprise, among other authorities. Representative Bruce Westerman subsequently introduced companion legislation, H.R. 6294 . Congress did not act on either bill. In the 115 th Congress, Senator Hatch introduced S. 1253 , the Geospatial Data Act of 2017, on May 25, 2017; Representative Westerman introduced companion legislation, H.R. 3522 , on July 27, 2017. Later that year, on November 15, Senator Hatch introduced a slightly different version of the bill, S. 2128 ; Representative Westerman introduced the House version, H.R. 4395 , on the same day. Several other versions of the bill were circulated without formal introduction in 2018. In September 2018, another version of the bill, the Geospatial Data Act of 2018 (GDA), was included in H.R. 302 , the FAA Reauthorization Act of 2018, as Subtitle F of Title VII. On October 3, 2018, Congress passed the bill. On October 5, 2018, President Trump signed it into law as P.L. 115-254 . This report provides a summary and analysis of each section of the GDA. It also discusses possible implications of the new law and issues for Congress. The GDA codifies aspects of Circular A-16, authorizing many of the circular's existing components and modifying or expanding upon other aspects. The GDA continues the Federal Geographic Data Committee and supports the goal of creating a National Spatial Data Infrastructure. It also adds several congressional oversight components; for example, it adds a requirement for annual performance reporting from each of the covered agencies to the FGDC, and it requires a summary and evaluation by the FGDC of each agency in fulfilling the responsibilities listed in the GDA. The annual summaries and evaluations must be made available to the National Geospatial Advisory Committee (NGAC), and the law directs the FGDC to respond to comments from the NGAC. Further, it requires the FGDC to make available to Congress, not less than every two years, a report summarizing and evaluating agency performance, comments from the NGAC, responses to those comments, and responses to comments from the covered agencies themselves. The following is a brief summary and analysis of each section of the GDA, referencing section numbers as enumerated in the enacted bill under Subtitle F-Geospatial Data, Title VII, of P.L. 115-254 , the FAA Reauthorization Act of 2018. The GDA provisions are in Sections 751-759 of Title VII of P.L. 115-254 . The short title of the subtitle is the Geospatial Data Act of 2018. Section 751 includes a Findings provision with three components: 1. Open and publicly available data is essential to the successful operation of the GeoPlatform (discussed below in " Section 758. GeoPlatform "). 2. The private sector is invaluable, for the purposes of acquiring and producing geospatial data and data services, to carrying out the missions of the federal departments and agencies, and in contributing to the U.S. economy. 3. Congress has for two decades passed legislation promoting greater access and use of federal information and data, which has had multiple positive effects on businesses, the economy, scientific research, and other aspects of the nation. Section 752 defines 14 terms used in the GDA. Many of these terms are included and explained or defined in Circular A-16, but some are not, such as the National Geospatial Advisory Committee (NGAC) , GeoPlatform , intelligence community , and covered agency . Under the GDA, a covered agency is an executive department, as defined in 5 U.S.C. 101, that collects, produces, acquires, maintains, distributes, uses, or preserves geospatial data on paper or in electronic form to fulfill the agency's mission, either directly or through a relationship with another organization, including a state, local government, Indian tribe, institution of higher education, business partner or contractor of the federal government, and the public. In addition to the executive departments included in 5 U.S.C. 101, the GDA also counts the National Aeronautics and Space Administration and the Environmental Protection Agency as covered agencies. Section 752 excludes the Department of Defense (including 30 components and agencies performing national missions) or any element of the intelligence community from its definition of the term covered agency . OMB Circular A-16 includes definitions for additional terms in its Appendix D and other locations; however, the GDA expands upon some of those terms, such as the definition for geospatial data . In OMB Circular A-16, geospatial data are "information that identifies the geographic location and characteristics of natural or constructed features and boundaries on the Earth." The GDA is more descriptive: [Geospatial data] (A) means information that is tied to a location on the Earth, including by identifying the geographic location and characteristics of natural or constructed features and boundaries on the Earth, and that is generally represented in vector datasets by points, lines, polygons, or other complex geographic features or phenomena; (B) may be derived from, among other things, remote sensing, mapping, and surveying technologies; (C) includes images and raster datasets, aerial photographs, and other forms of geospatial data or datasets in digitized or non-digitized form. Also, the GDA describes which types of data and activities are not included under the definition of geospatial data. For example, geospatial activities of an Indian tribe are not included under the definition if they are not, in whole or in part, carried out using federal funds, as determined by the tribal government. Classified national security-related geospatial data activities of the Department of Defense and the Department of Energy are not included. Intelligence geospatial data activities, as determined by the Director of National Intelligence, are excluded. The GDA also excludes geospatial data and activities under 10 U.S.C. 22, or Section 110 of the National Security Act of 1947 (50 U.S.C. 3045). Some of the other terms defined in Circular A-16 are changed or expanded in the GDA. For example, in the GDA, data theme is defined and explained as NGDA data theme . The shift reflects a name change under this section and points to a fuller description in Section 756 of the GDA (see " Section 756. NGDA Data Themes "). The GDA codifies the continuation of an existing federal interagency committee, the FGDC, established under Circular A-16. The FGDC is the primary entity for developing, implementing, and reviewing the policies, practices, and standards relating to geospatial data according to the guidelines and requirements under Circular A-16, including implementation of the NSDI (see " Section 755. National Spatial Data Infrastructure "). The GDA codifies duties and responsibilities of the FGDC that are described in Circular A-16. Those duties include FGDC being the lead entity for development and management of the NSDI, among others. The GDA mandates that the Secretary of the Interior and the Director of OMB shall serve as chairperson and vice chairperson of the committee, respectively. This provision codifies the roles for chairperson and vice chairperson under the current FGDC leadership. The GDA requires that the head of each covered agency and the Director of the National Geospatial-Intelligence Agency (NGA) designate a representative of their respective agencies to serve as a member of the FGDC. Also, the GDA requires the Director of OMB to update guidance regarding membership on the FGDC within a year of enactment (October 2019). In addition to codifying duties and responsibilities (13 total) mostly described in Circular A-16, the GDA requires the FGDC to make available online, and to update at least annually, a summary of the status for each National Geospatial Data Asset (NGDA) data theme, based on annual reports submitted by each covered agency. The summary must include a determination of the agency's progress toward its specific responsibilities for its NGDA data theme(s) under Section 756 of the GDA. The law also requires the FGDC to determine the progress achieved for other, more general agency responsibilities described in Section 759. In each of these cases, the GDA directs the FGDC to determine if each covered agency (1) met expectations, (2) made progress toward expectations, or (3) failed to meet expectations. The GDA requires the FGDC to make available the annual summaries and evaluations of covered agency performance, described above, to the NGAC (described in " Section 754. National Geospatial Advisory Committee ") and to respond to comments upon request from the NGAC about the annual summaries and evaluations. In addition, the law requires the FGDC, not less than once every two years, to submit to Congress a report that includes the summaries and evaluations of covered agency performance, comments from the NGAC, and FGDC responses to those comments. Further, it requires the FGDC to make available the annual summaries and evaluations to the covered agencies, to seek comments from them, and, not less than every two years, to submit to Congress a report that includes the comments and responses. The summaries, evaluations, responses, and reports are not currently required under OMB Circular A-16. Lastly, Section 753 of the GDA requires the FGDC to establish an Office of the Secretariat with the Department of the Interior (DOI) to provide administrative support, strategic planning, funding, and technical support to the FGDC. The GDA codifies an established advisory committee (the National Geospatial Advisory Committee, or NGAC). It specifies that DOI will administer the NGAC. The current NGAC was established under the discretionary authority of the Secretary of the Interior in accordance with the provisions of the Federal Advisory Committee Act, as amended. Similar to its current charge, the NGAC will continue to provide advice and recommendations to the FGDC chairperson relating to the management of federal and national geospatial programs, the development of the NSDI, and other activities relating to GDA implementation. The NGAC also will review and comment on geospatial policy and management issues, and it will ensure that the views of representatives of nonfederal interested parties involved in national geospatial activities are conveyed to the FGDC. The NGAC will meet and act "at such times and places as the Advisory Committee considers advisable to carry out this subtitle," and all meetings will be open to the public. The NGAC, with concurrence of the FGDC chairperson, may secure information from federal agencies to carry out its duties under the GDA. According to the GDA, the NGAC will be composed of not more than 30 members appointed by the FGDC chairperson. The members shall be selected to achieve a balanced representation of different viewpoints on national geospatial activities and the development of the NSDI and shall take into consideration the geographic balance of residence of its members. Members shall be selected from groups including states, local governments, regional governments, tribal governments, the private sector, geospatial information user industries, professional associations, scholarly associations, nonprofits, academia, licensed geospatial data acquisition professionals, and the federal government. The GDA requires that at least one member of the NGAC be from the NGA. Members will be allowed to serve no more than two consecutive three-year terms, with the exception of the member from the NGA, who is not subject to the two-consecutive-term limit (the GDA does not specify a term limit for the member from NGA). Also, the Office of the Secretariat established under the previous section shall provide administrative support to the NGAC as well as to the FGDC. The NSDI originally was conceived in Executive Order 12906 as "the technology, policies, standards, and human resources necessary to acquire, process, store, distribute, and improve utilization of geospatial data." The GDA appears to support this concept generally but not precisely. In Section 752, the GDA defines the term Natio nal Spatial Data Infrastructure to mean "the technology, policies, criteria, standards, and employees necessary to promote geospatial data sharing throughout the Federal Government, State, tribal, and local governments, and the private sector (including nonprofit organizations and institutions of higher education)." Section 755 states that the NSDI's purpose shall be to ensure that geospatial data from multiple sources (covered agencies, state, local, and tribal governments; private sector; institutions of higher education) are available and easily integrated to enhance the understanding of the physical and cultural world. The GDA establishes two goals for NSDI. Under the first goal, geospatial data are to be reviewed prior to disclosure to ensure privacy and security of personal data; geospatial data are designed to enhance the accuracy of statistical information, both in raw form and in derived products; the public has free and open access to geospatial data, information, and interpretive products, in accordance with OMB Circular A-130; proprietary interests related to licensed information and data are protected; and interoperability and sharing capabilities of federal information systems and data are ensured. The second goal is to support and advance the establishment of a global spatial data infrastructure, consistent with certain requirements, including that covered agencies develop international geospatial data in accordance with international voluntary consensus standards. The GDA requires that the FGDC prepare and maintain a strategic plan for the NSDI. It further requires that the FGDC advise federal and nonfederal users of geospatial data on their responsibilities relating to the implementation of the NSDI. Section 756 requires the FGDC to designate NGDA data themes, which are primary topics and subjects—such as elevation, federal land ownership, vegetation, or marine boundaries—for which the coordinated development, maintenance, and dissemination of geospatial data would benefit the federal government and people of the United States. The GDA requires that the data themes "be representations of conceptual topics describing digital spatial information for the Nation," and contain associated datasets "(A) that are documented, verifiable, and officially designated to meet recognized standards; (B) that may be used in common; and (C) from which other datasets may be derived." The GDA requires the FGDC to designate one or more covered agencies as the lead covered agency for each data theme. The lead covered agencies for each theme are responsible for coordinating management of the data theme, providing supporting resources for managing the data, and providing other services and products related to the data theme. Each lead covered agency is charged with five specific responsibilities for its data theme: 1. Provide leadership for developing and implementing geospatial data standards for the theme. 2. Provide leadership, develop, and implement a plan for nationwide population of the data theme. 3. Establish goals that support the strategic plan for the NSDI. 4. Collect and analyze information from geospatial data users regarding user needs and incorporate those needs into strategies for the data theme. 5. Designate a point of contact within the agency who will be responsible for developing, maintaining, coordinating, and disseminating data using the GeoPlatform (see " Section 758. GeoPlatform "). The lead covered agency also is required to submit a performance report at least annually to the FGDC. The performance report includes progress made toward fulfilling the specific responsibilities for each data theme and comments in response to the subsequent summary and evaluation of the performance report provided by the FGDC. The FGDC will summarize and evaluate these reports, as described above. The covered agencies will have the opportunity to comment on the summaries and evaluations provided by the FGDC. The GDA requires the FGDC to establish standards for each of the NGDA data themes discussed above, which include rules, conditions, guidelines, and characteristics. The GDA also requires the FGDC to establish content standards for metadata. The standards are to be consistent with international standards to the maximum extent practicable. They also are to include international data standards acceptable for the purposes of declassified intelligence community data, and they are to be reviewed and updated periodically. Further, the GDA requires the FGDC to develop and promulgate the standards according to OMB Circular A-119 or its successor and to consult with a broad range of data users and providers. To the maximum extent possible, the GDA requires the FGDC to use national and international standards adopted by voluntary consensus bodies and to establish new standards if they do not already exist. Section 757 also contains an exclusion from public disclosure of any information that reasonably could be expected to cause damage to the national interest, security, or defense of the nation, including information relating to geospatial intelligence data activities, as determined in consultation with the Director of National Intelligence. The GDA requires the FGDC to operate an electronic service providing access to geospatial data and metadata to the general public. This service is to be known as the GeoPlatform. The GDA requires the GeoPlatform to be made available through the internet; to be accessible through a common interface; to include metadata for all geospatial data collected, directly or indirectly, by covered agencies; and to include a set of programming instructions and standards that would provide an automated means of accessing geospatial data and could include data from sources other than covered agencies. The GDA forbids the GeoPlatform to store or serve proprietary information or data acquired under a license by the federal government, unless authorized by the data provider. The GDA also requires the FGDC chairperson to designate an agency to serve as the managing partner for developing and operating the GeoPlatform. Section 759 of the GDA has three main parts: (1) covered agency responsibilities, (2) reporting, and (3) audits. The GDA lists 13 responsibilities for each covered agency, paraphrased as follows: 1. Prepare and implement a strategy for advancing geospatial data activities appropriate to the agency's mission. 2. Collect, maintain, disseminate, and preserve geospatial data such that resulting data, information, or products can be shared. 3. Promote geospatial data integration. 4. Ensure that geospatial information is included on agency record schedules that have been approved by the National Archives and Records Administration. 5. Allocate resources to fulfill geospatial data responsibilities. 6. Use geospatial data standards. 7. Coordinate with other federal agencies, state, local, and tribal governments, institutions of higher education, and the private sector. 8. Make federal geospatial information more useful to the public, enhance operations, support decision making, and enhance reporting to the public and to Congress. 9. Protect personal privacy and maintain confidentiality in accordance with federal policy and law. 10. Participate in determining whether declassified data can become part of the NSDI. 11. Search all sources to determine if existing data meet the needs of the covered agency before expending funds to acquire geospatial data. 12. Ensure that those receiving federal funds for geospatial data collection provide high-quality data. 13. Appoint a contact to coordinate with other lead covered agencies. The GDA requires each covered agency to submit an annual report to the FGDC regarding the 13 responsibilities listed above. It also requires the covered agencies to include geospatial data as a capital asset for purposes of preparing the President's budget submission under 31 U.S.C. 1105(a) and 1108. Each covered agency is required to maintain an inventory of geospatial data assets in accordance with OMB Circular A-130 and is required to submit an annual report to Congress identifying federal-wide geospatial assets. In addition, the GDA requires each covered agency to disclose each contract, cooperative agreement, grant, or other transaction that deals with geospatial data. The GDA requires OMB to take into consideration the summary and evaluations of the covered agency annual reports provided by the FGDC in its evaluation of the budget justification from each covered agency. It also requires OMB to include a discussion of the summaries and evaluation of progress toward establishing the NSDI in each E-government status report submitted under 44 U.S.C. 3606. The GDA requires the inspector general of each covered agency (or some other senior ethics official of a covered agency without an inspector general) to submit to Congress an audit not less than once every two years of the collection, production, acquisition, maintenance, distribution, use, and preservation of geospatial data by the covered agency. The audit requires a review of the covered agency's compliance with the requirements established under Section 757, with the 13 responsibilities for each covered agency listed in Section 759, and with the limitation on the use of federal funds in Section 759A (discussed below). The GDA prohibits the use of federal funds by a covered agency for the collection, production, acquisition, maintenance, or dissemination of geospatial data that does not comply with applicable standards established under Section 757 (discussed above), as determined by the FGDC. The prohibition goes into effect after five years from the date on which the FGDC establishes standards for each NGDA theme (specified in this section as the implementation date ). The GDA provides an exemption—allowing the maintenance and dissemination of geospatial data—if those geospatial data are collected, produced, or acquired by the covered agency prior to the implementation date. Section 759A of the GDA provides the FGDC chairperson authority to grant a waiver to the limitation, upon request from a covered agency, subject to several requirements that the requesting covered agency would need to meet. Section 759B states "Nothing in this subtitle shall repeal, amend, or supersede any existing law unless specifically provided in this subtitle." Section 759C states "The [FGDC] and each covered agency may, to the maximum extent practical, rely upon and use the private sector in the United States for the provision of geospatial data and services." Stakeholders have long recognized the need to better organize and manage geospatial data among federal agencies and among the federal government, local and state authorities, the private sector, and academia. Some observers have commented that the GDA has the potential to improve the extent and efficiency of executive branch agency coordination of geospatial activities and thus to help minimize duplication of effort in acquiring and using geospatial data, saving taxpayers money. However, others have argued that some level of duplication of effort, and of inefficiency in the management and sharing of geospatial information, will always exist across a vast federal bureaucracy in which a large amount of government information has some geospatial component. It also could be argued that the size of the federal bureaucracy is only one factor contributing to the challenges of organizing and managing geospatial data. Surveying and mapping activities themselves are prone to duplication of effort among the executive branch's different missions and goals. The GDA largely codifies an executive branch structure for managing the federal geospatial enterprise under OMB Circular A-16, coordinated under the auspices of the FGDC. The law, however, adds budgeting and reporting requirements for executive branch agencies that provide Congress with a number of avenues for conducting oversight on how well the federal government manages its geospatial data assets. The GDA requires that covered agencies, for example, inventory and assess their geospatial data assets as part of their annual budget submissions. This requirement could address long-standing issues about the extent and valuation of geospatial data and associated infrastructure within each agency—namely, what it costs the federal government to acquire, manage, share, and use geospatial data. The GDA potentially could illuminate for Congress how each covered agency budgets for its geospatial activities and thus could allow Congress to better evaluate what portion of agency appropriations contributes toward the federal geospatial enterprise. This information may enable Congress to query the Director of OMB (a vice-chairperson of the FGDC), about the budgetary implications of agency expenditures on geospatial-related activities in each budget cycle. The GDA also contains a number of reporting requirements which may enable Congress to evaluate covered agencies' progress toward implementing requirements for data themes and other metrics under the new law. The GDA requires that agency evaluations, comments received from the NGAC, and responses to those comments be made available publicly. Thus, Congress would have the ability to evaluate in some detail individual agency performance, the progress made in coordinating the broader geospatial enterprise via the FGDC, and the views from outside stakeholders as represented by members of the NGAC. The requirement for biannual audits by agency inspectors general under Section 759 of the GDA provides Congress with another tool to evaluate covered agency performance. Another potentially useful provision within Section 756 of the GDA, for the purposes of coordination among agencies, is the requirement that each covered agency designate a point of contact "who shall be responsible for developing, maintaining, coordination relating to, and disseminating data" related to the geospatial data theme under that covered agency's responsibility. That requirement could enhance communication and coordination of geospatial activities within the executive branch, a theme raised by Congress in hearings during 2003 and 2004. A single point of responsibility and knowledge in each agency also may assist Congress in its oversight activities. | In the 114th and 115th Congresses, several bills entitled the Geospatial Data Act were introduced in the Senate and House of Representatives. Congress did not act on legislation introduced in the 114th Congress; however, in September 2018, a version of the bill, the Geospatial Data Act of 2018 (GDA), was included in H.R. 302, the FAA Reauthorization Act of 2018, as Subtitle F of Title VII. Congress passed H.R. 302 on October 3, 2018, and President Trump signed it into law on October 5 as P.L. 115-254. The federal government has recognized the need to organize and coordinate the collection and management of geospatial data since at least 1990. In that year, the Office of Management and Budget (OMB) revised Circular A-16—which provides guidance regarding coordination of federal surveying, mapping, and related spatial data activities—to establish the Federal Geographic Data Committee (FGDC) and to promote the coordinated use, sharing, and dissemination of geospatial data nationwide. Past Congresses have recognized the challenge of coordinating and sharing geospatial data from the local, county, and state level to the national level and vice versa. Until enactment of the GDA, however, the executive branch had led nearly all efforts to better coordinate and share geospatial data within the federal government. Stakeholders have long recognized the need to better organize and manage geospatial data among federal agencies and among the federal government, local and state authorities, the private sector, and academia. Some observers and stakeholders have commented that the GDA has the potential to improve the extent and efficiency of executive branch agency coordination of geospatial activities and thus to help minimize duplication of effort in acquiring and using geospatial data, saving taxpayers money. However, it could be argued that some level of duplication of effort, and of inefficiency in the management and sharing of geospatial information, will always exist across a vast federal bureaucracy in which a majority of government information has some geospatial component. It also could be argued that the size of the federal bureaucracy is only one factor contributing to the challenges of organizing and managing geospatial data; surveying and mapping activities themselves are prone to duplication of effort among the different missions and goals of the executive branch. The GDA codifies aspects of OMB Circular A-16, authorizing many of its existing components and modifying or expanding upon other aspects. The GDA continues the FGDC and supports the goal of creating a National Spatial Data Infrastructure (NSDI), defined in the new law as "the technology, policies, criteria, standards, and employees necessary to promote geospatial data sharing throughout the Federal Government, State, tribal, and local governments, and the private sector (including nonprofit organizations and institutions of higher education)." The GDA adds a number of congressional oversight components. For example, it adds a requirement for annual performance reporting from each of the federal agencies responsible for a specific geospatial topic (or theme), and it requires the FGDC to conduct a summary and evaluation of each agency in fulfilling the responsibilities listed in the GDA. The annual summaries and evaluations must be made available to the National Geospatial Advisory Committee (NGAC, charged with providing advice and recommendations to the FGDC). Further, the law requires the FGDC to make available to Congress, not less than every two years, a report summarizing and evaluating agency performance, comments from the NGAC, responses to those comments, and responses to comments from the responsible agencies themselves. One long-standing issue for Congress has been the cost of geospatial activities to the federal government—namely, what it costs to acquire, manage, share, and use geospatial data. To help address that concern, the GDA requires the responsible federal agencies to inventory and assess their geospatial data assets as part of their annual budget submissions. The GDA potentially could illuminate for Congress how each responsible agency budgets for its geospatial activities, which may allow Congress to better evaluate what portion of agency appropriations contributes to the federal geospatial enterprise. This information could enable Congress to query the Director of OMB (the vice-chairperson of the FGDC), about the budgetary implications of agency expenditures on geospatial-related activities in each budget cycle. |
Tax reform is a perennial issue before Congress. One area of increasing attention is the taxation of U.S. companies on the income they earn abroad. Recently, proposals have been made to, in some cases, decrease taxes and in others to increase these taxes. Businesses leaders have been urging a movement toward a territorial tax, which would generally eliminate U.S. income taxes on active foreign source income. Such a proposal (presumably based on one developed by Grubert and Mutti) was included in the President's Advisory Panel on Tax Reform in 2005, more recently in a draft proposal by Ways and Means Committee Chairman Dave Camp, and in a bill, S. 2091 , introduced by Senator Enzi. The National Commission on Fiscal Responsibility and Reform (referred to as the Fiscal Commission) also proposed a territorial tax in general terms. Proposals have also been made to move in the opposite direction and increase the taxation of foreign source income, including S. 727 , introduced by Senators Wyden and Coats, which would use the significant revenues gained to help finance a corporate income tax rate cut. President Obama has included increased taxes on foreign source income in his budget outlines and, more recently, in his framework for business tax reform, as a revenue source for rate reduction. Because of various features in the current tax system, the U.S. tax system already bears a close resemblance, in terms of revenue collected, to a territorial tax. Tax on the income of foreign subsidiaries is deferred until repatriated (paid as dividends to the U.S. parent) and tax can be avoided by not repatriating income. The system limits credits claimed for foreign taxes paid to U.S. tax on foreign income. The limit, however, is on an overall basis, permitting unused credits from high-tax countries to shield income from low-tax countries, or income that bears little foreign tax, from being taxed in the United States. Because firms have flexibility in timing repatriations, the residual effective tax rate on foreign income is estimated at only 3.3%. Some types of income, such as royalties, are treated more favorably under the current system than they would be under a territorial tax. Economists have traditionally analyzed the foreign tax system in terms of economic efficiency. Economic theory tends to support, on efficiency grounds, a worldwide system in which income from U.S. investment earned abroad is subject to the same tax, or as close to the same tax as possible, as that on domestic investment. It does not support a territorial tax, and most proposals in the past were to move closer to an effective worldwide tax (see Appendix ). At the same time, if such a change is not feasible, another question becomes whether moving to an explicit territorial tax would be better or worse than the present system. The fundamental issues are the effects on disincentives to repatriate income, to what extent the revision will divert investment from the United States, the effects on artificial profit shifting, transition issues, administrative and compliance considerations, and the revenue consequences. There is no single blueprint for a territorial tax and the answers to these questions depend, to some extent, on specific design choices. This report first explains how the international tax system works and describes the magnitude and distribution of foreign source income and taxes. The report then focuses on alternative features of a territorial tax and their consequences. It also contains, in a final section, a brief discussion of options that move in the opposite direction and other alternatives that do not fit into either the territorial or worldwide approach (such as current taxation of foreign source income but at a lower rate). The current U.S. tax system is a hybrid. It has some elements of a residence-based or worldwide tax, where income of a country's firms is taxed regardless of its location. It also has some elements of a source based or territorial tax, where all income earned within a country is taxed only by that country regardless of the nationality of the firms. The provisions that introduce territorial features are deferral and cross-crediting. There are a number of complex interactions that will affect both the design of a territorial or other tax revision and the consequences of those changes. Deferral allows a firm to delay taxation of its earnings in foreign subsidiaries until the income is paid as a dividend to the U.S. parent company. Although a territorial tax is often focused on exempting foreign source income that under current law is taxed when repatriated, there are four basic categories of foreign source income, three of which are not eligible for deferral. They are profits of foreign incorporated subsidiaries; current payment income, such as royalties and interest payments; branch income; and Subpart F income. U.S. multinationals are not currently taxed on the profits of their subsidiaries incorporated abroad (except for " Subpart F Income " discussed below). Rather they defer payment of taxes until the income is received by the parent as a dividend (repatriated). U.S. tax is then due on the dividend and, because the dividend is after foreign tax, an additional amount (called a gross-up) is added to taxable income to reflect the foreign taxes paid and place the income on a pre-tax basis. A foreign tax credit is then allowed against this U.S. tax. Current payment income is income that is received as a direct payment, such as royalties and interest. It is taxed currently. This income is usually deductible as an expense in the foreign country and, indeed, may not constitute true foreign source income, at least in the case of royalties that could be viewed as more like export income. Branch income is income from operations that are carried out without a separately incorporated foreign subsidiary. Income of operations organized as foreign branches rather than as separately incorporated subsidiaries is also taxed currently. For tax purposes, branch gross income and deductions are combined with parent income just as if the operation were taking place in the United States. Although branch income is not eligible for deferral, it can be a beneficial form of organization in some cases. If a firm is experiencing a loss, which may be the case with start-ups or mineral or exploration companies, the losses can only reduce U.S. income if the operation is in branch form. In some cases, dividends may attract an additional withholding tax, although for most trading partners these taxes are eliminated or minimized through tax treaties. Non-tax reasons may also cause a firm to choose the branch form; this form, for example, may be particularly beneficial for financial firms in which the branch operation is backed by the assets of the worldwide firm. Subpart F income, named after the section of the Internal Revenue Code that imposes the rules, is income that can easily be shifted to low tax jurisdictions. Subpart F income includes passive income, such as interest and dividends, and certain sales and service income flowing between related parties (called foreign base company income). This income is taxed currently. Subpart F has been made less effective in recent years because of check-the-box rules that allow flexibility in choosing whether to recognize related firms as separate entities. There are also specific exceptions to Subpart F rules that allow for income from active financing and insurance operations that might otherwise fall under Subpart F to be deferred. These provisions are currently part of the "extenders," provisions that are enacted with an expiration date but that are generally extended periodically. The extenders have currently expired after 2011, although some or all of them they may be extended retroactively. Also among the extenders is a look-through rule that has a similar effect to check-the-box through legislative rather than regulatory rules. Cross-crediting is a phenomenon that occurs when credits for taxes paid to one country can be used to offset U.S. tax due on income earned in a second country. Cross-crediting occurs because countries generally tax all income arising within their borders from both foreign and domestic firms. The U.S. system allows a credit against U.S. tax due on foreign source income currently taxed for foreign income taxes. This foreign tax credit is designed to prevent double taxation of income earned by foreign subsidiaries of U.S. corporations from facing a combined U.S. and foreign tax in excess of the U.S. tax due if the income was earned in the United States. In addition to cross-crediting across countries, cross-crediting can occur within a country if some income is subject to high tax rates and some is subject to lower tax rates. If the foreign tax credit had no limit, a worldwide system with current taxation and a foreign tax credit would produce the same result, for firms, as a residence based tax, because the tax effectively applying would be the tax of the country of residence. Firms in countries with a higher rate than the U.S. rate would get a refund for the excess tax, and firms in countries with a lower rate than the U.S. rate would pay the difference. To protect the nation's treasury from excessively high foreign taxes causing excessive revenue losses, however, the credit is limited to the U.S. tax that would be due on the foreign source income. If applied on a country-by-country and income-by-income basis, this rule would result in higher taxes paid on incomes and/or in countries where foreign taxes are higher than U.S. taxes. The rule would also result in total taxes paid equal to the U.S. tax when foreign taxes are lower. If applied overall or in a way that can combine income subject to high taxes with income subject to low taxes, unused credits in high-tax countries (or associated with highly taxed income) can be used to offset U.S. tax due in low-tax countries or income subject to low taxes. This mechanism is called cross-crediting. Cross-crediting is important to consider when evaluating international tax changes, including the move to a territorial tax, because cross-crediting would largely disappear with the disappearance of foreign tax credits associated with exempted income. Excess credits could no longer shield certain direct active income such as royalties from U.S. taxes. A variety of tax rules can affect the degree and nature of cross-crediting: separating income and credits into baskets with cross-crediting only allowed within the basket; characterizing certain royalty and export income as foreign source; restricting the use of excess credits generated from oil and gas extraction; and interest and other expense allocation rules. In addition, a provision that effectively allowed claiming of foreign tax credits when the associated income was not subjected to U.S. tax, termed foreign tax credit splitting, may have affected past practices and data. This provision was restricted in 2010. Firms whose foreign tax payments are larger than those permitted to be credited under the foreign tax credit limit rules are said to be in an excess credit position. Firms whose tax payments are smaller are in an excess limit position. While the United States has had a variety of limit rules in the past, it currently has an overall limit that allows cross-crediting, separated into two significant baskets based on the type of income: an active or general basket and a passive basket. About 95% of income is in the general basket so there is much scope for cross-crediting. Therefore, companies that have paid taxes higher than the U.S. rate can still (within each basket) offset U.S. taxes on income earned in low-tax countries. Higher tax rates can also offset taxes on income generally taxed at low or no rates; one example is royalties associated with active operations, which fall in the active basket and may be shielded from U.S. tax by excess foreign tax credits. Another is foreign source income from export sales, discussed below under the " Title Passage Rule ." The law also contains separate restrictions on certain other types of income, one of importance, as measured by foreign income affected, being oil and gas extraction income. A separate provision disallows credits paid on oil and gas extraction income in excess of the U.S. tax due, although they can be carried over to future years. This treatment has the effect of placing oil and gas extraction income in a separate basket, because generally this income is subject to high foreign taxes. For example, if the U.S. tax on foreign oil and gas extraction income is 35% and the foreign tax is 50%, the extra 15% credit cannot be used to offset tax on other income. This treatment has the same effect as placing this oil and gas extraction income in a separate basket. If the tax on oil and gas extraction income were lower than the U.S. tax, this income would be eligible to have the additional U.S. tax offset by excess credits on other income because income from oil and gas extraction income is not actually in a different basket. Another feature that may contribute to the generation of excess foreign tax credits is the allocation of overhead and other deductions that are not taken for foreign tax purposes. While many deductions can be traced to a particular source of income, the parent firm's costs for interest, research, and other overhead (e.g. administration) is allocated between domestic and foreign uses for purposes of the foreign tax credit limit. This allocation lowers the amount of foreign source income. Because these reductions in income are not recognized by the foreign jurisdiction, the result could be to generate excess credits, even in countries whose general effective tax rate is actually lower than that of the United States. These allocations are necessary for determining net income by source. Borrowing is generally done at the parent level. In addition, the interest allocation limits the ability of firms who are in the excess credit position to avoid U.S. tax by borrowing in the United States rather than in low-tax countries where the deduction is less valuable. The rule, however, has some imperfections. Foreign subsidiaries may also have overhead costs, particularly interest, which are not recognized in income because dividends are received net of deductions. In 2004, a revision that would have allowed elective allocation of worldwide interest, was adopted but did not go into effect immediately. This elective worldwide interest allocation rule has been delayed on several occasions; currently it is scheduled to take place in 2021. There is a special rule called the title passage rule (or the inventory sales source exception rule) that allows half of manufacturing export income (and all of sales of inventory) to be sourced as income in the country in which the title passes. Because this title passage can be arranged in foreign countries, this income is foreign source income and thus eligible for cross-crediting. This provision is effectively an export subsidy for firms with excess foreign tax credits. The title passage rule is important in considering a territorial tax because cross-crediting, at least for active income, would, in theory, disappear. Export income, as well as royalties, would be subject to higher tax rates in some cases with elimination of foreign tax credits. Prior to 2010, there was also a possibility of claiming foreign tax credits for income that had not actually been subject to tax due to differing rules across countries as to entity status. P.L. 111-226 disallowed any consideration of a foreign tax credit unless the underlying income was reported. Although this provision was estimated to gain relatively little revenue (about $0.4 billion annually), it is hard to be certain how prevalent these activities were. These arrangements may affect the data currently available by increasing the ability of firms to offset, for example, royalties with excess credits. Before discussing the issues and consequences of reforms, it is useful to get a "lay of the land." How important are the various sources of foreign income, how much tax do they generate currently, and how much might they generate with various reforms? Because individual tax return data are not available, this issue can only be explored by combining aggregate data available and various analyses that have been done by researchers with access to tax returns. This section discusses the current sources of foreign income, the potential magnitude of foreign income not reported, the sources of tax liability, and the potential size of foregone taxes due to deferral and cross-crediting. Table 1 shows the distribution of foreign source income by type for firms claiming and receiving foreign tax credits for 2007 and 2008, to the extent that sources can be identified. This data set should capture most of foreign source income reported by U.S. multinationals on their tax return (i.e., not deferred). (Although some data are available for 2009, these data may be skewed because of the economic slowdown that spread abroad). Total foreign source net income was $392.5 billion in 2007 and $413.4 billion in 2008. In the data, oil and gas extraction income is reported separately, so that dividends do not include that income. Note that the third item in the table is related to the first two. Because dividends and Subpart F income are on an after-tax basis, the dividends must be increased by the taxes paid for corporate taxpayers electing a foreign tax credit. Most of the deemed paid taxes are probably associated with dividend payments (73% for 2008 when data first because available) because Subpart F income is usually subject to lower foreign taxes. Accordingly, the data suggest an estimate of 30% to 35% of foreign source income that arises from these dividends. The table also shows that royalties are significant parts of foreign source income, accounting for about a quarter of foreign source income, suggesting that the consequences of changes in the law for this income might be significant. In Table 1 , the measure of net income was income net of all deductions (but before adjustments). Some of these deductions were overhead costs that are allocated based on formulas. In Table 2 , shares are calculated based on income before these allocated deductions. With this approach, it is also possible to calculate the share of interest income and oil and gas extraction income. In Table 2 , foreign source income before non-allocable deductions is $615.4 billion in 2007 and $614.6 billion in 2008. Non-allocable deductions accounted for 36% of this income in 2007 and 33% in 2008. Dividend payments and their related tax gross ups are smaller as a share (25% to 30%) when pre-tax income is considered. Their true importance probably lies somewhere between the shares in Table 1 and Table 2 given the imperfections in allocation rules. Note however, that oil and gas extraction income can arise from a subsidiary and is simply reported separately. Including oil and gas income in dividends would bring the totals back up toward 35% to 40% of income. Oil and gas extraction income, however, has little or no reason not to be repatriated because the taxes due on these earnings are generally larger than the U.S. tax (which is why they are treated separately in a way that effectively results in a separate basket). Table 2 also shows the importance of interest income in the totals for foreign source income (although a full measure of the importance of interest would require information on income of financial institutions through branches). Table 1 and Table 2 report realized income (direct, repatriated, branch, and Subpart F). Total foreign source income also includes deferred income. How large is this deferred income on an annual basis? Estimates in this section indicate that close to half of foreign source income is subject to U.S. tax, but less than a quarter of active income of foreign subsidiaries of U.S. firms that can be deferred is currently repatriated. There are no precise data sources to estimate this effect. Based on IRS statistics for controlled foreign corporations, available for 2008, which accounted for $177 billion of distributions out of pre-tax income to U.S. parents (about 78% of the total distributions), total deemed and distributed income was 27% of total pre-tax income. Subpart F income was 12.1% of pre tax income and dividends were 14.7%. As a share of after tax income, dividends were 18.1% of income and Subpart F 14.3% income, for a total of 32.4%. These ratios might be somewhat understated because of the possibility of non-U.S. shareholders, but that is likely to be unimportant. Commerce Department data (Table 6.16D: Corporate Profits by Industry) reports $511 billion and $582 billion of rest of world corporate profits in 2007 and 2008, on an after-tax basis. Considering distributions after foreign tax in 2007, the ratios are 14.7% for dividends and 12.7% for Subpart F income, for a total of 27.4%. These ratios are 15.7% for dividends, 12.0% for Subpart F, and 27.8% for the total for 2008. These numbers do not capture deemed taxes. Using IRS data on controlled foreign corporations and based on the ratios of deemed taxes to distributions in Table 1 (with 73% of deemed taxes associated with active dividends), the share of pre-tax profits including taxes for 2008 was 19.7% for dividends and 14.7% for Subpart F. Because Subpart F is not voluntary, the share of dividends out of pre-tax profits net of Subpart F income is 23%. A study of the new M-3 form that reconciles tax and book income finds that for firms with positive taxable and book income, 9% of the foreign source income is actively paid as a dividend and 47% is subject to U.S. tax (including royalties and other direct). Dividends as a share of total income are 19%, the same share as in Table 1 . The ratios would be similar to those above if deemed taxes were included. Overall, it appears that close to half of foreign source income is reported as taxable income in the United States, but less than a quarter of the income over which firms have discretion, active income of foreign subsidiaries, is subject to U.S. tax. Rates of deferral vary significantly by location. For 2008, in the aggregate 33% of after tax income of controlled foreign corporations was distributed, 18% as discretionary dividends and the remaining 15% as Subpart F income. Canadian subsidiaries, however, distributed 44%, with 36% as discretionary payments and the remaining 8% as Subpart F. However, for Switzerland, a significant tax haven country, 19% was paid out, 10% as dividends and the remaining 9% as Subpart F. These shares are not available for 2007, and 2006 is probably not very representative, at least for tax haven countries, because it was immediately after the repatriation holiday enacted in 2004 that permitted a one-time dividend payment with an 85% exclusion. In determining the consequences of present and proposed systems, it is also important to note the repatriated income is not random. Firms presumably choose to repatriate income that can be most easily shielded by foreign tax credits. Some evidence of this effect can be found in the M-3 study, in which the residual U.S. tax on foreign source income was only 3.3% even though half of income was reported and a significant share was in royalties that had little foreign tax (to be used for credits) attached. To examine this issue, consider the data in Table 3 on foreign tax credits, which indicate the foreign taxes paid, and credits claimed. Even though a significant share of the income was royalties and other direct income that should have been taxed, the effective U.S. residual tax rate on foreign source income as measured for tax purposes was only 7% in 2007 and 5% in 2008. Moreover, the size of the tax suggests that royalties were being shielded from tax by excess credits. The royalties were $101.9 billion and $106.4 billion. Had they been fully subject to a 35% tax rate the tax on this source of income (offset by approximately $4 billion in withholding taxes) would have been around $32 billion and $33 billion respectively, larger than total taxes paid. The indication that royalties are shielded from tax is reinforced by evidence from 2000 tax returns, which traced the $12.7 billion of U.S. residual taxes to foreign sources. Table 4 shows the distribution of the shares paid. In 2000, there were nine foreign tax credit limit baskets. Only three accounted for a significant share: passive (4.6% of the total), financial services (21.3% of total), and the residual general limit basket (71.3% of the total). Active dividends in the general basket accounted for only 10.2% of total taxes and dividends in financial services accounted for 2.4%. The largest share was due to royalties, interest, and branch income in the active basket. Financial branch income and financial interest each accounted for 18% so that the financial income basket bore a share of taxes out of proportion to its share of income, presumably in part because interest income was subject to tax. The remainder, 16.5% was due to the passive basket, which was largely composed of Subpart F income. If current taxes were distributed in the same manner now as they were in 2000, then taxes on active dividends for 2007 would have been responsible for a residual U.S. tax of around one-half of 1% on total foreign source active income potentially paid out as dividends. The combination of selective deferral and cross-crediting appears to have essentially eliminated any U.S. tax on active income of foreign subsidiaries. The same study that estimated data for Table 4 estimated that two-thirds of royalties were shielded by tax credits. It is possible, however, that more tax is collected on royalties currently because of the declines in foreign tax rates and the elimination of foreign tax credit splitting. To consider a year that should be more normal (i.e., past the effects of a slow recovery from the recession) Table 5 estimates three components of potential foreign taxes for FY2014: foreign taxes projected to be collected, additional taxes collected as a result of the repeal of deferral, and additional taxes collected if, in addition to repealing deferral, a per country foreign tax credit were imposed. Those provisions taken together should result in a close approximation of a true worldwide system that eliminated deferral and largely eliminates cross-crediting. This table shows the importance of cross-crediting, by showing the effects of moving to a per country foreign tax credit limit given deferral is eliminated. Because of this importance, a territorial tax, which would eliminate foreign tax credits, can have consequences beyond the active income it is designed to remove from the U.S. tax base, since excess credits currently shield royalty and export income from U.S. tax. Table 5 also shows the separate revenue consequences of two other provisions: the title passage rule and the effect of worldwide allocation of foreign source income. Several issues arise when considering moving from the present hybrid tax system to a territorial tax: the effect on repatriations, the effect on the location of real investment, the consequences for artificial profit shifting, transition, administrative and compliance issues, and the revenue consequences. One criticism of the current system is that while collecting very little revenue from foreign subsidiaries, it nevertheless discourages repatriations. The negative effect of the current system on repatriations is the major economic rationale cited by the Ways and Means Committee's press release proposing a territorial tax. This argument also ties the lower repatriation rates to less investment and fewer jobs in the United States. Before discussing the potential effects, however, note that the repatriation argument alone is not a sufficient justification for a territorial tax. The tax effect on repatriation could be eliminated by moving in the opposite direction, ending deferral. Or it could be achieved by a variety of hybrid approaches such as taxing a fixed share of profits currently and exempting the remainder, or allowing an exemption combined with a minimum tax that is smaller than the U.S. tax rate. All of these approaches create a system where taxation is not triggered by repatriation. Would the elimination of the tax triggered by repatriations (which could be achieved by either a territorial tax or elimination of deferral) increase repatriations significantly? And if so, would those increased repatriations result in more investment and jobs in the United States? Although the projections vary with data source and with shares of pre-tax and after-tax income, estimates in the previous section suggest that about a third of foreign subsidiaries' earnings was repatriated, with discretionary distributions net of Subpart F income around 23%. Does that imply that the remaining two thirds of income (or 77% of income net of Subpart F distributions) would be repatriated? It is unlikely that much of an increase would occur, as discussed below, and even more unlikely that it those repatriations would be translated into investment. Several considerations suggest that the increase in repatriations would be limited. First, regardless of tax considerations, much of foreign source earnings would be retained abroad to be reinvested in the enterprises there. Historical evidence on corporate rates of return and growth rates in the United States suggest that about 60% of nominal income is typically retained to maintain the real capital stock and allow it to grow normally at a steady state. The remainder, 40%, would be distributed. Thus we might expect, using the estimates above, at best to see an increase of 7% of earnings, or 17% of earnings net of Subpart F income. Second, these repatriation rates are probably at an unusually low level because they followed the large one time repatriation (generally in 2005) from the temporary repatriation holiday enacted in 2004. Not only had large sums been repatriated to take advantage of a one time tax exemption which reduced the need for repatriations immediately after the holiday, but more might have been retained abroad than usual in anticipation of another holiday. Historical data indicate that repatriation rates fell towards the end of the 1990s and continued to be low from 2000 to 2008. Data were provided every other year and did not include 2005, the year most repatriations occurred under the repatriation holiday. Over the period 1968-2008, the average repatriation rate was 40%; for 2000-2008 it was 20%. In addition to the anticipation and aftermath of repatriation holidays, the growth of high-tech and dot.com firms that were expanding rapidly and not initially paying dividends may also have affected these payout ratios. The evidence from tax data is also consistent with studies examining repatriation rates over an earlier period of time using financial data that found rates of around 40%. Since a 40% rate is about the rate that might be expected in a no-tax world, these results suggest that the repatriation tax has had relatively little effect on a permanent basis. If firms came to believe another repatriation holiday or territorial tax were not in store, and the high-tech industries achieved a steady state growth, repatriation rates might rise to more normal levels. Third, there is direct evidence that shifting to a territorial tax would not have large effects. Some initial evidence indicates that the Japanese shift to a territorial tax increased repatriations in the first year by about 20%. Applied to current realizations rates, it would increase realizations by about 4% of total earnings; compared to the 40% rate it would increase realizations by about 8% of earnings. Since a larger first year effect might be expected, as pent up earnings are returned, such an increase is quite modest. Preliminary results from a study of the UK territorial tax shift, while subject to revision, suggest an increase of 6% of earnings. A statistical study of U.S. affiliates in different countries facing different taxes suggested that repatriations would increase by about 13%, which would be 2.5% to 5% of earnings. Moreover, some theory and research suggests the effects would be negligible on a permanent basis. Theoretical considerations indicate that the repatriation tax should not matter because firms will eventually have to repatriate earnings. This theory, referred to as the "new view" is related to a similar theory about why domestic firms pay dividends to their individual shareholders even though it triggers a dividend tax. In both cases, the idea is that eventually shareholders will want to receive their dividends in excess of amounts needed for steady state reinvestment and dividends will be paid either currently, or in the future with interest. In either case, the same present value of tax will occur. While this "new view" for dividends paid in the U.S. to its individual shareholders could be rejected on the grounds that firms can return cash to the economy by repurchasing shares, such an option is not available for dividend payments between a multinational affiliate and its parent. If the theory correctly describes behavior, then one would expect that, regardless of the repatriation tax a similar share of earnings would be paid in dividends with or without a repatriation tax. A large empirical literature has developed to study repatriation behavior, finding a variety of results. For example, some early evidence suggested that repatriation rates are sensitive to tax, but subsequent research showed that it might be due to transitory effects. Evidence that repatriations were more likely from highly taxed subsidiaries (where taxes generated would be offset by foreign tax credits) relative to low taxed ones suggested that taxes have effects on repatriations. However, another study found that the repatriations tax became less important given alternative strategies for returning cash for the United States. These strategies included making passive investments abroad with the parent company borrowing against them, or having low tax subsidiaries make equity investments in high tax subsidiaries which in turn repatriated income with attached foreign tax credits. These strategies would indicate differential repatriation rates exist between high and low tax subsidiaries but they are not necessarily meaningful. Most recently, a study suggested taxes had some effect, but a limited one, on repatriations; this study also showed over a long period of time payout shares of about 40%. The recent pressure for a repatriation holiday and reports of large amounts of accumulated unrepatriated earnings probably comes largely from firms that have intangible assets, have been growing rapidly abroad and thus retaining earnings for that purpose, and perhaps shifting profits arbitrarily. They may have also been delaying repatriations in anticipation of another holiday. As affairs settle into more of a steady state, there may be a greater need to distribute to pay shareholders, so this phenomenon may be largely transitory. Even if repatriations increase under a permanent territorial tax, those repatriations may not result in additional investment, but are likely to be paid out as dividends, or substitute for borrowing by the parent company. Job creation is not the primary focus here in any case, as in the long run, reduce jobs. The economy will tend to create jobs naturally. As an illustration, consider that in 1961 and in 1991 the unemployment rate was the same, 6.7%. Employment, however, rose from 66 million to 117 million, as the economy accommodated the baby boom and the entry of women into the labor force. Permanent provisions that encourage capital to move abroad can change the types of jobs and reduce wages, but not overall employment. Historically, the central issue in evaluating a foreign tax regime has been the effect on the allocation of investment. Economic theory seeking efficiency objectives supports taxing investments at the same rate wherever they are invested; this approach would maximize worldwide output by investing capital where it earns the highest pre-tax return. For example, if the after tax return is 7% and the U.S. tax is an effective 30% while the foreign tax rate is zero, and investments are perfect substitutes, the total pre-tax return at the margin on an investment in the United States is 10% (0.07/(1-0.30) while the return in the foreign location is only 7%. Allowing foreign source income to be exempt causes capital to move to a less productive use, where it earns a pre-tax return of 7%, when it could earn a 10% return in the United States. The equating of taxes on a firm's investment is most closely associated with a residence based tax system. Given the need for limits on foreign tax credits, this system would be most closely approximated by a system that eliminates deferral and imposes a foreign tax credit limit on a country by country basis. If the objective were not worldwide optimization or efficiency, but maximizing U.S. welfare, the rules would be more stringent by allowing foreign taxes as a deduction rather than a credit. What, then, is the justification for moving in the opposite direction, to a territorial tax? One may be that if, for political or other reasons, it is not possible to move closer to a residence-based system, it is possible to design a territorial tax system that is an improvement over the current rules. This argument is made by Grubert and Mutti, and their proposal was incorporated in President Bush's Advisory Commission's tax reform proposals. Grubert and Mutti proposed, along with exempting active dividends from tax, to provide for an allocation of overhead costs of the firm (such as interest) between taxable and tax exempt income. For example, if 10% of income is exempt because of the dividend exemption then 10% of interest and other overhead costs would be disallowed. They also note that that the elimination of foreign tax credits would mean that royalty, export and other income would not be shielded from U.S. tax with excess foreign tax credits. As a result, this proposal is projected to raise revenue, a result also found by the Joint Committee on Taxation, and the overall tax rate on foreign source income would rise. Grubert and Mutti also note that repatriations would not trigger a tax and that such a change would reduce the cost of tax planning to avoid the repatriation tax. The argument that a territorial tax that could improve economic efficiency, or at least make it no worse, should be distinguished from arguments that do not stand up to economic reasoning. For example, moving to a territorial system because other countries have generally done so does not mean such a system is desirable either for them or for the United States. Many policies exist in other countries, such as a value added tax or national health insurance, policies that many oppose and that have not been adopted in the United States. The issues may differ as well. European countries, for example, are geographically and politically closer than the United States is to other countries. The European Union also has provisions on freedom of capital movement and establishment that prevent the type of anti-inversion laws that the United States has, to prevent U.S. firms from relocating their headquarters. These rules may influence decisions to adopt territorial systems as well as decisions to lower corporate tax rates, which has occurred in the United Kingdom recently. Similarly, the argument that because most other countries do not tax their foreign subsidiaries, the United States also should not do so in order to allow its firms to compete abroad does not stand up to economic analysis. A country does not compete in the manner that a firm does, because its resources (labor and savings provided by its citizens) do not disappear if another firm undercuts prices; they are simply used in a different way. That is, a country does not compete with the rest of the world, it trades with them, both its products and its capital. It can generally be shown that the United States would still be better off, or at least no worse off, if it taxes foreign and domestic investments by its firms at the same rate, even if other countries do not. Finally, arguments made based on empirical studies that indicate that increased foreign investment of multinationals is correlated with more, not less, domestic investment do not show that overall U.S investment is not reduced by more favorable foreign treatment, and may simply identify firms that are growing. In any event, the aggregate amount of capital owned by U.S. citizens and the allocation of that capital are separate issues. Even if savings responds to the overall U.S. tax burden, of two revenue neutral regimes, the one that taxes capital equally in both locations would be more efficient. There are some arguments that have been made that bear consideration. Perhaps the most important of these is that U.S. firms can change their nationality by moving their headquarters abroad, merging with foreign companies, or incorporating abroad. However, anti-inversion rules adopted in 2004 are likely to prevent large-scale shifting of headquarters of existing firms, while mergers and incorporating abroad are probably largely determined by non-tax factors and could be addressed with legislative revisions. Evidence suggests that very little incorporation of true U.S. firms occurs abroad and this effect could be addressed with legislation (such as basing taxation on where effective management occurs) if necessary. Arguments have also been made that the higher taxes on returns to capital investments would prevent U.S. firms from exploiting intangible assets abroad. However, there are many ways of exploiting intangibles without engaging directly in manufacturing or other activities, such as licenses, franchises, and contract manufacturing. Products embodying U.S. innovations could also be produced in the United States and exported. What are the likely effects of altering the international tax system on investment? There are several reasons that these effects would probably be modest, although they would depend on the particular design features of the reform. First, most countries where physical investment might take place, such as manufacturing, tend to have taxes that are not much different from those that apply in the United States: average effective rates of 27% and marginal effective rates of about 20%. The average effective tax rate on foreign subsidiaries of U.S. parents is estimated to be lower than that of U.S. firms in general (about 16% versus 26% with a 3% residual U.S. tax on foreign earnings), but that partially reflects profit shifting to low tax countries, since the effective rate in tax haven countries was 5.7%. Overall effective tax rates abroad for foreign subsidiaries of U.S. companies also vary by industry. Industries with a lot of intangible assets have lower tax rates. For example, computer and electronic product manufacturing had an effective tax rate of 8.7% and finance 11.3%. Second, to the extent that firms expect largely to avoid U.S. taxes under the current system, either through permanent reinvestment of profits or tax planning, moving to a territorial tax would not make much difference in inducing outflows of capital, especially if anti-base erosion provisions (such as treating income earned in tax haven countries as Subpart F Income) are adopted. Nevertheless, since firms' investments are only observed under the current deferral and foreign tax credit system, it is possible that significantly more capital would be invested abroad, especially in lower tax jurisdictions. Moving in the opposite direction, by ending deferral and possibly cross-crediting (with a per country foreign tax credit limit) would reduce capital investment abroad by retaining more outbound capital in the United States. Nevertheless, effects from either revision are unlikely to be important to the overall U.S. economy or to U.S. welfare; estimates of the effect of cutting the U.S. corporate tax rate by ten percentage points, which would presumably have larger effects by attracting inbound capital as well is estimated to increase U.S. output by only about 2/10 th s of 1% and U.S. income by 2/100 th s of 1%. The effects of moving to a territorial tax would be negative (decrease U.S. output) because they increase the return on outbound capital, but would be smaller in magnitude because the effects are smaller. Based on relative sizes of revenue effects, a ten percentage point rate reduction would lose about 29% of corporate revenue, while, based on the estimates in Table 5 , eliminating all taxes on foreign source income would lose about 7.5% of corporate revenue, or a quarter of the amount. Eliminating deferral alone would gain revenue equal to about 15% of the absolute change from a ten percentage point rate reduction, while eliminating deferral and cross-crediting would be about 53% of the change. This last change could be more significant than the domestic rate reduction but nevertheless not large relative to the U.S. economy. All of these effects are small, relative to output, for several reasons. First, although capital flows respond to differential tax rates, capital is not perfectly mobile. Even if it were, the large size of the U.S. domestic economy and capital stock and the constraints of production (capital must combine with labor to be productive) limit the effect to ½ of 1% of output and a negligible effect on income. The corporate tax itself is also small as a cost factor: about 2% of GDP. Thus even a 10 percentage point rate reduction would be slightly over ½ of 1% of GDP, while most international revisions would be even smaller. Finally, most of these gains would not accrue to U.S. income: for inbound capital most of the gain would be profit to foreign investors, and for outbound capital drawn back, profits were already in existence and merely change location. The analysis in this section suggests that while there may be concerns about the effects of international reforms on investments, either reducing U.S. investment in the case of a territorial tax or increasing it by moving towards a residence based tax (e.g., eliminating deferral and cross-crediting) these effects are likely quite modest. One effect of the current system that might be changed by moving to a territorial system is the reduction in the beneficial treatment of royalties and export income through the use of excess foreign tax credits. The current benefits for royalties encourage firms to exploit intangibles in foreign operations rather than in the United States, while the export subsidy causes prices and magnitudes of exports to be too large. Royalties, in particular, are a difficult issue to address because increased taxes on royalties paid from foreign subsidiaries would encourage manufacturing of goods in the United States but, as will be discussed in the next section, also creates an incentive to understate royalties and artificially shift intangible income into untaxed active earnings of foreign subsidiaries that are exempt. Ideally, such profit shifting should be addressed by anti-abuse provisions. The third issue, which primarily involves revenue, is artificial profit shifting—that is, shifting profits into low-tax jurisdictions that are then exempt from U.S. tax. Profit shifting also exists under the current system because of deferral. Evidence of profit shifting is clear from the distribution of shares of U.S. subsidiary profits as a percentage of GDP, where profits as a percentage of output were typically less than 1%-2% in the G-7, were significantly larger in the larger tax-haven countries (7.6% in Ireland and 18.2% in Luxemburg), and were more than 600% and 500% respectively in Bermuda and the Cayman Islands. The estimates of magnitude vary substantially reaching up to $90 billion and ranging from about 14% to 29% of corporate revenues. They have been growing as well. In general, most of this profit shifting apparently arises from either leveraging (borrowing in high-tax jurisdictions) or shifting of the location of profits from intangibles. It is not surprising, therefore, that low-tax rates tend to be associated with manufacture of drugs and electronics, and the information and communications industries. Profit shifting is a policy problem even without a move to a territorial tax. One of the concerns about moving to a territorial tax is the possibility that it will increase the already significant and growing estimated level of profit shifting. Under current law, firms that have shifted profits to low-tax jurisdictions may still have to face eventual taxation. The considerable lobbying for a repatriation holiday such as that in 2004 may be a sign of this concern. With a simple territorial tax with no anti-abuse provisions, profit shifting could increase substantially. There is little to clarify the likely magnitude of this effect. Evidence for European countries has also indicated significant profit shifting, benefiting most European countries largely at the expense of Germany. Germany has since lowered their corporate tax rate (and profit shifting may have played a role in that decision). However, it is difficult to draw conclusions from the experiences of these very different countries, who already have territorial systems but also have in most cases had measures to address base erosion. If the new view of dividends is correct, and companies expect to pay taxes on excess profits with interest when deferred, then the move to a simple territorial tax (without any anti-base erosion measures) could increase profit shifting, perhaps considerably. However, if this view is not correct and firms expect to escape tax indefinitely, then going to a territorial tax might not make much difference. Unfortunately, while there is a relatively powerful theoretical justification for the new view, the empirical evidence has been mixed. At the same time, however, as noted above, the lobbying for a repatriation holiday supports the new view and the expectation that profit shifting might increase insignificantly. One particular potential effect on profit shifting involves royalties. Because royalties are protected to some extent by excess foreign tax credits, moving to a territorial tax would eliminate that protection and increase the tax on royalties. This change in taxation would create a further incentive to shift intangible income into the earnings of foreign subsidiaries and out of royalties. Aside from the issue of the effect of a territorial tax (and of its particular design features) on profit shifting, other reforms might be considered that might address profit shifting either in the current system or in a system revised in ways other than moving to a territorial tax. These reforms might include provisions reforming the current system proposed by President Obama (and earlier by former Ways and Means Committee Chairman Rangel), which would tax excess earnings from intangibles as subpart F income and rules that would disallow some portion of overhead expenses to the extent income is not taxed. Fundamentally, as long as a system allows for differential taxes, whether between the U.S. and foreign source income or between types of foreign source income, there is likely to be profit shifting. Companies appear willing to exploit relatively small differentials in tax as illustrated by the double-Irish, Dutch sandwich technique that allowed firms to not only avoid the U.S. tax, but to avoid the 12.5% Irish tax as well, and establish taxation in Bermuda, with a zero tax rate. The only tax system that eliminates differential taxes is the elimination of deferral, possibly combined with a separate tax credit limit basket for royalty income. An important issue in moving to a territorial tax is how to treat accumulated unrepatriated earnings, which were generated under a worldwide system. One approach would be to deem all accumulated earnings as repatriated and pay taxes, with a number of years allowed to pay these taxes. The provision might create a hardship for firms to the extent that income is tied up in non-liquid form, unless the period of time for paying the tax were extensive. In addition, it would be a retroactively harsh tax compared with the present system, because a significant portion of earnings need never be repatriated. During normal times, estimates suggest that more than half of retained earnings abroad is probably reinvested in the firms activities. Note also that while perhaps 60% or so of the flow of income would be retained abroad, a much larger share of the stock of unrepatriated earnings would be likely to be permanently reinvested abroad. Another option is to treat these earnings the same as newly generated earnings and exempt them in the same way. This approach would create a windfall benefit, especially to the degree that firms have been holding off repatriating and engaging in aggressive profit shifting because of a potential tax holiday. A third option would be to treat dividends as paid out of accumulated earnings until these earnings are exhausted, while applying the full tax rate and foreign tax credit rules. This approach, however, would continue the disincentive to repatriate for some time. None of these approaches may be entirely satisfactory. Intermediate proposals that are under consideration would tax this income but at a lower rate. One, in the Ways and Means proposal, is to deem all this earnings repatriated prior to the law changes, apply the provisions of the 2004 tax holiday (85% exclusion of income with proportional foreign tax credits), which would impose a small tax, and allow it to be paid over a period of time. On average this may be a reasonable compromise, because, although a significant fraction of income is exempt, a significant fraction of this income would probably never have been repatriated. A second intermediate option is to allow firms to elect the holiday (with an extended pay out period) and to tax any remaining dividends at the full tax rate until all of the remaining earnings is paid out as dividends. This voluntary approach allows firms to avoid undesirable forced payouts, but prolongs the effective movement to a territorial tax. Striking a balance between limiting the windfall benefits and the associated revenue loss compared with a baseline, providing firms with terms that allow the funds to pay (since a lot of accumulated earnings are not liquid) and avoiding prolonged coverage of dividends under the old system is one of the most difficult problems in crafting a shift to a territorial tax. As will be discussed subsequently, the proposals have included a variety of approaches. While accumulated untaxed earnings are an important issue, there are other transition issues relating to the shift from the current system to a territorial tax. These include unused foreign tax credits associated with previously taxed income and foreign loss carryovers. How credits and losses might be treated may depend largely on the treatment of existing earnings accumulated abroad and how other features of the foreign tax credit are modified. Arguments have often been made that moving to a territorial tax would simplify administration and compliance. Grubert and Mutti, in their proposal for a territorial tax, stressed the cost of tax planning associated with repatriating income while paying minimal tax. Thus a territorial tax would add value by simplifying repatriation policy. U.S. parents could receive dividends from their subsidiaries without concerns about the tax consequences. However, the same simplification would occur if deferral were ended, because firms would have no choice about paying taxes or arranging for optimal cross-crediting. Hybrid approaches such as taxing a share of income currently would also eliminate the scope for tax planning around repatriation. Although repatriation tax planning would be eliminated, if a territorial tax increased profit shifting incentives, tax planning in that area could increase. And, as will be shown in the discussion of design issues, provisions considered to combat income shifting can add considerable complexity to the tax code. A shift to a territorial system could potentially gain revenue, in part because relatively little tax is collected on foreign operations. In any case, it is unlikely that large revenue losses would occur unless the move to a territorial tax includes other provisions (such as lower tax rates on royalties) or induces pronounced income shifting responses. If Table 4 shares of income are applied to estimates of current taxes paid on foreign source income listed in Table 5 , the taxation of dividends of foreign subsidiaries is quite small, a little over $4 billion in FY2014, or about 1% of corporate revenues. Branch income is slightly under $6 billion, so if this income is also exempted in a move to a territorial tax, the total effect would be about $10 billion. The two together are about 2% of corporate revenues. Taxes on royalties and export income (which along with nonfinancial interest would be somewhat over $10 billion, or about 2% of revenues) could increase with the loss of foreign tax credits, leading to a relatively small net loss or possibly a small gain. There is considerably more revenue to be gained by moving in the opposite direction, as some proposals do. Eliminating deferral and providing a per country foreign tax credit limit could triple the revenue collected on foreign source income, raising $64 billion or about 15% of corporate taxes, according to the estimates in Table 5 . Other intermediate changes could raise revenues; eliminating deferral alone would raise about $18 billion in revenue, and the combination of President Obama's budget proposals for international taxation would raise $16 billion. Some proposals for moving to a territorial tax aim for revenue neutrality, but also propose to use transitional revenues (from taxes on accumulated untaxed earnings) to achieve this revenue neutrality in the budget horizon. Because transitional gains are temporary, this approach results in a long-run revenue loss. Moving to a territorial tax goes far beyond a simple matter of exempting foreign source income from U.S. tax. There are issues of transition, the treatment of current flow through income, and the retention and perhaps revision of anti-abuse rules. In this section, three proposals are outlined: the Grubert Mutti proposal, the discussion draft provided by Ways and Means Committee Chairman, and Senator Enzi's bill, S. 2091 . The latter two proposals are similar in general approach. Note that the Grubert Mutti proposal is a general outline, while the Ways and Means Discussion Draft and S. 2091 are in legislative language and are more detailed. This proposal has been circulating for some time as a general proto-type of a move to a territorial tax, and has been estimated to raise revenue, primarily due to increased taxes on royalties and allocation of parent company expenses between taxable and exempt income. A proposal of this nature was included in President Bush's Advisory Panel Proposal in 2005. Exemption of dividends for active foreign income by U.S. shareholders with a 10% or more interest and eliminate foreign tax credits. Foreign branches treated the same as subsidiaries. Royalties and interest paid to the U.S. parent are taxable. Current anti-abuse rules for passive income(Subpart F) would be retained, although some aspects would become obsolete (primarily the inclusion of dividend payments between subsidiaries). Parent's overhead expenses, such as interest, would be allocated in proportion to untaxed income and disallowed. Active foreign losses could not offset domestic income. Capital gains and losses from the sale of productive assets would be exempt. Income from U.S. exports would not be classified as foreign source income. The proposal does not address the treatment of existing accumulated earnings abroad or profit shifting via intangible assets, although one of the proposal's authors has indicated that their plan should probably include a tax on accumulated earnings, but at a lower rate. This proposal has been estimated to raise revenue of approximately $6.9 billion in 2014. If the shares of revenue in Table 4 remain the same for 2014, about 30% of current tax on foreign source income or slightly under $10 billion (based on aggregates from Table 5 ) is collected on active dividends and branch income. The additional taxes on royalties and export income plus limits on the deduction of overhead expenses presumably raise about $17 billion (replacing the lost revenue and generating additional amounts). In October 2011, Ways and Means Chairman Dave Camp released a discussion draft outlining an approach to a territorial tax (hereafter Discussion Draft). This proposal includes some options and unsettled issues, and there is not as yet a revenue estimate. Note also that the intention expressed in press releases at that time was to couple the move to a territorial tax with a general tax reform that would reduce the top corporate rate from 35% to 25%. This rate matters since some provisions allow a proportional tax benefit. Since the other changes that might be needed to achieve this reduction have not been yet spelled out, no observations on the effects if any remaining revision will be included, outside of noting the consequences of the rate change for specific territorial provisions. The following summary of these provisions does not include all of the detailed nuances of the proposal, which are contained in a technical draft discussion. Allows a 95% deduction for the foreign source portion of dividends for 10% U.S. corporate shareholders of foreign subsidiaries that are controlled foreign corporations (CFCs). A holding period of one year for stock in foreign corporations is required. If the rate is reduced to 25%, dividends would be taxed at 1.25%; at the current rate, they would be taxed at 1.75%. (CFCs are those where 50% of the stock is owned by five or fewer 10% U.S. shareholders.) 10% corporate shareholders of non controlled corporations (where 50% of the stock is not owned by five or fewer 10% U.S. shareholders, called 10/50 corporations) can elect the same treatment as CFCs. Foreign branches are treated the same as subsidiaries; the draft also considers the possible inclusion of partnerships in this treatment. Anti-abuse (Subpart F) provisions are retained, although these rules would be revised in light of the other changes; these details are to be considered subsequently. Dividends paid between CFCs are exempt. Capital gains on sales of stock in active eligible subsidiaries are also eligible for a 95% exclusion. Accumulated untaxed earnings will be taxed with an 85% exclusion and apportionment of associated foreign tax credits in the same fashion as the 2004 repatriation holiday, except that all earnings will be taxed rather than earnings that are voluntarily repatriated. No actual repatriation is necessary. Firms can pay the tax in installments with interest over eight years. Assuming this provision applies before changes in the statutory tax rate, the effective rate is 5.25% less any apportioned foreign tax credits. The foreign tax credits associated with active dividends and with foreign branch income are disallowed (those for Subpart F are retained). All foreign tax credits would be in one basket, presumably because the active basket would no longer be relevant. The proposal also eliminates the allocation of parent interest that presently applies to determine the foreign tax credit limit: only directly associated expenses will be applied to determine foreign income. It would also repeal the provision preventing the splitting of foreign tax credits. A provision that requires the inclusion in income of investments of deferred income (income that is not taxed because it is not distributed) in U.S. property is repealed. This provision exists to prevent firms from effectively repatriating earnings without declaring dividends that are subject to the tax. Three anti-base-erosion options, two directed at intangible income, are considered. Option A is similar to a proposal made by President Obama in his budget proposals, that would tax excess earnings on intangibles (in excess of 150% of costs) in low tax jurisdictions as Subpart F. The inclusion would be phased out between a 10% and a 15% rate. Option B would tax income that is subject to an effective foreign tax rate below 10% unless it qualifies for a home country exception. The home country exception applies when a firm conducts an active trade or business in the home country, has a fixed place of business, and serves the local market. Option C would tax all foreign income from intangibles (whether earnings by the foreign subsidiary or royalty payments) but allow a deduction for 40%, resulting in a tax rate of 15% at a 25% statutory tax rate. Additional base-erosion provisions (sometimes call thin-capitalization rules) relating to interest would restrict the deduction for interest if the company failed to meet either of two tests: if debt to equity ratios in the U.S. differed from the total debt to equity ratio worldwide and if interest expenses exceed a certain share of adjusted income (generally taxable income before the deduction of interest and depreciation). The smaller of the excess interest under either test would be disallowed, but the percentage has not been specified. The draft indicates that the two extenders, exception from Subpart F of active financing and active insurance income and the look-through rules, would be considered separately. Senator Enzi has introduced S. 2091 which is similar in many respects to the Ways and Means Discussion Draft. His bill is a separate bill that does not include a general tax reform or lowering of the corporate rate. The Enzi proposal provides the same 95% dividend exemption and election option for 10/50 companies as the Discussion Draft. Foreign branches would not be treated as subsidiaries. Anti-abuse rules (Subpart F) would be retained, but the inclusion of foreign base company sales and service income would be eliminated. Capital gains on the sale of stock would be eligible for the exclusion to the extent they would be treated as a dividend under Section 1248 (which treats gains as dividends to the extent of earnings and profits). Firms could elect to tax accumulated earnings with a 70% exclusion (a 10.5% tax) and no foreign tax credits; otherwise accumulated earnings would be taxed at full rates with foreign tax credits allowed when paid out as dividends and these pre-existing earnings would be deemed to be paid out first. Foreign tax credits (and deductions for these taxes) associated with exempt income would be disallowed. The Enzi bill does not repeal the provision taxing investments of deferred income in U.S. property. For anti-base-erosion provisions a version of Option B in the Discussion Draft along with a version of the first part of Option C would be included. Income in countries with tax rates of half or less than the U.S. rate (17.5%) would be subject to tax. However, operations that conduct an active business, with employees and officers that contribute substantially, would be excepted except to the extent the income is intangible income of the CFC. The CFC's intangible income would be Subpart F income. These rules provide more scope for exemption as compared to the rules in the Discussion Draft which would require exempt income to carry out activities serving the home country market. The bill also includes the first part of Option C, allowing a 17.5% tax rate on intangible income (such as royalties) earned by a domestic corporation. Intangible income would be placed in a separate foreign tax credit basket. The bill does not contain the thin capitalization rules (such as allocating interest between U.S. firms and their foreign subsidiaries). The bill makes the two extenders, the exception from Subpart F for active financing and active insurance income and the look-through rules, permanent. It also applies the worldwide interest allocation for purposes of the foreign tax credit in 2013, rather than 2021. Some insights into issues and trade offs may be noted by observing the difference between these proposals. In addition, the Discussion Draft proposals invited commentary, which has appeared in a number of venues including testimony before a Ways and Means Subcommittee on Select Revenue Measures hearing on November 27, 2011. This section examines the alternative approaches in light of the issues discussed earlier and general design considerations. While the Grubert-Mutti proposal has no tax that is triggered by repatriation, the other two territorial proposals do, due to the 5% "haircut" resulting from the proposed 95% exemption. In addition, the Discussion Draft also allows firms to choose an alternate completely tax free method of repatriation since investment in U.S. assets is not taxed, even at a 5% share. Presumably, the expectation is that the tax due to the 5% inclusion in income (1.25% at a 25% rate and 1.75% tax at a 35% rate) is too small to matter. At least one commentator, however, has singled this issue out as a potentially serious one indicating that as long as tax planning to avoid even a small tax is costless, firms will undertake it. One option for the Discussion Draft, which would not eliminate the small repatriation tax but would eliminate the costless avoidance, would be to continue to tax these transactions, or to tax 5% of them. An approach that could eliminate the repatriation tax trigger arising from the 5% exclusion altogether is to include 5% of income whether repatriated or not, and make dividends entirely exempt. S. 2091 also has an additional temporary repatriation trigger arising from its transition rule, which allows firms to elect to repatriate under a 70% exclusion without credits, but would tax dividends until any remaining accumulated funds are exhausted. Presumably, firms would repatriate funds voluntarily from low tax jurisdictions, and then repatriate funds from countries with high foreign taxes until the backlog is exhausted. The Grubert Mutti proposal does not have any special provision for accumulated untaxed earnings and dividends paid out of those earnings . Basically this provision was not addressed although, as noted above, the authors would expect some transition rule similar to the other proposals; this treatment was not incorporated into their revenue estimates. Although the Discussion Draft leaves a number of options open, its objective to be revenue neutral indicates that it is more beneficial to U.S. multinational firms than the Grubert-Mutti proposal that raises revenue. Moreover the Discussion Draft proposes to finance part of the revenue loss through the one time revenue gain from the tax on existing accumulated earnings. Senator Enzi has indicated an intention for his bill to be revenue neutral as well, although it has not been scored. Some elements that increase the tax burden on foreign source income (offsetting the loss from exempting dividends and in some cases branch income) are the allocation of deductions and taxation of royalties in the Grubert-Mutti proposal and the 5% inclusion of dividends in the other two proposals. The base erosion provisions may or may not increase taxes depending on which option is chosen and the extent to which firms can use the active trade or business exception to avoid the tax. Some of the reason for these differences in revenue effect is that the 5% inclusion appears to be significantly smaller than overhead costs (even excluding interest). One comment also noted that the 5% inclusion does not take account of a firm's individual circumstances. Altshuler and Grubert estimate that overhead expenses outside of interest and research expenditures are 10% of pretax earnings. Moreover, their proposal would disallow the deduction regardless of whether dividends are paid out, while the 5% inclusion would apply only to dividends paid. Assuming that about 40% of earnings are paid out in a steady state the 5% provision would be 2% of total earnings. Thus the provision in the Grubert-Mutti proposal would be about five times the size of the provision in the Discussion Draft and S. 2091 . Presumably interest would also be significant. The Grubert-Mutti proposal has a direct allocation rule for the parent's interest presumably based on allocations of assets. The proposal does not spell out specifics, but interest allocation could be net or gross, and it could involve only the parent interest or worldwide interest. Turning to years of 2006 and 2007, net interest as a share of combined interest and pretax earnings of nonfinancial corporations in the National Income and Product Accounts was 15% in 2006 and 21% in 2007. The 2006 measure may be more appropriate as a steady state guide since profits had begun to decline in 2007. According to tax statistics, for manufacturing the share was 13% in 2006 and 18% in 2007. Gross interest, the basis of the current allocation rules for the foreign tax credit limit, would be much larger, ranging from 34% to 39% of profits plus interest payments. In a related article, by Altshuler and Grubert, the analysis assumes that debt accounts for a third of the capital stock. The Discussion Draft has thin capitalization rules that are based on two alternative tests: an allocation provision for net interest based on parent versus subsidiary debt-equity ratios taking into account worldwide debt and an alternative based on an as-yet-unspecified share of adjusted income, so that the effects on interest are uncertain. S. 2091 has no allocation rule. Grubert and Mutti could have an allocation for research and development expenditures but apparently do not. Thus, they have no provision that addresses profit shifting from intangibles. If these costs were included, for 2006 for manufacturing they were 18% of the total of earnings and research costs. Neither the discussion draft nor S. 2091 have such an allocation, although they have some options that affect base erosion that could address intangibles. Without more specific guidelines, it is difficult to determine the share of income that would be taxed under the Grubert Mutti proposal. Using net interest, the ratio for manufacturing in 2006 relative to net income is about 15% and the overhead costs add another 10%, taxing about 25% of income, whether paid as a dividend or not. In contrast, assuming 40% of income is paid as a dividend, the 5% inclusion in the Discussion Draft and S. 2091 would tax about 2%. At a 35% rate, these effects would impose additional taxes of 8.75% (0.25 times 0.35) under the Grubert Mutti plan and 0.7% (0.05 times 0.35 times 0.40). If the allocation of interest is made based on worldwide costs (and not just U.S. parent costs), the allocation could be smaller and firms could shift interest costs to their foreign subsidiaries and deduct them so that the effect would be only the difference between the U.S. and foreign rate. In addition, with an overall allocation, this interest cost would presumably be shifted to high tax countries. The United States would still gain revenue but some of it would be offset (from the firm's point of view) by lower tax payments to foreign countries. At the extreme, only the overhead allocation of 10% would affect taxes, leading to a 3.5 percentage point tax increase. Both the Discussion Draft and S. 2091 include specific anti-base erosion measures which are not included in the Grubert Mutti proposal and these may to some extent substitute for cost allocation provisions. These provisions relate less to investment than to profit shifting and are discussed in the next section. Incentives could also be affected by the treatment of royalties whose tax burden would rise as excess foreign tax credits disappear. This higher tax on royalties could encourage both more exports of products with technology embodied (as the cost of exploiting intangibles abroad increases). It could also encourage more research to be performed abroad in low tax CFCs although this effect is unclear since such research would not have a benefit as an investment (expensing and the R&D credit) as is the case in the United States. S. 2091 also provides that royalty income will be taxed at a 17.5% rate, which reduces the additional taxes that would arise from the loss of foreign tax credits on other incomes. A lower tax on royalties is an option in the discussion draft. Under S. 2091 , intangibles that fall under the anti-base erosion rules would be taxed at the full rate, 35%. As noted earlier, none of the shifts in investment are likely to be large relative to the U.S. economy. Thus, even if the provisions induce more research to be performed abroad, the consequences would not be likely to be significant. There are several different anti-profit shifting regimes discussed in the proposals: the full allocation of deductions in Mutti and Grubert, the interest allocation rules plus one of three options in the Ways and Means Draft, and the combination of components of two of the three options for S. 2091 . Although a more detailed discussion is presented below, Table 6 summarizes the discussion. Grubert and Mutti address artificial profit shifting by allocating deductions, including overhead administrative costs and interest. For interest deductions, this allocation method should address the shifting facilitated through leveraging, although their proposal may only allocate parent company expenses. A more comprehensive approach is to allocate world wide expenses. They discuss this world wide approach as well, which would lose revenue compared to allocating only parent company costs and could potentially cause an overall revenue loss. For intangible profits, they do not address the tax on income shifted abroad. Rather they disallow a portion of the associated investment costs (research and development costs and other overhead costs such as marketing). Their anti-abuse program has the virtue of simplicity and because an increase in profits abroad triggers a tax (in the form of foregone deductions) it reduces the incentive to shift profits through that effect as well. The Ways and Means Discussion Draft addresses the shifting due to leveraging by restricting interest deductions. They impose the lesser of two restrictions. The first is an allocation of interest based on worldwide interest and assets, much like the Grubert and Mutti approach. The second is a limit on interest relative to modified income, and since the limit is not spelled out, the extent of that restriction is yet to be determined. If a high enough ratio of interest to modified income is allowed then the interest allocation would not be very effective and since modified income is prior to not only interest but depreciation and some other production expenses, the ratio would have to be relatively low to be broadly effective. The effectiveness would need to be explored once a percentage is determined. The value of this alternative is not readily apparent given that the first restriction, the allocation rule, provides a reasonable method. The Enzi bill has no interest allocation provisions. A specific base erosion provision outside of interest has not been chosen in the discussion draft, and it is difficult to determine how effective the base erosion proposals are likely to be. Both Options A and Option B hinge on being in a low tax country and the tax rate is relatively low, only 10%. Option A, which phases out the U.S. taxation of excess intangibles between 10% and 15% may only partially affect Ireland, for example, which has a statutory tax rate of 12.5% and Option B would miss it altogether. These tax rates are effective rates, which is appropriate, but which could be difficult to measure. Options A and C require the identification of intangible income, which is not necessary for B; this problem has been identified as an important complicating factor in several comments. By triggering current taxation of intangibles when the return exceeds 150% of costs, Option A provides an incentive to push deductible development and marketing costs into the CFC, a point made in Ways and Means hearing. Once a firm falls into the excess profit class a dollar of cost moved to the CFC will decrease income subject to U.S. taxation by $1.50, while increasing taxable income in the United States by $1.00 (although if the tax code retained the production activities deduction and income were eligible for it, this additional dollar would increase taxable income by $0.91). Option B, which triggers full U.S. taxation of some income in countries with tax rates below 10% would create incentives to move profits to countries with tax rates higher than the 10% level but lower than the U.S. 25% level. Ireland is a possibility, but there are many potential locations which might not currently be used as tax havens which would become so, including a number of former eastern block countries. It is also possible that jurisdictions that cater largely to U.S. multinationals would raise their own taxes to prevent U.S. firms from leaving. In either case, total U.S. income (the sum of taxes and company profits) would be reduced because a third party (the other countries) would collect a higher share of U.S. firms profits. Option B also is formulated as a cliff: once the country reaches a trigger level all income is subject to full U.S. taxes. Option B exempts from inclusion income derived in the home country (an active trade or business with income derived from the sale of property for use in the country or services provided in the country). These rules may be exploited by firms to avoid the tax. The drawbacks of option B could also potentially affect option A as well. Since the lower taxes would apply to profits equal to 150% of costs, the lower taxes paid in countries with rates below 10% on this portion of profits would have to be traded off against higher taxes on the excess profits. However, in countries where the costs are small relative to profits firms might also have incentives in this case to shift locations. Option C, which applies this system only to intangibles and is not triggered by a specific tax rate would also have the merit of not inducing undesirable behavioral changes. Option C would also apply this lower tax to royalties, although at least one analysis has suggested that a lower tax rate on royalties might violate WTO rules on export subsidies. Several critics have pointed out the complication of measuring intangible income which would be a drawback. However, it would still require the measurement of affected income, adding complexity. The purpose of option B could be accomplished is a way that does not encourage these undesirable behavioral responses by imposing a minimum (combined U.S. and foreign) tax on all foreign source income. Consider, for example, the 60% share of income taxed that comprises the second half of Option C. If a 15% minimum tax were imposed, it would only affect income in those countries with effective tax rates of below 15% but it would not produce incentives to move to a higher tax country. Option B does appear to have relatively effective provisions defining an active operation that can avoid the tax in the Ways and Means Discussion Draft, although whether companies could work around them remains to be seen. The Enzi bill has a weaker rule, which would might more easily allow firms to justify an exception to the tax authorities and to the courts. The Enzi bill provision is triggered by a higher tax rate, which should capture Ireland. One witness at the Ways and Means Hearing also noted that there is no distinction in the Discussion Draft between intangibles created in the United States and in other foreign countries: any intangible income could trigger a U.S. tax even if developed outside the United States. Option C of the Ways and Means Discussion Draft and S. 2091 also contains a reduced tax rate for royalties. Under Option C, royalties would be taxed at the same rate as intangible income generated inside the CFC which would eliminate the incentive to shift newly taxed royalties into tax exempt CFC income. If two thirds of royalties were exempt before due to sheltering by foreign tax credits, this change would be a slight relative tax increase (since 40% is taxed), but if the share is lower due to small excess credits and elimination of the splitter rules it could be a tax cut. Similar points could be made about S. 2091 . The Grubert-Mutti proposal appears to exempt dividends regardless of their source, a view that is probably consistent with their emphasis on reducing tax complexity, such as planning around repatriation. This approach provides a windfall benefit. However, as the Grubert and Mutti study is a general outline, the authors may simply not have addressed transition issues. One of the authors has indicated that it would be appropriate to impose a lower tax on the accumulated unrepatriated earnings in an approach similar to the Ways and Means Discussion Draft. The Ways and Means Discussion Draft would tax all accumulated earnings before implementation of the reform, but with an 85% exclusion, which may or may not provide a windfall since it might largely apply to earnings that would probably never be repatriated. These earnings would not have to be actually repatriated, but could be deemed repatriated, a benefit that is important if these funds are tied up in illiquid investments. Taxes would be offset by a proportional share of foreign tax credits. In a steady state, most accumulated earnings, based on past evidence and new view theory would be earnings that are permanently reinvested. However, since earnings may have accumulated at higher rates through anticipation of another repatriation holiday, more of these earnings may be planned for distribution. One critic suggests that the deemed repatriation provision which is extended to individuals as well may not be appropriate for taxpayers not eligible for the dividend exemption. Another suggests that firms may have trouble measuring the total amount of unrepatriated earnings. S. 2091 has a repatriation tax that differs from the Ways and Means provision in that it is elective on a CFC by CFC basis, the exclusion is smaller at a 70% exclusion and no foreign tax credits would be allowed. However, for income that is not elected to be taxed, the dividend relief would not occur until these accumulated earnings are exhausted. Since firms might eventually wish to repatriate earnings, this rule should create an incentive to repatriate, however, the elective aspect allows firms not to repatriate if their conditions are such that a move of this nature would be difficult (i.e., lack of funds to pay the tax). Current tax treatment is governed in some respects by tax treaties and these treaties may now come into conflict with the new proposed rules. Interactions with treaties would need to be addressed. An issue to be determined is the treatment of foreign tax credits and losses that have been carried over. For the Grubert-Mutti proposal and the Ways and Means Discussion Draft, which are aimed at a full break from the old system, it seems appropriate to allow foreign tax credit carryovers to lapse (if any foreign tax credit carryovers remain after the taxation of accumulated earnings). That is apparently the intent of the deemed repatriation tax. S. 2091 would presumably continue carryovers for entities not covered (such as branches) and tax credits associated with accumulated income not yet taxed. Treatment of losses under the Discussion Draft has not been addressed, but presumably would continue under S. 2091 which continues aspects of the pre-existing system. Many of the major rules discussed above would complicate tax administration. The Grubert-Mutti proposal appears to involve the least amount of complication as it has a simple exclusion, somewhat reduces the scope of Subpart F, and has a straightforward anti-abuse provision in the form of the allocation of deductions. There is no scope for a repatriation tax. Although the Ways and Means Discussion Draft is not fully fleshed out, it retains a small repatriation tax that could lead to tax planning (the 5% inclusion of dividend income), and its anti-abuse provisions could be quite complicated. S. 2091 could also potentially lead to a continued repatriation incentive. This section addresses some other specific issues that have technical and administrative implications. Including branch company income under the territorial rules is contained in two of the proposals, Grubert and Mutti and the Ways and Means Discussion Draft, but not in S. 2091 . There is a good reason for including branches in the scope of the territorial tax, since, if branch income is not allowed or if firms can opt out, then firms could continue to use branches versus subsidiaries for tax planning, to allow the recognition of losses but not positive earnings. Moreover, while there are non-tax reasons for operating as a branch, including branches would equalize the treatment of branch and subsidiary operations. Nevertheless, one comment suggests that the approach in the Discussion Draft, which treats branches as if they are CFC's subject to all of the other provisions of the proposal comes with additional complications. It is difficult to: measure income of an entity that does not legally exist as if it were separate, determine when a foreign branch exists as designed in the proposal, determine the formation or liquidation of an operation that is not a separate entity, and address the rules that apply to intra-company payments. In addition, firms might shift to operating as a partnership. This comment suggests that branch income simply be exempt from the tax without defining them as CFCs Another comment raises a number of specific tax issues that need to be addressed when branches are included, including whether taxes will be triggered by reorganization and the treatment of inter-branch payments. The Grubert Mutti proposal includes 10/50 corporations in their exemption system, while the Ways and Means Discussion Draft and S. 2091 allow it as an election. (Recall that a 10/50 company is one where the corporation has a 10% or more share but the company is not controlled by five or less 10% U.S. shareholders). Presumably companies would prefer to elect the exempt treatment especially as they will lose the foreign tax credits associated with dividends. One comment suggested that 10/50 corporations that wish to elect inclusion may have difficulties because they will become subject to Subpart F rules but may not be able to obtain the information on Subpart F income because they do not control the firm. In addition, 10/50 firms may not be able to compel the cash dividend payments needed to pay tax given the tax on accumulated earnings under the Ways and Means Discussion Draft, and may not be able to determine the size of those accumulated earnings. A concern was also expressed that the tax on accumulated deferrals would include income generated before the taxpayer purchased shares in the company. In S. 2091 , a similar argument could be made about the elective repatriation, which these firms may not be able to take advantage of. The Ways and Means Discussion Draft eliminates foreign tax credits for CFC's, branches, and 10/50 corporations except for those associated with Subpart F income. It also eliminates the foreign tax credit baskets, splitter rules, and allocation of indirect expenses to foreign source income (including interest allocation rules). One comment suggests that these changes are problematic because individuals will still be eligible for foreign tax credits. Another adds that these changes in the foreign tax credit would encourage countries to reinstate foreign withholding tax and abrogate treaties because the changes effectively eliminate the limits of current law that credits are limited to foreign source income. One comment raised the question of whether strengthened thin capitalization rules that limit debt would be extended to U.S. subsidiaries of foreign parents (where presumably weaker rules already apply), or at least that intentions in this area might need to be made clear. Although the legislation is focused on U.S. multinationals and their foreign operations, profit shifting can also occur across foreign parents and their U.S. subsidiaries, the current focus of thin capitalization rules. Another comment pointed out that with more restrictive interest allocation rules firms might want to shift borrowing abroad so that interest could be deducted in other jurisdictions, but that this change might increase borrowing costs. One option that might be considered is to allow loans from the parent to foreign subsidiaries at the borrowing rate of the parent or allow the parent to guarantee subsidiary loans without triggering effective dividends. Some discussion of the treatment of the existing anti-abuse rules under Subpart F has occurred. At least one commentator questions why Subpart F, which was developed as a general anti-deferral provision, should continue as is with respect to certain types of income, when income is now generally exempt. One example is foreign to foreign base company income relating to sales and services, which is active income. Grubert and Mutti suggest that Subpart F should be retained to address profit shifting but modified by eliminating taxes on dividends and also on deemed dividends from investments in the United States. The Ways and Means Discussion Draft makes these two changes although they do not account for the 5% inclusion in income for either. They indicate a further consideration of Subpart F will be made. Grubert and Mutti suggest that the case for other rules such as the foreign base company rules relating to sales and services and interest would be strengthened under a territorial tax. Presumably they are referring to income shifted out the United States. S. 2091 , however, specifically excludes this income from Subpart F. Grubert and Mutti prepared their analysis before check-the-box rules (and the look-through rules) that allow CFC's to disregard their related foreign subsidiaries, which have undermined Subpart F, became so important. The Ways and Means Discussion Draft indicates that these issues will be considered separately and S. 2091 would make the look-through rules (as well as the exclusion of active financing income), currently part of extenders and having expired after 2011, permanent One comment suggested that tax reform should address the leakage in Subpart F including check-the-box and the look-through rules At the same time, one of the concerns about check the box and look through rules is that the result would not be greater U.S. tax collections but an increase in taxes paid to other countries. For example, if a subsidiary's interest payments from loans to its own high tax subsidiary could not longer be disregarded for purposes of Subpart F with an end to these rules, the response could be to no longer make the loan causing additional tax to be collected by the higher tax foreign country. This outcome would not be beneficial for the U.S. overall since it would reduce the sum of U.S. private profits and U.S. taxes. One comment, for example, notes that exemption would cause firms to have every incentive to reduce foreign taxes paid, and broadening of Subpart F rules should not undo that incentive. A final comment about Subpart F income is that, since this income is deemed repatriated and not actually paid out, there will be an additional tax under the Discussion Draft and S. 2091 on 5% of income when these earnings are actually paid out as dividends. Thus, 5% of income would be subject to double taxation. The Grubert-Mutti proposal is projected to raise revenue on a permanent basis, although the gain is small, less than 2% of corporate revenues. Both the Ways and Means Discussion Draft and S. 2091 aim to be revenue neutral over the budget horizon. However, both also rely on a one time revenue gain from taxing existing accumulated earnings. Since this gain is transitory, these proposals will lose revenue on a permanent basis. Since the proposals have not been scored, there is no way to determine how large the permanent revenue loss would be, but it is likely to also be small. As noted in the prior discussion, there are alternatives to a territorial tax that could address issues associated with repatriation and profit shifting as effectively or perhaps more effectively than the territorial tax provisions. These alternatives fall into three main groups: ending deferral and possibly limiting cross-crediting to move closer to a true worldwide system, reforming the existing system in more limited ways, particularly to address profit shifting, and a hybrid between ending deferral and a territorial tax, such as a minimum tax, which would eliminate the repatriation tax trigger. By traditional theory all of these approaches would probably attract capital back to the United States and improve efficiency in the allocation of capital, although they may create a need to further address shifting of headquarters. These proposals are summarized briefly. Many of them are addressed in more detail in other CRS reports. Note that many of the same issues that arise with a territorial tax would need to be addressed in some cases, such as dealing with the transition, and dealing with operations outside of CFCs. Ending deferral, as shown in Table 5 , is estimated to raise $18.4 billion in FY2014. A deferral option is also included in the CBO budget options study and is estimated to raise $11.1 billion in revenue in FY2014. The smaller revenue gain may reflect a provision that eliminates the current interest allocation provision for purposes of the foreign tax credit limit. It would tax income of foreign subsidiaries, while allowing foreign tax credits as in current law. Current taxation would eliminate any disincentive to repatriate, and would also reduce the benefits and scope for profit shifting. Cross-crediting would still be available. It would be more consistent with efficient resource allocation, although issues of shifting headquarters might need to be addressed further. As with territorial tax proposals, transition issues would arise which could be addressed in a fashion similar to that in the Ways and Means Discussion Draft. The revision would require the measurement of earnings under U.S. law, which could add complexity, although such measurement would also be needed for most base erosion measures as well. As with the territorial tax, issues would arise in extending the treatment to 10/50 corporations that have a large U.S. shareholder but are not controlled by a group of large U.S. shareholders, since information on earnings may not be available. This change would, however, permit the elimination of Subpart F. A greater level of taxation and a more effective provision to discourage artificial profit shifting, which would also eliminate disincentives to repatriate, is to combine ending deferral with a per country limit on foreign tax credits, preventing tax haven income from being shielded by foreign tax credits. This proposal is part of S. 727 , the Wyden and Coats general tax reform plan, and is combined with a repatriation holiday similar to that enacted in 2004. This provision was estimated to raise $64.3 billion in FY2014 (see Table 5 ). This larger revenue gain aided in the reduction of the corporate tax rate in that bill to 24%. This provision would require country-by-country measures of foreign taxes paid as well as income (focusing on income earned within that country and not adjusting for intercompany dividends). Provisions would need to be enacted to prevent firms from using holding companies to avoid the per country limit and check the box and look through rules would probably need to be revised. The President has made several proposals that address international tax issues. The FY2013 budget outline contains several revisions which overall would raise $16.8 billion in FY2014. Note that some of these are complex to explain, and are described in more detail in a Treasury Department document. Disallowing interest deductions of parent companies to the extent that income is deferred. This provision is similar to the allocation proposal in Grubert and Mutti but confined to interest and affecting deferred income. An earlier tax reform proposal by Chairman Rangel ( H.R. 3970 in the 110 th Congress, 2007) would have allocated a broader range of deductions, not just interest. This provision would reduce, although not eliminate, the disincentive to repatriate. ($5.9 billion). Limiting foreign tax credits available to the same share of total credits as the overall share of income that is repatriated. This approach would limit tax minimization by repatriating income to absorb foreign tax credits. ($5.5 billion). Treating excess intangibles profits as U.S. income, the same provision as Option A is the Ways and Means Discussion Draft, although the budget proposal does not specify the magnitude of the cost mark-up. ($2.5 billion). The proposal would also clarify some rules relating to the valuation of intangibles. ($0.1 billion). U.S. insurance companies can reduce taxes by purchasing reinsurance from foreign affiliates, with a deduction of the premiums by the U.S. firm but no tax on the income of the foreign affiliate. This provision would disallow these deductions under certain circumstances. ($0.2 billion). Stricter limits on interest deductions would apply to U.S. subsidiaries of firms that inverted (moved their headquarters abroad) prior to the anti-inversion rules adopted in 2004. ($0.4 billion). Foreign taxes paid in part to receive a benefit (i.e., the firm is paying a tax in a dual capacity) would not be credited unless the income tax is generally imposed on the country's own residents as well as foreign persons. The current rule does not require the tax to be imposed on the country's residents. This provision typically relates to taxes being substituted for royalties in oil producing countries. ($1.0 billion). A codification of regulations that impose on a foreign corporation or nonresident alien tax on gain from a partnership interest to the extent the gain reflects property effectively connected with U.S. business. ($0.2 billion). A provision to prevent a foreign affiliate from avoiding characterization as a dividend by making the distribution through a related affiliate with limited earnings and profits, causing the distribution to adjust the cost basis of stock rather than create dividend income. ($0.3 billion). Preventing foreign tax credits from offsetting tax on the gain from certain types of asset acquisitions. (0.1 billion ). A provision that prevents the reduction of earnings and profits without the reduction in foreign tax credits that can currently occur in some transactions. ($20 million). The Administration also presented a framework for tax reform that mentioned five elements: the allocation of interest for deferred income (first bullet point above), a tax on excess intangibles (third bullet point), a minimum tax on foreign source income in low tax countries, disallowing a deduction for the cost of moving abroad and providing a 20% credit for costs of moving an operation from abroad to the United States. The minimum tax on foreign source income, which would be a potentially important provision, is not discussed in detail. A minimum tax that could be imposed in the framework of an effective territorial system is discussed below. A variety of more limited ways of reducing or partially eliminating deferral include eliminating deferral for specified tax havens, eliminating deferral in countries with tax rates that are below the U.S. rate by a specified proportion, eliminating deferral for income from the production of goods that are in turn imported into the United States, eliminating deferral for income from the production of goods that are exported to any other country from the foreign location, and requiring a minimum payout share. These provisions would partially achieve the goals of a general elimination of deferral. Another approach to addressing income shifting, whether in the current system or a revised territorial system, is through formula apportionment. With formula apportionment, income would be allocated to different jurisdictions based on their shares of some combination of sales, assets, and employment. This approach is used by many states in the United States and by the Canadian provinces to allocate corporate income. In the past, a three factor apportionment was used, but some states have moved to a sales based system. Studies have estimated a significant increase in taxes from adopting formula apportionment. The ability of a formula apportionment system to address some of the problems of shifting income becomes problematic with intangible assets which, unlike production income, cannot be allocated based on tangible assets. There is also a problem of coordinating with other countries so that income would not be double-taxed or never taxed. Using the basic territorial approach embodied in the Ways and Means Draft Discussion, it would be possible to generate a relatively straightforward hybrid approach, by a modification of Base Erosion Option B to impose a simpler general minimum tax with no exceptions for active trade or business. Such a revision would technically begin with an elimination of deferral and per country foreign tax credit limit. Income, however, would be taxed at a lower tax rate. This approach would avoid the incentives to shift to a slightly higher tax jurisdiction. Moreover, it would be simpler, because it would not require any measure of a specific type of income, would not require a measure of effective tax rate, and would not require a determination of the type of activity to allow an exception. It would use U.S. rules for measurement of income, but would apply a lower statutory rate to taxable income. Foreign tax credits would need to be allowed on a country by country basis. For example, suppose the statutory rate to be applied were half the U.S. rate, or given current rates, 17.5%. In that case any income from a country with an effective tax rate on taxable income at that level (and probably a lower effective rate overall) would not be subject to U.S. tax. Such a tax regime would only affect tax havens and low tax jurisdictions. An alternative would be to require income to be repatriated (or deemed repatriated) but subject some share of it to U.S. tax and exempt the rest. An appropriate share of foreign tax credits would be disallowed. For example, if half of income is taxed, the system would be 50% a territorial tax and 50% a world wide tax without deferral. Foreign tax credit limits could be allowed on an overall basis or country by country. This approach bears some resemblance to the foreign tax credit pooling proposal in the President's budget except there is no discretion about repatriation. Comments made on the combining of a minimum tax with a territorial system suggested that the tax rate would be important, with two observers suggesting a rate of 20%, similar to the rate used by Japan, and indicating that a 10% tax rate is too low. Both of these proposals would have the effect of eliminating the repatriation disincentive as well as reducing the incentive to shift profits (or at least the cost). Unlike proposals to tax this income at full U.S. rates, such a minimum tax is less likely to shift income to other jurisdictions that have higher rates than the United States. In any proposal aimed at tax havens, there is a possibility that the haven or low tax country would raise its taxes and capture some of the profits. This problem is more significant with a minimum tax that it would be with full elimination of deferral, which would remove the incentive to profit shift altogether. Tax havens attracting other country's firms might be reluctant to raise taxes and it might be possible to deny credits for taxes that are increased for that purpose. As this history indicates, most of the proposals made over the years, whether adopted or not, moved not toward a territorial tax and a reduction in taxation of foreign source income, but toward a worldwide tax and increased taxation. Deferral of tax on income from foreign incorporated subsidiaries dates from the earliest years of the income tax based reflecting legal principles of the time. The earliest income tax allowed a deduction for foreign taxes, which was replaced by an unlimited credit in 1918. In 1921 an overall limit on the foreign tax credit. similar to current law, was adopted. Beginning in 1932, a per country limit was allowed or required, although regulations that sourced income to holding companies allowed firms to achieve overall limits on their own. The per country limit was eliminated in 1976, although income was sorted into passive and active baskets to prevent this type of cross-crediting. A number of proposals for changing the system were made but were not (or have not yet been) adopted. Eliminating deferral was proposed by President Kennedy and President Carter. The Kennedy proposals led to the anti-abuse rules (Subpart F) that tax passive and easily shifted income currently. The Burke Hartke proposal in the 1970s would have repealed deferral and allowed a deduction rather than a credit for foreign taxes. A per country limit was proposed by the Reagan Administration as part of the Tax Reform Act of 1986, but the legislation expanded the number of baskets from two to several instead. The baskets were reduced to two again in legislation in 2004. The main consequence according to tax data, was to include income from financial services in the general basket. Legislative proposals which would have increased taxation of international income by allocating parent company expenses, such as interest, to deferred income and not allowing it as well as allowing overall foreign taxes to be considered Proposals similar to those of President Obama were included in tax reform legislation proposed by then Ways and Means Committee Chairman Rangel in 2007. A predecessor to the Wyden Coats bill was the Wyden Gregg bill in the 111 th Congress. International tax provisions are discussed in detail, through 1989, in William P. McClure and Herman B. Bouma, "The Taxation of Foreign Income from 1909 to 1989: How a Tilted Playing Field Developed," Tax Notes , June 19, 1989, pp. 1379. | Among potential tax reforms under discussion by Congress is revising the tax treatment of foreign source income of U.S. multinational corporations. Some business leaders have been urging a movement toward a territorial tax, which would eliminate some U.S. income taxes on active foreign source income. Under a territorial tax, only the country where the income is earned imposes a tax. Territorial proposals include the Grubert-Mutti proposal (included in President Bush's Advisory Panel on Tax Reform proposal in 2005) and, more recently, a draft Ways and Means Committee proposal and a Senate bill, S. 2091. The Fiscal Commission also proposed a territorial tax. Proposals have, however, also been made to increase the taxation of foreign source income, including S. 727, and proposals by President Obama. Although the United States has a worldwide system that includes foreign earnings in U.S. taxable income, two provisions cause the current system to resemble a territorial tax in that very little tax is collected. Deferral delays paying taxes until income is repatriated (paid as a dividend by the foreign subsidiary to its U.S. parent). When income is repatriated, credits for foreign taxes paid offset the U.S. tax due. Under cross-crediting, unused foreign tax credits from high tax countries or on highly taxed income can be used to offset U.S. tax on income in low tax countries. Some proponents of a territorial tax urge such a system on the grounds that the current system discourages repatriations. Economic evidence suggests that effect is small, in part because in normal circumstances a large share of income is retained for permanent reinvestment. Amounts held abroad may have increased, however, as firms lobbied for another repatriation holiday (similar to that adopted in 2004) that allowed firms to exempt most dividends from income on a one-time basis. Opponents are concerned about encouraging investment abroad. A territorial tax is generally not viewed as efficient because it favors foreign investment, but that increased outflow of investment is likely to have a small effect relative to the U.S. economy. Artificial shifting of profits into tax havens or low tax countries is a current problem that could be worsened under some territorial tax designs, and proposals have included measures to address this problem. Proposals also address the transitional issue of the treatment of the existing stock of unrepatriated earnings. The Ways and Means proposal would tax this stock of earnings, but at a lower rate, and use the revenues to offset losses from other parts of the plan, which would lead to a long-run revenue loss. S. 2091 has a similar approach. The Grubert-Mutti proposal does not have a specific transitional tax, but would raise revenue largely due to its disallowance of parent overhead expenses aimed at reducing profit shifting. The other two proposals also contain provisions to address profit shifting. In addition there are complicated issues in the design of a territorial tax, such as how to treat branches and dividends of firms in which the corporation is only partially owned. A number of issues arise from the ending of foreign tax credits, with perhaps the most significant one being the increased tax on royalties, which are currently subject to tax, have low or no foreign taxes, and would lose the shield of excess credits. The final section of the report briefly discusses some alternative options, including those in S. 727 and in the Administration proposals. It also discusses hybrid approaches that combine territorial and worldwide systems in a more efficient way, including eliminating the disincentive to repatriate. One such approach is a minimum tax on foreign source income, which is proposed by the President in the context of current rules, but could be combined with a territorial system. |
Congress uses an annual appropriations process to provide discretionary spending for federal government agencies. The responsibility for drafting legislation to provide for such spending is currently divided among 12 appropriations subcommittees in each chamber, each of which is tasked with reporting a regular appropriations bill to cover all programs under its jurisdiction. (The titles of these 12 bills, which correspond to their respective subcommittees, are listed in Table 1 at the end of this section.) The timetable associated with the annual appropriations process requires the enactment of all regular appropriations bills prior to the beginning of the fiscal year (October 1). If regular appropriations are not enacted by that deadline, one or more continuing resolutions (CRs) may be enacted to provide interim funding authority until all regular appropriations bills are completed or the fiscal year ends. During the fiscal year, supplemental appropriations may also be enacted to provide funds in addition to those in regular appropriations acts or CRs. Amounts provided in appropriations acts are subject to limits, both procedural and statutory, which are enforced through mechanisms such as points of order and sequestration. Disagreement over the appropriate level of discretionary spending—as well as its distribution between defense and nondefense activities—significantly affected the focus of the FY2016 appropriations process. While the Bipartisan Budget Act of 2013 ( P.L. 113-67 ) revised the statutory discretionary spending limits to allow higher spending in FY2014 and FY2015, that agreement did not alter the calculation for the FY2016 limits. As a consequence, the FY2016 limits were generally less than 1% higher than both the FY2014 and FY2015 limits. In the FY2016 budget submission, the President proposed raising both the defense and nondefense limits. The congressional budget resolution ( S.Con.Res. 11 ) took a different approach in that it assumed FY2016 discretionary spending at the level allowed by the limits at that time but also allowed additional spending (largely in the defense category) that was effectively not subject to the statutory spending limits. This additional spending was proposed at a higher level than the amount requested by the President. This disagreement as to the level of discretionary spending was ultimately resolved through the enactment of the Bipartisan Budget Act of 2015 on November 2, 2015 (BBA 2015; H.R. 1314 ; P.L. 114-74 ). The BBA 2015 raised both the defense and nondefense statutory discretionary spending limits for FY2016 and FY2017 and specified an expected level for the "Overseas Contingency Operations/Global War on Terrorism" (OCO/GWOT) spending adjustment for each of those fiscal years. The enactment of annual appropriations subject to those limits has yet to occur. Consideration of FY2016 regular appropriations bills in the House began on April 15, 2015, with subcommittee approval of the Energy-Water ( H.R. 2028 ) and Military Construction-VA ( H.R. 2029 ) appropriations bills. Since that time, all 12 regular appropriations bills have been reported from committee, and six of those have passed the House. About a month after committee action began in the House, the Senate began its consideration of FY2016 appropriations measures with the subcommittee approval of the Energy-Water and Military Construction-VA appropriations bills, on May 19. The Senate Appropriations Committee subsequently reported all 12 regular appropriations bills. On June 18, the Senate rejected a motion to invoke cloture on the motion to proceed to the Department of Defense appropriations bill ( H.R. 2685 ). Since that time, the Senate voted not to invoke cloture on motions to proceed to the Defense, Military Construction-VA, and Energy-Water appropriations bills. However, on November 5, the Senate agreed to proceed to consider the Military Construction-VA appropriations bill and passed that bill on November 10. The Senate proceeded to consider the Transportation-HUD appropriations bill ( H.R. 2577 ) on November 18 but has not completed that consideration as of the date of this report. Because none of the FY2016 regular appropriations bills became law by the start of the fiscal year, a CR was enacted to provide continuing appropriations until December 11 ( H.R. 719 ; P.L. 114-53 ). (Prior to the final consideration and enactment of H.R. 719 , Senate legislative action related to FY2016 continuing appropriations occurred on a different legislative vehicle, H.J.Res. 61 .) This report provides background and analysis of congressional action related to the FY2016 appropriations process. The first section discusses the status of discretionary budget enforcement for FY2016, including the statutory spending limits and allocations associated with the congressional budget resolution. The second section provides information on the consideration of regular appropriations bills. Further information with regard to the FY2016 regular appropriations bills is provided in the various CRS reports that analyze and compare the components of the President's budget submission and the relevant congressional appropriations proposals. This report will be updated periodically during the FY2016 appropriations process. For information on the current status of FY2016 appropriations measures, see the CRS Appropriations Status Table: FY2016, at http://www.crs.gov/Pages/AppropriationsStatusTable.aspx . The framework for budget enforcement of discretionary spending under the congressional budget process has both statutory and procedural elements. The statutory elements are the discretionary spending limits derived from the Budget Control Act of 2011 (BCA; P.L. 112-25 ). The procedural elements are primarily associated with the budget resolution. It limits both the total spending under the jurisdiction of the Appropriations Committee, as well as spending under the jurisdiction of each appropriations subcommittee. In addition, pursuant to Section 251(b) of the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), certain spending is effectively exempt from these statutory and procedural spending limits because the limits are adjusted upward to accommodate that spending. Such spending includes budget authority specifically designated as emergency requirements, OCO/GWOT, disaster relief, and particular amounts of budget authority for certain program integrity initiatives. Since the enactment of the BCA in 2011, the vast majority of adjustments pursuant to Section 251(b) have been for budget authority designated as OCO/GWOT. Such adjustments have allowed for additional budget authority (largely in the defense category) for expenses associated with overseas operations, such as those in Iraq and Afghanistan, as well as other related purposes. The FY2016 appropriations process, as noted earlier, has been affected by disagreement over the appropriate level of discretionary spending, as well as its distribution between defense and nondefense activities. The BCA established statutory spending limits for FY2016. However, the President proposed revisions to those limits in his FY2016 budget request. In addition, the FY2016 budget resolution establishes certain procedurally enforceable limits on discretionary spending that are related to the levels of the BCA limits. Table 2 displays the initial BCA limits, the revised BCA limits, and proposed limits for FY2016, compared to the limits that were in effect for FY2014 and FY2015. It also displays the current law defense and nondefense spending levels that were ultimately established through the enactment of the BBA 2015. The BCA imposes separate limits on defense and nondefense discretionary spending for each of the fiscal years from FY2012 through FY2021. The defense category includes all discretionary spending under budget function 050 (defense); the nondefense category includes discretionary spending in the other budget functions. In order to require additional budgetary savings, the BCA included procedures to lower the level of the initial spending limits for each fiscal year. The Office of Management and Budget (OMB) calculates the amount by which each initial limit for the upcoming fiscal year is to be lowered, and announces the amount of the lowered limits in a "preview report" at the same time that the President's budget is submitted. If discretionary spending is enacted in excess of a statutory limit, the BCA requires the level of spending to be brought into conformance through "sequestration," which involves largely across-the-board cuts to non-exempt spending in the category of the limit that was breached (i.e., defense or nondefense). Once discretionary spending is enacted, OMB evaluates that spending relative to the spending limits and determines whether sequestration is necessary. For FY2016 discretionary spending, the first such evaluation (and any necessary enforcement) is to occur within 15 calendar days after the 2015 congressional session adjourns sine die. For any FY2016 discretionary spending that becomes law after the session ends, the OMB evaluation and any enforcement of the limits would occur 15 days after enactment. The BBEDCA also provides specific preconditions for adjusting the statutory limits to accommodate OCO/GWOT-designated spending. Such spending must be designated by Congress on an account-by-account basis, and also be subsequently designated by the President, in order for the relevant statutory limit to be adjusted. If the President were not to designate such funds as OCO/GWOT, the limit would not be adjusted to accommodate that additional spending. This could cause enacted spending to be higher than the limit and trigger a sequestration to enforce it. In recent years, appropriations acts that carried OCO/GWOT spending have generally included a provision stipulating that each amount in that act designated by Congress for OCO/GWOT "shall be available only if the President subsequently so designates all such amounts.... " Table 2 displays the FY2014 and FY2015 limits and OCO/GWOT enacted spending, the FY2016 initial and revised levels for the limits, and various FY2016 proposed levels for the limits and OCO/GWOT spending. The total of the limits is also listed. Pursuant to Section 251A of the BBEDCA, the initial BCA limit on defense spending for FY2016 was reduced by $53.909 billion to the revised level of $523.091 billion. The initial limit on FY2016 nondefense spending was reduced by $36.509 billion to $493.491 billion. Recall that the reduced level of these limits was increase of less than 1% above both the FY2014 and FY2015 limits. The President's budget submission proposes that both the defense and nondefense limits for FY2016 be raised by similar amounts (as listed in Table 2 ). Under this proposal, the defense limit would be increased by $37.909 billion ($16 billion less than the initial BCA defense limit). The nondefense limit would be increased by $36.509 billion (equal to the level of the initial BCA nondefense limit). The budget submission also contains a number of other proposed changes to both spending and revenue that are intended to "offset" the proposed increases to the limits. The requested amount of OCO/GWOT spending is $57.996 billion—a decrease of $15.686 billion from the FY2015 enacted levels. The FY2016 congressional budget resolution ( S.Con.Res. 11 ) assumes different levels of discretionary spending than those proposed by the President's budget submission (as listed in Table 2 ). The levels of defense and nondefense discretionary spending subject to the limits that are identified in the joint explanatory statement accompanying the budget resolution are identical to the revised BCA levels. However, the budget resolution also includes certain procedural contingencies for the consideration of legislation that could alter the statutory discretionary spending limits. For example, Section 4302 would allow for Senate consideration of legislation "relating to enhanced funding for national security or domestic discretionary programs" provided it does not increase the deficit during the period covered by the budget resolution. The amount of OCO/GWOT spending assumed under the budget resolution is $96.287 billion—an increase of $22.595 billion over FY2015 enacted levels and an increase of $38.291 billion over the President's request. The BBA 2015 raised both the defense and nondefense discretionary spending limits for FY2016 (as listed in Table 2 ). The reduced limits were increased by a total of $50 billion, equally divided between the defense and nondefense limit. This law also specified an expected level for the FY2016 OCO/GWOT spending adjustment of $14.8 billion for function 150 (international affairs) and $58.7 billion for function 050 (defense), for a total of $73,693. The procedural elements of budget enforcement generally stem from requirements under the Congressional Budget Act of 1974 (CBA) that are associated with the adoption of an annual budget resolution. Through this CBA process, the Appropriations Committee in each chamber receives a procedural limit on the total amount of discretionary budget authority for the upcoming fiscal year, referred to as a "302(a) allocation." The House and Senate Appropriations Committees subsequently divide this allocation among their 12 subcommittees. These divisions to each subcommittee are referred to as "302(b) suballocations." The 302(b) suballocations restrict the amount of budget authority available to each subcommittee for the agencies, projects, and activities under their jurisdictions, and effectively act as caps on each of the 12 regular appropriations bills. The Appropriations Committee may revise the 302(b) suballocations at any time by issuing a new suballocation report. Both the 302(a) and 302(b) limits may be enforced on the floor through points of order. Final action of the FY2016 budget resolution occurred on May 5, 2015 ( S.Con.Res. 11 ). The joint explanatory statement associated with the budget resolution provides 302(a) allocations for the House and Senate Appropriations Committees that are consistent with the revised BCA levels for the statutory discretionary spending limits (see Table 2 ). Those 302(a) allocations also included a separate allocation for OCO/GWOT spending of $96.287 billion. The most recently reported 302(b) suballocations of discretionary spending for the House and Senate Appropriations subcommittees are listed in Table 3 . This table also includes a comparison of the distribution of OCO/GWOT-designated budget authority among those subcommittees, which is in addition to amounts that are subject to the limits. The initial House 302(b) suballocations were reported on April 29, 2015, and subsequently revised on May 18 and July 10. The initial Senate suballocations were reported about three weeks after the initial House allocations, on May 21, 2015. The Senate Appropriations Committee later revised these suballocations on June 10, June 24, July 8, and July 16. These Senate suballocations were further revised on November 5 and November 18 after the enactment of the BBA 2015. Additional revisions to both the House and Senate suballocations may occur to reflect the increases to the defense and nondefense limits established by the BBA 2015. The House and Senate provide annual appropriations in 12 regular appropriations bills. Each of these bills may be considered and enacted separately, but it is also possible for two or more of them to be combined into an omnibus vehicle for consideration and enactment. Alternatively, if some of these bills are not enacted, annual funding for the projects and activities therein may be provided through a full-year CR. As of the date of this report, the House Appropriations Committee has reported all 12 regular appropriations bills for FY2016 (see Table 4 ). Six of these bills have been passed by the House (see Table 5 ). The Senate Appropriations Committee has also reported all 12 of the FY2016 regular appropriations bills (see Table 6 ). The Senate passed one of these—Military Construction-VA (see Table 7 )—and also proceeded to consider the Transportation-HUD appropriations bill ( H.R. 2577 ). It has not completed that consideration as of the date of this report. (In addition, the Senate has voted not to invoke cloture on motions to proceed to consider two other regular bills—Defense and Energy-Water.) Table 4 lists the regular appropriations bills that have received subcommittee or full committee action, along with the associated date of subcommittee approval, date reported to the House (if applicable), and the report number. The first regular appropriations bills to be approved in subcommittee and reported by the full committee were Energy-Water ( H.R. 2028 ) and Military Construction-VA ( H.R. 2029 ). Both were reported to the House on April 24, 2015. Two other measures received some form of committee consideration during the month of April—Legislative Branch ( H.R. 2250 ) and Transportation-HUD ( H.R. 2577 ). Both of these measures, however, were not reported until the month of May. A fifth regular appropriations bill—Commerce-Justice-Science ( H.R. 2578 )—was reported by the committee at the end of May. Three appropriations measures were reported by the committee during the month of June—Department of Defense ( H.R. 2685 ), State-Foreign Operations ( H.R. 2772 ), and Interior ( H.R. 2822 ). Two additional bills—Financial Services ( H.R. 2995 ) and Labor-HHS-Education ( H.R. 3020 )—were ordered reported. (These two bills were reported to the House during the month of July.) Finally, the Agriculture appropriations bill was approved in subcommittee, bringing the total number of FY2016 bills that the House Appropriations Committee had acted on to 11. During the month of July, the House Appropriations Committee concluded its consideration of regular appropriations bills for FY2016 by reporting out the Agriculture ( H.R. 3049 ) and Homeland Security ( H.R. 3128 ) bills. Table 5 identifies the six regular appropriations bills that have been passed by the House on initial consideration, along with the date consideration was initiated, the date consideration was concluded, and the vote on final passage. The first FY2016 regular appropriations bills considered on the House floor were Military Construction-VA ( H.R. 2029 ) and Energy-Water ( H.R. 2028 ). The consideration of both of these measures was initiated on April 29, 2015, pursuant to modified open rules ( H.Res. 223 ), which generally limited debate of each amendment to 10 minutes. A total of 104 amendments were offered during the consideration of these two bills, of which 58 were adopted. The House passed the measures later that same week. The Legislative Branch appropriations bill ( H.R. 2250 ) was considered on the House floor on May 19. A structured rule, as is traditional for Legislative Branch bills, limited consideration to three specified amendments. Two of these amendments were subsequently adopted. The House passed the measure on the same day that consideration began. During the first two weeks in June, the House considered and passed three appropriations measures. All three of these were considered under the terms of modified open rules. Floor consideration of the Commerce-Justice-Science bill ( H.R. 2578 ) began on June 2, and the House passed the measure on June 3. Later that same day, the House began to consider the Transportation-HUD bill ( H.R. 2577 ) but did not pass it until the following week, on June 9. The House initiated consideration of the DOD bill on June 10 and passed it the next day. A total of 233 amendments were offered to those three measures during that two-week period, of which 124 were adopted. The House began considering the Interior bill ( H.R. 2822 ) on June 25 but did not finish amending the bill prior to the Fourth of July district work period. The House resumed consideration of the measure on July 7 but halted consideration the following day. Prior to when consideration was halted, the House had adopted 57 amendments of the 116 that had been offered. No further floor consideration of regular appropriations bills has occurred as of the date of this report. Table 6 lists the regular appropriations bills that have received subcommittee or full committee action along with the date of subcommittee approval, date reported to the Senate (if applicable), and the report number. The Senate Appropriations Committee began consideration of the FY2016 regular appropriations bills in the same order as the House, acting first on the Energy-Water ( H.R. 2028 ) and Military Construction-VA ( H.R. 2029 ) bills. Both were reported to the Senate on May 21, 2015. Seven additional bills were reported by the committee during the month of June—Department of Defense ( H.R. 2685 ), Legislative Branch ( H.R. 2250 ), Commerce-Justice-Science ( H.R. 2578 ), Homeland Security ( S. 1619 ), Interior ( S. 1645 ), Labor-HHS-Education ( S. 1695 ), and Transportation-HUD ( H.R. 2577 ). During the month of July, the committee completed its consideration of FY2016 regular appropriations by reporting the State-Foreign Operations ( S. 1725 ), Agriculture ( S. 1800 ), and Financial Services ( S. 1910 ) appropriations bills. Table 7 identifies the one regular appropriations bill that the Senate passed on initial consideration, along with the date consideration was initiated, the date consideration was concluded, and the vote on final passage. The Senate first attempted to initiate floor consideration of the Military Construction-VA appropriations bill ( H.R. 2029 ) on September 30. On that date, a motion to proceed to the measure was made in the Senate, and cloture was filed on that motion. The following day, the Senate voted not to invoke cloture on the motion to proceed by a vote of 50-44. After the BBA 2015 was enacted, the Senate agreed to proceed to consider the measure, by a vote of 93-0, on November 5, 2015. (An amendment in the nature of a substitute was offered and constituted the base text for consideration of the measure.) During the floor consideration, a total of 17 amendments were offered to that substitute amendment, of which 16 were adopted. The measure passed the Senate by a vote of 93-0 on November 10, 2015. In addition to the Military Construction-VA appropriations bill, the Senate has also considered the Transportation-HUD appropriations bill. On November 16, a motion to proceed to the measure was made in the Senate, and cloture was filed on that motion. The following day, that cloture motion was withdrawn. Instead, the measure was laid before the Senate by unanimous consent on November 18. (An amendment in the nature of a substitute was offered and constituted the base text for consideration of the measure.) As of the date of this report, of the four amendments that had been offered to that substitute amendment, three had been adopted and one had not yet been disposed of. Cloture was filed on the substitute amendment and the bill itself the same day that the Senate began consideration of the measure, but both of those motions were later withdrawn by unanimous consent on November 19. No further consideration has occurred as of the date of this report. The Senate has also addressed whether to proceed to consider two other FY2016 regular appropriations bills: 1. Department of Defense ( H.R. 2685 ). On June 16, a motion to proceed to the measure was made in the Senate, and cloture was filed on that motion. Two days later, on June 18, the Senate failed to invoke cloture on the motion to proceed by a vote of 50-45. On September 22, the Senate reconsidered the vote by which cloture on the motion to proceed was not invoked and again failed to invoke cloture by a vote of 54-42. About five weeks later, on November 3, the motion to proceed to the measure was made again the Senate, and cloture was filed on that motion. On November 5, cloture was not invoked on the motion to proceed by a vote of 51-44. 2. Energy-Water ( H.R. 2028 ). On October 6, a motion to proceed to the measure was made in the Senate, and cloture was filed on that motion. On October 8, the Senate failed to invoke cloture on the motion to proceed by a vote of 49-47. No further Senate floor action has occurred with regard to these or any other regular appropriations measures as of the date of this report. Because none of the FY2016 regular appropriations bills was expected to be enacted by the beginning of the fiscal year, a CR ( H.R. 719 ; P.L. 114-53 ) was enacted on September 30, 2015. This CR generally extended funding at last year's levels, with a small across-the-board reduction and certain enumerated exceptions, through December 11, 2015. For further information with regard to the funding and other authorities provided by the continuing appropriations in H.R. 719 , see CRS Report R44214, Overview of the FY2016 Continuing Resolution (H.R. 719) , by [author name scrubbed]. Prior to the consideration and enactment of H.R. 719 , Senate legislative action related to FY2016 continuing appropriations occurred on a different legislative vehicle, H.J.Res. 61 . Congressional action on both of these vehicles is summarized chronologically in this section of the report. On September 22, Senate Majority Leader Mitch McConnell offered an amendment in the nature of a substitute ( S.Amdt. 2669 ) to H.J.Res. 61 that would provide temporary FY2016 continuing appropriations through December 11, 2015, and also contained provisions that would limit the ability of Planned Parenthood to receive federal funds unless certain conditions were met. This amendment was offered to an unrelated measure that was pending before the Senate (Hire More Heroes Act of 2015; H.J.Res. 61 ). On September 24, the Senate failed to invoke cloture on that amendment to H.J.Res. 61 by a vote of 47-52. No further Senate action occurred with regard to that amendment. After the Senate rejected cloture on the Senate amendment to H.J.Res. 61 on September 24, Majority Leader McConnell made a motion that proposed a Senate amendment ( S.Amdt. 2689 ) to a different, unrelated measure pending before the Senate (TSA Office of Inspection Accountability Act of 2015, H.R. 719 ) and filed cloture on that motion. More formally, the majority leader offered a motion to concur with an amendment ( S.Amdt. 2689 ) to a House amendment to a Senate amendment to H.R. 719 . As was the case for the initial CR amendment he offered to H.J.Res. 61 , this new Senate amendment contained temporary FY2016 continuing appropriations through December 11. However, this amendment did not include the Planned Parenthood–related provisions that were carried in the initial CR amendment offered to H.J.Res. 61 . On September 28, the Senate invoked cloture on a motion to concur with S.Amdt. 2689 by a vote of 77-19. On September 30, the Senate adopted that motion to concur by a vote of 78-20. By a vote of 277-151, the House concurred in that Senate action later in the day, and H.R. 719 was signed into law that evening ( P.L. 114-53 ). The Congressional Budget Office (CBO) estimates the budgetary effects of interim CRs on an "annualized" basis, meaning that those effects are measured as if the CR were providing budget authority for an entire fiscal year. According to CBO, the total amount of annualized budget authority for regular appropriations in the CR that is subject to the BCA limits (including projects and activities funded at the rate for operations and anomalies) is $1,016.582 billion. Although the total spending in the CR that is subject to the FY2016 statutory limits is equal to the total of those limits, the CR is estimated to comply with the defense limit, but it exceeds the nondefense limit. CBO estimates defense spending in the CR to total $520.385 billion, which is about $2.7 billion below the defense limit. Nondefense spending, however, is estimated to total $496.197 billion, which is about $2.7 billion above the nondefense limit. As was previously mentioned, however, the earliest that the statutory discretionary spending limits could be enforced is 15 days after the end of the congressional session. This date is likely to occur after the expiration of the CR on December 11, 2015. When CBO estimated the budgetary effects of the CR and included spending that is effectively not subject to the statutory discretionary spending limits—because it was designated or otherwise provided as OCO/GWOT, continuing disability reviews and redeterminations, health care fraud and abuse control, disaster relief, and emergency requirements—the total amount of annualized budget authority in the CR is $1,099.962 billion. | This report provides information on the congressional consideration of the FY2016 regular appropriations bills and the FY2016 continuing resolution (CR). It also discusses the statutory and procedural budget enforcement framework for FY2016 appropriations. It will address the congressional consideration of FY2016 supplemental appropriations if any such consideration occurs. For all types of appropriations measures, discretionary spending budget enforcement under the congressional budget process has two primary sources. The first is the discretionary spending limits that are derived from the Budget Control Act of 2011 (P.L. 112-25). The second source of budget enforcement is associated with the budget resolution. It imposes limits on both the total spending under the jurisdiction of the Appropriations Committees (referred to as a "302(a) allocation") as well as spending under the jurisdiction of each of the Appropriations subcommittees (referred to as "302(b) suballocations"). Certain spending is effectively not subject to these statutory and procedural limits, such as spending which is designated as "Overseas Contingency Operations/Global War on Terrorism" (OCO/GWOT) and "disaster relief." Disagreement over the appropriate level of discretionary spending—as well as its distribution between defense and nondefense activities—has significantly affected the focus of the FY2016 appropriations process. The FY2016 budget resolution (S.Con.Res. 11) that was adopted by Congress provided a 302(a) allocation for the Appropriations Committees that was consistent with the statutory discretionary spending limits set in the Budget Control Act. However, the budget resolution also allowed for those funds to be supplemented by additional OCO/GWOT spending at a higher level than the amount requested by the President. On November 2, new levels for discretionary spending were established through the enactment of the Bipartisan Budget Act of 2015 (BBA 2015; H.R. 1314; P.L. 114-74). The BBA 2015 raises both the defense and nondefense statutory discretionary spending limits for FY2016 and FY2017 and specifies an expected level for the OCO/GWOT spending adjustment for each of those fiscal years. As of the date of this report, both the House and Senate Appropriations Committees have reported all 12 regular appropriations bills for FY2016. The House has passed six of these—Energy-Water (H.R. 2028); Military Construction-VA (H.R. 2029); Legislative Branch (H.R. 2250); Commerce-Justice-Science (H.R. 2578); Transportation-HUD (H.R. 2577); and Defense (H.R. 2685). The Senate has passed one regular appropriations bill—Military Construction-VA. Because none of the regular appropriations bills was expected to become law by the start of the fiscal year, a CR was enacted to provide temporary appropriations until December 11 (H.R. 719; P.L. 114-53). This report will be updated periodically during the FY2016 appropriations process. For information on the current status of FY2016 appropriations measures, see the CRS Appropriations Status Table: FY2016, at http://www.crs.gov/Pages/AppropriationsStatusTable.aspx. |
The September 11, 2001 terrorist attacks called attention to the fact that the U.S. governmentis unaware of the addresses and whereabouts of many foreign nationals (1) in the United States. In theaftermath of the attacks, Congress sought to improve the tracking of one subgroup of foreignnationals: temporary legal residents. To better track these temporary residents, also known asnonimmigrants, the 107th Congress revived efforts to implement an entry-exit control system and asystem for monitoring foreign students. (2) In addition,the Department of Homeland Security (DHS)is using the registration provisions of the Immigration and Nationality Act to track foreign nationalsin the United States. (3) As detailed below, that actrequires that most aliens in the United States for30 days or longer be registered and provide notification of each change of address. The alienregistration issue has also been considered to a limited extent in the 107th and 108thCongresses. Alien registration requirements, which date to the Alien Registration Act of 1940, wereincorporated into the Immigration and Nationality Act (INA) of 1952. (4) They generally do not applyto, or can be waived in, the case of nonimmigrants entering under INA �101(a)(15)(A) (ambassadorsand diplomats) or INA �101(a)(15)(G) (representatives to, and officials and employees of,international organizations). In their current form, these requirements include the following: (5) No visa can be issued to an alien unless the alien has been registered in connection with the visa application. (6) Every alien who is age 14 or older, remains in the United States for 30 daysor longer, and has not been registered must apply for registration and be fingerprinted before day 30. The Attorney General may waive the fingerprinting requirement in the case of anynonimmigrant. (7) The Attorney General is authorized to prescribe special regulations and formsfor the registration and fingerprinting of certain enumerated groups, including aliens of any classwho are not legal permanent residents (LPRs) of the United States. (8) The Attorney General and the Secretary of State are authorized to prepareforms for the registration of aliens. These forms are to contain questions about the date and placeof the alien's entry into the United States; activities in which the alien has been and intends to beengaged; expected length of stay; any police or criminal record; and any additionalmatters. (9) Aliens required to be registered must notify the Attorney General in writingof each change of address within 10 days of the change and provide such additional information asthe Attorney General may require. Similarly, the Attorney General, upon 10 days notice, may requirethe natives of any foreign state who are required to be registered to provide notification of theircurrent addresses and such additional information as the Attorney General mayrequire. (10) An alien required to apply for registration and to be fingerprinted who willfullyfails to do so is guilty of a misdemeanor, and upon conviction, may be fined up to $1,000 orimprisoned for up to 6 months, or both. An alien who fails to notify the Attorney General of achange of address is guilty of a misdemeanor, and upon conviction, may be fined up to $200 orimprisoned for up to 30 days, or both. Regardless of whether such an alien is convicted or punishedfor failing to provide the address notification, the alien will be taken into custody and removed fromthe country unless the alien satisfies the Attorney General that "such failure was reasonablyexcusable or was not willful." (11) At various times in the past, the Attorney General used the authority granted by the INA toprescribe special regulations and forms for the registration and fingerprinting of certain groups ofaliens. Until its abolition in March 2003, the Immigration and Naturalization Service (INS)administered alien registration. In January 1991, on the eve of the Persian Gulf War, INSpromulgated a rule requiring all nonimmigrants carrying Iraqi or Kuwaiti travel documents whoapplied for admission to the United States, except for those entering as diplomats or officials ofinternational organizations, to be registered, photographed, and fingerprinted at the port of entry. According to the summary of the rule in the Federal Register : "This action is necessary to protectand safeguard the interests and security of the United States as a precaution against reprisals ..." (12) In December 1993, INS published an interim rule that removed these special registration requirements for Iraqis and Kuwaitis. The rule also added a new provision to the INS regulationson registration. (13) That provision stated that theAttorney General may require, by public notice inthe Federal Register , that certain nonimmigrants of specific countries be registered and fingerprintedupon arrival in the United States. The supplementary information accompanying the rule describedthe provision as "a procedural change which affords the Attorney General more flexibility inresponding to specific political situations than was formerly available [when changes in regulationwere required]." (14) Under the authority of theprovision, INS published a separate notice in the sameissue of the Federal Register requiring all nonimmigrants bearing Iraqi or Sudanese traveldocuments who applied for admission to the United States, except for those entering as diplomatsor officials of international organizations, to be registered, photographed, and fingerprinted at theport of entry. The notice indicated that such measures were necessary in light of "recent terroristactivities perpetrated on United States soil and the discovery of terrorist plots." (15) In September 1996,INS published a Federal Register notice similarly providing for the registration, photographing, andfingerprinting of nonimmigrants holding Iranian or Libyan travel documents. (16) In July 1998, INSpublished a notice consolidating and replacing these two notices covering nonimmigrants holdingIranian, Iraqi, Libyan, or Sudanese travel documents. (17) According to the Department of Justice (DOJ), the September 11, 2001 terrorist attackshighlighted weaknesses in the U.S. immigration system. Under the system in place at that time, DOJmaintained, it was difficult to know whether nonimmigrants in the country were following theirstated plans, whether they remained beyond their authorized period of stay, and how to locate them,if necessary. To address these and other concerns, INS proposed two rules in 2002 that drew on theINA's registration provisions and other authority. On June 5, 2002, DOJ outlined a proposal for a "National Security Entry-Exit Registration System" (NSEERS). In prepared remarks on the proposal, Attorney General John Ashcroft said: This system will expand substantially America's scrutiny of those foreign visitors who may pose a national security concern and enter our country. And it will provide a vital line of defense in the war againstterrorism. The Attorney General described NSEERS as the first step toward developing a congressionally mandated entry-exit data system to track virtually all foreign visitors. (18) INS proposed a rule to implement NSEERS on June 13, 2002, and issued the final rule on August 12, 2002. (19) The rule took effect onSeptember 11, 2002. Under the rule, expanded specialregistration requirements apply to nonimmigrant aliens from designated countries. Theserequirements also apply to individual nonimmigrants from any country who a consular officer abroador an inspection officer at the port of entry determines meet undisclosed criteria indicating that thealien's presence in the United States warrants monitoring in the interests of national security or lawenforcement. These requirements do not apply to nonimmigrants applying for admission asdiplomats or officials of international organizations. According to the supplementary informationaccompanying the rule, the covered individuals constitute "only a small percentage of the more than35 million nonimmigrant aliens who enter the United States each year." DOJ estimated thatNSEERS would track about 100,000 visitors in the first year. (20) Upon arrival in the United States, aliens subject to special registration under the rule are fingerprinted, photographed, and checked against databases of known criminals and terrorists. Theyalso are required to register by providing "routine and readily available information," such aspersonal information and information about their plans in the country. The original rule, which hassince been amended as described below, required aliens registered at a port of entry to satisfysubsequent 30-day and annual registration requirements. Under the original rule, if these aliensremained in the country for 30 days or longer, they had to report to an immigration office betweenday 30 and day 40 to complete their registration by providing additional documentation ofcompliance with their visas, including proof of residence, employment, and school enrollment asapplicable. Those aliens remaining for more than 1 year had to reaffirm their registrationinformation annually. Aliens subject to special registration who remain in the United States for 30 days or longer also have to provide notification of any change in their residential address, employment, or educationalinstitution within 10 days. Upon leaving the United States, special registrants are required to reporttheir exit at the port of departure. (21) On September 11, 2002, NSEERS was implemented at selected ports of entry. On October 1, 2002, the system went into effect at all remaining land, air, and sea ports of entry. It coversnonimmigrants who are citizens or nationals of Iran, Iraq, Libya, Sudan, and Syria, as well as othernonimmigrants determined to pose an elevated national security risk as explained above. (22) Aninternal INS memorandum dated September 5, 2002, which has been reported on by various mediaoutlets, stated that the Attorney General had determined that nonimmigrant males applying foradmission who are citizens or nationals of Pakistan, Saudi Arabia, or Yemen and are between theages of 16 and 45 warranted special registration. According to the memorandum, these individualswere to be subject to special registration as of October 1, 2002. The memorandum also enumeratedthe seven criteria to be used by immigration inspectors to determine whether to require the specialregistration of arriving nonimmigrants from any country. Among these criteria were the following: The alien has made unexplained trips to Iran, Iraq, Libya, Sudan, Syria, Saudi Arabia, or one of nineother specified countries; and "The nonimmigrant alien's behavior, demeanor, or answers indicatethat the alien should be monitored in the interest of national security." Neither DOJ nor INS wouldcomment on this memorandum. (23) Aliens in the United States. In addition to requiring the special registration of certain newly arriving nonimmigrants, INS published a noticein the Federal Register on November 6, 2002, similarly requiring the registration of certainnonimmigrants already residing in the United States. (24) The notice required nonimmigrant males whowere citizens or nationals of Iran, Iraq, Libya, Sudan, and Syria, were at least 16 years old, and werelast admitted to the United States on or before September 10, 2002, to report to an immigrationoffice by December 16, 2002, to be registered, fingerprinted, and photographed. (A Federal Register notice published on January 16, 2003, reopened the registration period for individuals covered bythe November 6, 2002 notice. It stated that those individuals who had not registered as requiredcould do so between January 27, 2003, and February 7, 2003, and would be considered to be incompliance. (25) ) Following this initial registration,these individuals were required to registerannually. A December 2, 2003 DHS rule, described below, suspended this annual re-registrationrequirement. Subsequent Federal Register notices, published on November 22, 2002, December 18, 2002, and January 16, 2003, made nonimmigrant males from additional countries who were at least 16years old and were last admitted to the United States on or before September 30, 2002, subject tospecial registration. (26) The November 22 noticecovered citizens or nationals of Afghanistan, Algeria,Bahrain, Eritrea, Lebanon, Morocco, North Korea, Oman, Qatar, Somalia, Tunisia, United ArabEmirates, or Yemen. They were required to report to an immigration office by January 10, 2003, tobe registered, fingerprinted, and photographed. (Like those covered by the November 6, 2002 notice,individuals covered by this notice who had not registered by the deadline were given the opportunityto do so between January 27, 2003, and February 7, 2003, under the terms of the January 16 noticecited above.) The December 18 notice required citizens or nationals of Pakistan or Saudi Arabia (27) to report to an immigration office by February 21, 2003, to be registered, fingerprinted, andphotographed, and the January 16 notice required citizens or nationals of Bangladesh, Egypt,Indonesia, Jordan, or Kuwait to report by March 28, 2003. A February 19, 2003 Federal Register notice extended these registration deadlines to March 21, 2003, and April 25, 2003, respectively. (28) Following their initial registration, as set forth in the notices, these individuals were required toregister annually. As described below, this annual re-registration requirement was suspended inDecember 2003. During an April 2003 speech, Secretary of Homeland Security Tom Ridge signaled the end of NSEERS registrations for aliens within the country. He announced a new entry-exit system calledthe U.S. Visitor and Immigration Status Indication Technology (US-VISIT) System, (29) which, he said,was scheduled to begin operations by the end of the year. Secretary Ridge stated: I want to stress that the phase-in of the new VISIT system will provide us with the crucial biometric information needed to end the domestic registrationof people from certain countries, which has been conducted for the past several months under asystem known as NSEERS. (30) Number of Registrants. Through September 30, 2003, 177,260 individuals had been registered under NSEERS Of this total, 93,741 were registeredat a port of entry, and 83,519 were registered when they reported to an immigration office. (31) As ofDecember 1, 2003, individuals from more than 150 countries had been registered in the NSEERSprogram. (32) As noted in the earlier discussion of current registration requirements, aliens required to be registered under the INA must notify the U.S. government in writing of each change of addresswithin 10 days. This reporting requirement applies to virtually all aliens who remain in the UnitedStates for 30 days or longer, including LPRs. These individuals number in the millions. (33) Formerprovisions of the INA required nonimmigrants to submit address notices every 3 months andrequired other aliens, including LPRs, to submit such notices every year, regardless of whether theiraddresses had changed. (34) Both of these reportingrequirements were repealed by the Immigrationand Nationality Act Amendments of 1981 in the stated interest of improving the efficiency of INS. (35) Under current law, aliens who fail to submit change-of-address notices can be fined and/or imprisoned, and are subject to being taken into custody and removed from the country. Accordingto a July 2002 DOJ fact sheet, however, both compliance with and enforcement of this requirementhave been lacking. (36) As a result, the governmentdoes not have the current addresses of manynoncitizens required to be registered. A rule proposed by INS on July 26, 2002, would provide notice to aliens of their obligation to submit address notices and the consequences of failing to do so. (37) The rule would amend variousimmigration forms to require aliens applying for immigration benefits to acknowledge havingreceived notice of the following: the alien must provide a valid current address, including any change of address within 10 days of the change; the most recent address provided by the alien will be used for all purposes,including the service of a written notice informing the alien of the initiation of removal proceedings(referred to as a "notice to appear"); and if the alien has changed addresses and failed to provide notification, the alienwill be held responsible for any communications sent to the prior address. According to the July 2002 DOJ fact sheet cited above, this rule will help track noncitizens, will enhance the ability to initiate and complete removal proceedings, (38) and will facilitate contactingaliens in a timely fashion about their applications for immigration benefits. The comment period onthe rule ended on August 26, 2002. These registration and address reporting rules have been controversial. Supporters portray the entry-exit registration system as a needed means of reducing the nation's vulnerability to futureterrorist attacks. In addition, they view it as a reasonable way to begin addressing the problem ofillegal immigration by identifying individuals who remain in the country beyond their authorizedperiod of stay. Critics take issue with the system's purported national security benefits,characterizing it as an inefficient and counterproductive approach that will create resentment of theUnited States in the Muslim and Arab world and will undermine international support for the U.S.war on terrorism. They describe it as a blatant example of racial and ethnic profiling, which, theymaintain, runs counter to core democratic values. Critics, as well as some supporters, also havequestioned whether such a system would be effectively implemented. The proposed address reporting rule has likewise elicited strong reactions. Some support the underlying idea, agreeing that it is important for the government to have the current addresses offoreign nationals in the United States. As with the entry-exit registration proposal, however, someof these supporters, as well as opponents, have raised doubts about whether the information wouldbe processed in a timely fashion. In 2002, when INS had responsibility for processing immigrationforms, it was reported in July that the agency had not filed 2 million documents submitted byimmigrants, including 200,000 change-of-address cards. (39) It was further reported in early September2002 that INS had received 870,000 change-of-address forms since publication of the proposedaddress reporting rule in July and had processed some 100,000. (40) Moreover, some supporters havequestioned whether processing updated address information would be the best use of immigration-related resources. In addition to questioning the feasibility of implementing large-scale addressreporting, opponents have voiced substantive objections to the proposal. They argue that strictlyenforcing the change-of-address reporting requirement could subject some otherwise law-abidingaliens to severe punishment, possibly including removal. Critics also fear selective enforcement ofthe reporting requirement on the basis of race, ethnicity, or other characteristics. On December 2, 2003, DHS published an interim rule in the Federal Register to amend the NSEERS regulations. (41) The rule became effectiveon December 2 and provided for a 2-monthcomment period, ending on February 2, 2004. The interim rule suspends the requirements that: (1)individuals registered under NSEERS at a port of entry report after 30 days to complete theirregistration; and (2) all NSEERS registrants re-register annually. Instead, according to the summaryof the rule, "DHS will utilize a more tailored system in which it will notify individual aliens of futureregistration requirements." Under the new rule, DHS will decide on a case-by-case basis whichregistrants must appear at a DHS office (specifically, a U.S. Immigration and Customs Enforcementoffice) for one or more additional registration interviews to determine whether they are incompliance with the conditions of their nonimmigrant visa status and admission. For some aliens,these interviews may be more frequent than the prior 30-day and annual re-registration requirements. Among the other changes made by the rule are conforming amendments to the regulations to reflectthe transfer of immigration-related functions from DOJ to DHS under the Homeland Security Actof 2002 ( P.L. 107-296 ). In the supplementary information accompanying the rule, DHS offered several reasons why the suspension of the automatic re-registration requirements is appropriate and advantageous. Itindicated that there are other tracking systems, including US-VISIT and the Student and ExchangeVisitor Information System (SEVIS), (42) that canhelp ensure that NSEERS registrants remain incompliance with the terms of their visas and admission. In addition, DHS stated that suspending the30-day and annual re-registration requirements "will reduce the burden on those required to registerunder the current regulations, as well as to DHS." With respect to the latter, it further stated thatDHS resources not needed for re-registrations can be used for other purposes, including "to craft atargeted registration process that meets the national security needs of the country." The rule does not amend existing NSEERS registration procedures at ports of entry, including the fingerprinting, photographing, and registering of covered aliens. According to DHS: Special registration of aliens at [ports of entry] has, consistent with the program's intent, provided important law enforcement benefits, which haveincluded the identification of a number of alien terrorists andcriminals. The rule also does not change the general requirement that NSEERS registrants report their departure upon leaving the United States. Alien registration and reporting provisions were included in legislation in the 107th Congress. The Enhanced Border Security and Visa Entry Reform Act of 2002, as enacted by the 107thCongress, directs the General Accounting Office to conduct a study of the feasibility and utility ofrequiring nonimmigrants in the United States to submit a current address and, where applicable, thename and address of an employer every year. The study is due by May 2003. (43) As discussed above,a similar address reporting requirement existed until 1981. An immigration reform measure, the "Securing America's Future through Enforcement Reform Act of 2002" ( H.R. 5013 ), would have amended the INA to expand existing registrationrequirements. (44) In addition to the currentrequirement that aliens who are in the United States for30 days or longer and are unregistered apply for registration and be fingerprinted by day 30, it wouldhave required subsequent registrations on the part of LPRs every year and on the part of other aliensevery 3 months. With respect to address reporting, the bill would have retained the currentrequirement that aliens notify the Attorney General of a change of address within 10 days and wouldhave preserved the Attorney General's authority to require, upon 10 days notice, that the natives ofany foreign state report their current addresses. Among its other registration-related provisions, H.R. 5013 would have directed the Attorney General to establish an informationtechnology system for the collection, compilation, and maintenance of registration information. H.R. 5013 was referred to the House Judiciary Committee and its Subcommittee onImmigration, Border Security, and Claims, but saw no further action. In the 108th Congress, the Senate agreed to an alien registration-related amendment( S.Amdt. 54 ) by unanimous consent during its consideration of the FY2003Consolidated Appropriations Resolution ( H.J.Res. 2 ). S.Amdt. 54 , whichwas sponsored by Senator Jon Kyl with bipartisan cosponsorship, sought to make funding availablefor an entry-exit system. It also provided that no funds appropriated by the act would be availablefor any expenses related to NSEERS and directed the Attorney General to provide theAppropriations Committees with NSEERS-related documents and materials. The Senate passed anamended version of H.J.Res. 2 , which included S.Amdt. 54 , on January23, 2003. (45) The version of H.J.Res. 2 passed by the House on January 8, 2003, did notinclude language on NSEERS. The final version of H.J.Res. 2 , signed into law onFebruary 20, 2003 as P.L. 108-7 , did not eliminate funding for NSEERS. It did, however, includelanguage requiring the Attorney General, in consultation with the Secretary of DHS, to provide theAppropriations Committees by March 1, 2003, with the NSEERS-related documents and materialsdescribed in the Senate amendment. | Since the September 11, 2001 terrorist attacks, many U.S. officials and others have expressed concerns that the U.S. government is unaware of the addresses and whereabouts of many foreignnationals in the country. The Immigration and Nationality Act (INA) contains provisions for theregistration of aliens, including the requirement that aliens provide notification of any change ofaddress within 10 days. For many years, however, this address reporting requirement was generallynot enforced. The INA also authorizes the Attorney General to prescribe special regulations for the registration and fingerprinting of any class of aliens who are not U.S. legal permanent residents(LPRs). The Attorney General has exercised this authority at various times by requiring thatnonimmigrant aliens (legal temporary residents) from designated countries be registered,photographed, and fingerprinted at the port of entry. A rule, which took effect on September 11, 2002, applies expanded special registration requirements to certain newly arriving nonimmigrants as part of the National Security Entry-ExitRegistration System (NSEERS). NSEERS covers arriving nonimmigrants from designatedcountries, as well as other arriving nonimmigrants who are determined to pose an elevated nationalsecurity risk. Among other requirements, aliens subject to special registration under this rule areregistered, fingerprinted, photographed, and checked against databases of known criminals andterrorists at the port of entry. Under the original rule, which has since been amended, those whoremained for at least 30 days had to report to an immigration office to complete their registration andthose remaining for more than 1 year had to reaffirm their registration information annually. A seriesof Federal Register notices published in late 2002 and early 2003 similarly required certainnonimmigrant males in the United States from designated countries to report to an immigrationoffice to be registered, fingerprinted, and photographed. A subsequent rule, which became effectiveon December 2, 2003, amended the NSEERS regulations. Among other changes, it suspended theautomatic 30-day and annual re-registration requirements. A proposed rule, published in July 2002, would give notice to aliens, including LPRs, of their obligation to provide the government with a current address, including any change of address within10 days, and the consequences of failing to do so. Congress has acted on alien registration-related measures in recent years. The 107th Congress enacted the Enhanced Border Security and Visa Entry Reform Act of 2002 ( P.L. 107-173 ), whichdirects the General Accounting Office to study the feasibility and utility of requiring nonimmigrantsto submit a current address and, where applicable, the name and address of an employer every year. In the 108th Congress, the FY2003 Consolidated Appropriations Resolution ( P.L. 108-7 ) containslanguage requiring the Attorney General, in consultation with the Secretary of Homeland Security,to provide Congress with NSEERS-related documents and materials. This report will be updatedas related developments occur. |
The United States Congress is served by a group of young adults known as pages. Pages have been employed since the early Congresses, and some Members of Congress have served as pages. Today, congressional pages include students who are juniors in high school and who may come from all areas of the United States and its territories. The page system is formally provided for in law, although the rationale for the page service or for using high school students is not. Since the earliest accounts of pages, it has been widely noted in debates and writings within Congress that pages provide needed messenger services: From the origin of the present government, in 1789, to the present time, they [messengers] have been under the orders and resolutions of the House, and experience has attested to the necessity of their services. The use of boys or pages, was introduced at a later period; but from the first session of Congress held at the city of Washington [1800], they have continued to be employed by the House, with the approbation of the House. Being a page provides a unique educational opportunity, affording young adults an opportunity to learn about Congress, the legislative process, and to develop workplace and leadership skills. Over the years, there has been concern about having young pages serve Congress. In the 1800s and early 1900s, some House pages were as young as 10 and Senate pages as young as 13. Later, they were as old as 18. At various times, congressional actions related to employing pages have addressed the lack of supervised housing as well as pages' ages, tenure, selection, education, and management. Far-reaching reforms in the page system were implemented in 1982 and 1983, following press reports of insufficient supervision, alleged sexual misconduct, and involvement in the trafficking of drugs on Capitol Hill. Most reports of misbehavior were later found to be unsubstantiated. As a consequence of the allegations, however, both the House and Senate for the first time provided supervised housing for their pages; established separate page schools and took over the education of the pages, which had been provided under contract by the District of Columbia school system; and developed more educational and recreational opportunities for their pages. In the 110 th Congress (2007-2008), at the request of then House Speaker Nancy Pelosi and Republican Leader John Boehner, the House inspector general (IG) conducted an inquiry into the supervision and operation of the House Page Residence Hall, and subsequently issued a confidential report recommending changes. In 2008, an independent study, conducted by consultants to the House, was conducted. In response to the findings of those efforts, the House implemented new policies to enhance the safety and supervision of the pages and oversight of the page program. These changes followed investigations of allegations related to the page program participants, including the exchange of inappropriate communications between a Member of the House and former pages, and of misbehavior by a few pages in the 109 th and 110 th Congresses. A follow up review of the page program was carried out in the summer of 2010 by the same independent consultants. According to House leaders, concerns raised in 2008, including costs and the need for the program, remained. In August 2011, Speaker John Boehner and Democratic Leader Nancy Pelosi announced the termination of the House page program effective August 31. In a Dear Colleague Letter, the leaders cited both changes in technology obviating the need for most page services, and the program's costs as reasons to discontinue the program. In the 112 th Congress, (2011-2012), H.Res. 397 , entitled Reestablishing the House of Representatives Page Program, was introduced by Representative Dan Boren. The resolution would have created an advisory panel to make recommendations for the operation of a reestablished page program. The House page program would have been reestablished in the first school semester after the advisory panel submitted its recommendations to the Committee on House Administration. Membership of the nine-person advisory body would have been composed of three Members of the House from the majority party of the House, three Members of the House from the minority party, and three individuals who were not Members and who had served as House pages. The measure was referred to the Committee on House Administration, and no further action was taken. Pages serve principally as messengers. They carry documents between the House and Senate, Members' offices, committees, and the Library of Congress. They prepare the Senate chamber for each day's business by distributing the Congressional Record and other documents related to the day's agenda, assist in the cloakrooms and chambers; and when Congress is in session, they sit near the dais where they may be summoned by Members for assistance. In the House, pages also previously raised and lowered the flag on the roof of the Capitol. There are 30 Senate page positions, 16 for the majority party and 14 for the minority party. The office of the Sergeant at Arms supervises the Senate page program. The Senate page program consists of four quarters, two academic year sessions and two shorter summer sessions. It is administered by the Senate Sergeant at Arms, the Senate page program director, and the principal of the Senate page school. Senate pages are paid a stipend, and deductions are taken for taxes and residence hall fee, which includes a meal plan. Pages must pay their transportation costs to Washington, DC, but their uniforms are supplied. The uniforms consist of navy blue suits, white shirts, red and blue striped tie, dark socks, and black shoes. The Senate provides its pages education and supervised housing in the Daniel Webster Page Residence near the Hart Senate Office Building. The Senate Page School is located in the lower level of Webster Hall. Pages who serve during the academic year are educated in this school, which is also accredited by the Middle States Association of Colleges and Schools. The junior-year curriculum is geared toward college preparation and emphasis is given to the unique learning opportunities available in Washington, DC. Early morning classes are held prior to the convening of the Senate. The House page program was administered by the Office of the Clerk, under the supervision of the House Page Board. The board, established in statute, is composed of two Members from each party, including the chair, as well as the Clerk and the Sergeant at Arms of the House, a former House page, and the parent of a House page. Participants in the House page program typically served for one academic semester during the school year, or during a summer session. House pages received a stipend for their services, and deductions were taken from their salaries for federal and state taxes, Social Security, and a residence hall fee, which included a meal plan. The pages were required to live in the supervised House Page Dormitory near the Capitol. They were responsible for the cost of their uniforms—navy jackets, dark grey slacks or skirts, long sleeve white shirt, red and blue striped tie, and black shoes—and transportation to and from Washington, DC. During the school year, pages were educated in the House Page School located in the Thomas Jefferson Building of the Library of Congress. The page school, which is accredited by the Middle States Association of Colleges and Schools, offered a junior-year high-school curriculum, college preparatory courses, and extracurricular and weekend activities. Classes were usually held five days a week, commencing at 6:45 a.m., prior to the convening of the House. | For more than 180 years, messengers known as pages have served the United States Congress. Pages must be high school juniors and at least 16 years of age. Several incumbent and former Members of Congress as well as other prominent Americans have served as congressional pages. Senator Daniel Webster appointed the first Senate page in 1829. The first House pages began their service in 1842. Women were first appointed as pages in 1971. In August 2011, House leaders announced the termination of that chamber's page program. Senate pages are appointed and sponsored by Senators for one academic semester of the school year, or for a summer session. The right to appoint pages rotates among Senators pursuant to criteria set by the Senate's leadership. Academic standing is one of the most important criteria used in the final selection of pages. Selection criteria for House pages was similar when the page program operated in that chamber. Prospective Senate pages are advised to contact their Senators to request consideration for a page appointment. |
Hydraulic fracturing is a technique used to free oil and natural gas trapped underground in low-permeability rock formations by pumping a fracturing fluid under high pressure in order to crack the formations. The composition of a fracturing fluid varies with the nature of the formation, but typically contains mostly water; a proppant to keep the fractures open, such as sand; and a small percentage of chemical additives. A primary function of these additives is to assist the movement of the proppant into the fractures made in the formation by reducing friction between the fracturing fluid and the pipe used to pump the fluid into the formation. Although some of these chemical additives may be harmless, others may be hazardous to health and the environment. A report by the minority staff of the House Committee on Energy and Commerce found that between 2005 and 2009, the 14 leading oil and gas service companies used "780 million gallons of hydraulic fracturing products" in fracturing fluids, with "95 of the products containing 13 different carcinogens." In 2011, President Barack Obama directed Secretary of Energy Steven Chu to form a panel to study the effects of shale gas production on health and the environment. The Shale Gas Production Subcommittee of the Secretary of Energy Advisory Board has made several recommendations intended to address these effects. One recommendation calls for the public disclosure, on a "well-by-well basis," of all of the chemical ingredients—"not just those that appear on Material Safety Data Sheets"—added to fracturing fluids, with some protection for trade secrets. Proponents of chemical disclosure laws maintain that public disclosure of the chemicals used in each well would allow for health professionals to better respond to medical emergencies involving human exposure to the chemicals; assist researchers in conducting health studies on shale gas production; and permit regulators and others to perform baseline testing of water sources to track potential groundwater contamination if it occurs. However, some manufacturers of the additives, as well as others in the industry, remain reluctant to disclose information about the chemicals they use. These parties have expressed concerns that disclosure would reveal proprietary chemical formulas to their competitors, destroying the parties' valuable trade secrets. This report provides an overview of current and proposed laws and regulations at the state and federal levels that require the disclosure of the chemicals added to the fluid used in hydraulic fracturing. Although a few provisions of federal law require some disclosure of information about the chemicals used in hydraulic fracturing, none of them requires that detailed information about the chemical composition of a fracturing fluid be provided. In his 2012 State of the Union Address, President Barack Obama said he would obligate "all companies that drill for gas on public lands to disclose the chemicals they use," citing health and safety concerns. In May 2012, the Bureau of Land Management (BLM) published a proposed rule that would require disclosure of the content of fracturing fluids used on lands managed by the agency. In addition, there were legislative efforts in the 112 th Congress. H.R. 1084 and S. 587 , the Fracturing Responsibility and Awareness of Chemicals Act (FRAC Act), would have created more broadly applicable disclosure requirements for parties engaged in hydraulic fracturing. At the state level, the Interstate Oil and Gas Compact Commission, an organization with members that include state regulators and industry representatives, has argued that current regulation of hydraulic fracturing by the states is sufficient. At least 15 states already have some form of chemical disclosure requirements. These provisions vary widely, but generally indicate (1) which parties must disclose information about chemical additives and whether these disclosures must be made to the public or a state agency; (2) what information about chemicals added to a fracturing fluid must be disclosed, including how specifically parties must describe the chemical makeup of the fracturing fluid and the additives that are combined with it; (3) what protections, if any, will be given to trade secrets; and (4) at what time disclosure must be made in relation to when fracturing takes place. Others states are in the process of considering disclosure laws or regulations. For a glossary of some of the terms used in this report, see Appendix A . For a table summarizing some of the hydraulic fracturing fluid chemical disclosure laws and proposals described in this report, see Appendix B . No federal law currently requires parties to submit detailed information about the chemical composition of a hydraulic fracturing fluid. Under the Emergency Planning and Community Right-to-Know Act (EPCRA), owners or operators of facilities where certain hazardous hydraulic fracturing chemicals are present above certain thresholds may have to comply with emergency planning requirements; emergency release notification obligations; and hazardous chemical storage reporting requirements. In addition, environmental advocacy groups have petitioned the Environmental Protection Agency (EPA) to regulate hydraulic fracturing chemicals under the Toxic Substances Control Act and to require the oil and gas extraction industry to report the toxic chemicals it releases under the EPA's Toxics Release Inventory. A main goal of the Toxic Substances Control Act (TSCA) is to protect human health and the environment from risks associated with toxic chemicals in U.S. commerce. Under the act, the EPA may require manufacturers and processors of chemicals to develop, maintain, and report data on the chemicals' effects on health and the environment. The EPA may also place certain restrictions on chemicals when the agency has a reasonable basis to conclude that they present—or will present—an unreasonable risk of injury to health or the environment. However, the EPA may regulate the chemicals only "to the extent necessary to protect adequately against such risk using the least burdensome requirements." On August 4, 2011, Earthjustice and more than 100 other environmental advocacy organizations petitioned the EPA to promulgate rules under sections 4 and 8 of TSCA for chemical substances and mixtures used in oil and gas exploration or production (E&P Chemicals). The petition stated that the EPA and the public "lack adequate information about the health and environmental effects of E&P Chemicals, which are used in increasing amounts to facilitate the rapid expansion of oil and gas development throughout the United States." Section 4 authorizes the EPA to issue rules requiring manufacturers or processors of chemicals to test the chemicals in order to obtain data on their health and environmental effects. Under the statute, the EPA may require testing when it finds that (1) the manufacture, distribution, processing, use, or disposal of a chemical may present an unreasonable risk of injury to health or the environment; or (2) a chemical is or will be produced in substantial quantities, and (A) it enters or may reasonably be anticipated to enter the environment in substantial quantities, or (B) there is or may be significant or substantial human exposure to such chemical. There must also be insufficient data to determine or predict the chemical's impact on people or the environment. Testing must be necessary to develop this data. Earthjustice and the other petitioners argued that E&P Chemicals may present an unreasonable risk of injury to health and the environment for several reasons. Petitioners maintained that, for example, leaks and spills of the chemicals may cause harm to people and animals, as well as the quality of air, water, and soil. The petitioners also argued that the large volume of chemicals used in hydraulic fracturing of wells in the United States could result in substantial human exposure to the chemicals, as well as a substantial release of the chemicals into the environment. In the petitioners' view, testing was needed to obtain sufficient data on the chemicals' effects because existing federal and state disclosure requirements were inadequate. In a November 2, 2011 letter, the EPA denied the petitioners' request for promulgation of a TSCA section 4 test rule. In a short paragraph, the agency wrote that the petitioners had failed to present sufficient facts for the EPA to find that such a rule was necessary. Section 8 of TSCA generally authorizes the EPA to require manufacturers, processors, and distributors of chemicals in U.S. commerce to maintain and report certain data on the health and environmental effects of the chemicals. In their petition, Earthjustice and other advocacy groups asked the EPA to take the following actions pursuant to section 8 so that the agency and the public could better understand the impact of E&P Chemicals on human health and the environment: Adopt a rule pursuant to TSCA section 8(a) requiring manufacturers and processors of E&P Chemicals to maintain records and submit reports to EPA disclosing the identities, categories, and quantities of E&P Chemicals, as well as descriptions of their byproducts; all existing data on their potential or demonstrated environmental and health effects; and the number of individuals potentially exposed to the chemicals. Call in all records of allegations of significant adverse reactions received and maintained by manufacturers, processors, and distributors of E&P Chemicals pursuant to TSCA section 8(c) and 40 C.F.R. section 717. Adopt a rule pursuant to TSCA section 8(d) to require submittal of all existing, not previously reported health and safety studies related to the health and/or environmental effects of E&P Chemicals. In a November 23, 2011, letter, the EPA partially granted petitioners' section 8(a) and section 8(d) requests. The agency wrote that it would initiate a rulemaking to gather data on the chemicals used in hydraulic fracturing. However, the agency declined to issue rules for other chemicals in the oil and gas exploration and production sector. The EPA intends to discuss potential section 8 reporting requirements with the states, industry, and public interest groups to "minimize reporting burdens and costs, take advantage of existing information, and avoid duplication of efforts." As of the date of this report, neither a proposed rule nor an advance notice of proposed rulemaking has been issued. Questions have been raised about whether rules promulgated by the EPA pursuant to TSCA sections 8(a) and 8(d) might duplicate disclosure requirements contained in state laws or regulations. As described below, several states require operators, service companies, or other entities involved in hydraulic fracturing to report information about the identities, categories of use, and volumes of the chemicals used in the fluid at a particular well site. A rule under TSCA sections 8(a) and 8(d) could potentially require manufacturers and processors of the chemicals to report similar information. It might also require manufacturers, processors, and distributors of the chemicals to submit studies on the chemicals' health and safety effects. Rules that the EPA promulgates under sections 4, 5, and 6 of TSCA may preempt state or local requirements in some circumstances unless EPA exempts each requirement from preemption by promulgating a rule. However, it does not appear that recordkeeping and reporting rules issued under section 8 of TSCA may expressly preempt state laws. Thus, it is possible that state and federal disclosure requirements could both apply. The EPA has written that a TSCA rule would "not duplicate, but instead complement, the well-by-well disclosure programs of states" by providing "aggregate pictures of the chemical substances and mixtures used in hydraulic fracturing." EPA's promulgation of section 8 rules may also raise concerns that they will overlap with any future federal chemical disclosure rule issued by the Bureau of Land Management, Department of the Interior, for holders of oil and gas leases on federal lands managed by the agency. TSCA section 9 states that "[i]n administering [TSCA], the Administrator shall consult and coordinate with ... the heads of any other appropriate Federal executive department or agency, any relevant independent regulatory agency, and any other appropriate instrumentality of the Federal Government for the purpose of achieving the maximum enforcement of [TSCA] while imposing the least burdens of duplicative requirements on those subject to [TSCA] and for other purposes." Additional issues may arise with respect to the EPA's handling of trade secrets submitted to it under section 8 rules. TSCA provides the EPA with discretion to disclose trade secret information in some circumstances. However, public disclosure may destroy a property interest that a party has in its trade secrets, potentially leading to a regulatory taking of property under the Fifth Amendment. Further complications may occur if information protected from public disclosure by state law is disclosed by the EPA. The Occupational Safety and Health Administration has promulgated a set of regulations under the Occupational Safety and Health Act (OSHAct) referred to as the Hazard Communication Standard (HCS). A primary purpose of the HCS is to ensure that employees who may be exposed to hazardous chemicals in the workplace are aware of the chemicals' potential dangers. Manufacturers and importers must obtain or develop Material Safety Data Sheets (MSDS) for hydraulic fracturing chemicals that are hazardous according to OSHA standards. MSDS must list basic information about the identity of the chemicals; the chemicals' potential hazards; and safety precautions for their handling and use, among other things. The HCS requires operators to maintain MSDS for hazardous chemicals at the job site. MSDS may provide limited information about hydraulic fracturing chemicals. Currently, the most specific details about chemical identities that must be listed on the data sheets are the common or chemical names of substances that are considered to be hazardous under OSHA regulations. Chemical Abstract Service Registry Numbers (CASRNs) for substances or mixtures do not have to be listed. In addition, parties that prepare MSDS may withhold chemical identity information from the data sheets at their discretion in some circumstances. However, the regulations do not prevent parties from voluntarily submitting data sheets with more detailed information. The Emergency Planning and Community Right-to-Know Act (EPCRA) establishes programs to provide members of the public with information about hazardous chemicals located in their communities. It also requires that representatives from different levels of government coordinate their efforts with communities and industry to prepare response plans for emergencies involving the accidental release of hazardous chemicals. The act seeks to induce each state to establish a State Emergency Response Commission (SERC). Each SERC appoints and coordinates the activities of a Local Emergency Planning Committee (LEPC) for each emergency planning district created within a state or across multiple states. A LEPC is responsible for developing an emergency response plan for an accidental chemical release with input from stakeholders and submitting it to the SERC. Generally, a facility is subject to EPCRA's emergency planning requirements if there is a substance on the EPA's list of extremely hazardous substances (EHS) present at the facility in excess of its EPA-determined threshold planning quantity. Whether a well site where hydraulic fracturing occurs would be subject to EPCRA's requirements would depend on the identities and quantities of the chemicals present, among other things. Under section 304 of EPCRA, an owner or operator of a facility must immediately notify the SERC and the community emergency coordinator for the LEPC in the affected area if an accidental release of a chemical that is an EHS occurs in an amount in excess of its reportable quantity from a facility where a hazardous chemical is produced, used, or stored. This information must be made available to the public. Section 311 of EPCRA generally requires that facility owners or operators submit an MSDS for each hazardous chemical present that exceeds an EPA-determined threshold level, or a list of such chemicals, to the LEPC, SERC, and the local fire department. For non-proprietary information, the act generally requires a LEPC to provide an MSDS to a member of the public on request. Under Section 312 of EPCRA, facility owners or operators must submit annual chemical inventory information for hazardous chemicals present at the facility in excess of an EPA-determined threshold level to the LEPC, SERC, and the local fire department. There are two types of information that may have to be submitted. If the facility owner or operator is required to report "Tier I information," then the inventory form must contain information about the maximum and average daily aggregate amounts of chemicals in each hazard category present at the facility during the prior year, as well as the general location of chemicals in each category. However, most states at least require the submission of "Tier II information." This information includes "Tier I information," as well as the chemical or common name of each hazardous chemical as listed on its MSDS and the location and manner of storage of the chemical at the facility. Tier II information for the prior calendar year for a particular facility must be made available to members of the public upon written request. A SERC or LEPC must disclose to the requester any non-proprietary information it possesses. If the SERC or LEPC lacks the information for a hazardous chemical, then it must request the information from the facility owner or operator and disclose the non-proprietary portions of it to the requester. Section 313 of EPCRA requires owners or operators of certain facilities to report information about the release into the environment of certain "toxic" chemicals from the facilities. This information must be disclosed to federal and state officials, who in turn disclose the non-proprietary details to the public via the Toxics Release Inventory (TRI) website. Generally, the reporting requirements apply to owners or operators of facilities with 10 or more full-time employees when the facilities fall under certain Standard Industrial Classification or North American Industry Classification System codes and manufactured, processed, or otherwise used a listed toxic chemical in excess of its threshold reporting amount during the applicable calendar year. Facilities used by the oil and gas industry are generally not included in the industry codes required to report under the TRI. Section 313(b) allows the EPA to add or delete industry codes as needed. In October 2012, Earthworks and several other environmental advocacy organizations asked the EPA to require the oil and gas extraction industry to report the toxic chemicals it releases under the TRI program. When determining whether to add new industry groups, the EPA has previously considered three factors: (1) Whether one or more listed toxic chemicals are reasonably anticipated to be present at facilities in that industry (chemical factor); (2) whether facilities within the candidate industry group 'manufacture,' 'process,' or 'otherwise use' EPCRA section 313 listed toxic chemicals (activity factor); and (3) whether addition of facilities within the candidate industry group reasonably can be anticipated to increase the information made available pursuant to EPCRA section 313 or to otherwise further the purposes of EPCRA section 313 (information factor). The Earthworks petitioners argued that the oil and gas extraction industry met the chemical factor because drilling, well development, and hydraulic fracturing at well sites use many chemicals listed on the TRI. With respect to the activity factor, the petitioners maintained that the industry manufactured, processed, and otherwise used TRI chemicals via well completions, well development, and hydraulic fracturing, among other processes. Finally, petitioners argued that the information factor was satisfied because existing federal and state disclosure laws were "inadequate." In 1997, the EPA considered adding the oil and gas exploration and production industry group to the list of industries required to report under the TRI. However, it decided not to add the industry at that time, partly because of questions about how "facility" would be defined under EPCRA section 313 for the purpose of determining whether the employee and chemical thresholds for release reporting were met. At issue was whether this definition would encompass individual wells involved in "related activities located over significantly large geographic areas." EPCRA defines "facility" as "all buildings, equipment, structures, and other stationary items which are located on a single site or on contiguous or adjacent sites and which are owned or operated by the same person (or by any person which controls, is controlled by, or under common control with, such person)." In Sierra Club, Inc. v. Tyson Foods, Inc. , the plaintiffs sued the defendants for allegedly neglecting to report releases of ammonia into the environment from chicken production operations. The plaintiffs alleged that this conduct violated EPCRA section 304. The district court considered whether the definition of "facility" encompassed multiple chicken houses owned by the same person that were situated on single or adjacent sites within a concentrated area. The court held that it did. Thus, it is possible that a court could find that multiple adjacent well sites under the same ownership or management were a single "facility" under section 313 of EPCRA. In May 2012, BLM published proposed regulations governing the use of hydraulic fracturing technology by holders of oil and gas leases on federal lands managed by BLM. The proposed rule established a number of disclosure and filing requirements for "well stimulation activities" on BLM-managed land. Prior to the initiation of the well stimulation activity, the lessee must obtain BLM approval for the well stimulation and must provide BLM with, among other things, a detailed description of the well stimulation engineering design, an estimate of the total volume of fluid to be used, the maximum injection pressure anticipated, and information about the anticipated volume and handling of the flowback. There do not appear to be disclosure requirements related to the chemical makeup of the fracturing fluid that the lessee plans to use prior to the well stimulation activity. However, after the completion of the activity, the proposed rule would require the lessee to "identify to the BLM the stimulation fluid by additive trade name and additive purpose, the Chemical Abstracts Service Registry Number, and the percent mass of each ingredient used in the stimulation operation." BLM noted in the proposed rule that "[t]his information is needed in order for the BLM to maintain a record of the stimulation operation as performed. The information is being required in a format that does not link additives ... to chemical composition of the materials to minimize the risk of disclosure of any formulas of additives." According to BLM, "[t]his approach is similar to the one the State of Colorado adopted in 2011." The proposed rule also sets forth a number of other reporting requirements regarding the well stimulation operation upon completion of the operation. On March 15, 2011, the Fracturing Responsibility and Awareness of Chemicals Act of 2011 (FRAC Act), H.R. 1084 and S. 587 , was introduced in both the Senate and the House of Representatives. The bills had some minor language differences, but were substantially similar. Each contained two amendments to the Safe Drinking Water Act (SDWA)—one that would have amended the definition of underground injection to include hydraulic fracturing, and another that would have created a new disclosure requirement for the chemicals used in hydraulic fracturing. The second amendment to the SDWA in the FRAC Act would have created a new hydraulic fracturing disclosure requirement. H.R. 1084 would have created a new statutory obligation requiring anyone conducting hydraulic fracturing to disclose to the State (or the Administrator [of the Environmental Protection Agency] if the Administrator has primary enforcement responsibility in the State)—(I) prior to the commencement of any hydraulic fracturing operations at any lease area or portion thereof, a list of chemicals intended for use in any underground injection during such operations, including identification of the chemical constituents of mixtures, Chemical Abstracts Service numbers for each chemical and constituent, material safety data sheets when available, and the anticipated volume of each chemical; and (II) not later than 30 days after the end of any hydraulic fracturing operations the list of chemicals used in each underground injection during such operations, including identification of the chemical constituents of mixtures, Chemical Abstracts Service numbers for each chemical and constituent, material safety data sheets when available, and the volume of each chemical used. The bill would also have required that the state or the Environmental Protection Agency (EPA) "make the disclosure of chemical constituents ... available to the public, including by posting the information on an appropriate Internet Web site," and the bill clarified that the disclosure requirements "do not authorize the State (or the [EPA]) to require the public disclosure of proprietary chemical formulas." In other words, the disclosure requirements addressed only the chemicals used, not the manner of their use or the amounts or ratios in which they were used. This language attempted to protect proprietary business information, that is, "secret" formulas or practices that drilling companies may feel they should not be required to disclose to their competitors. Furthermore, the FRAC Act would have required operators to disclose proprietary chemical information to medical professionals in cases of medical emergencies. Although most state oil and gas rules do not require disclosure of proprietary chemical information to medical professionals, such disclosure broadly parallels federal requirements under the OSHAct. Calls for disclosure of hydraulic fracturing chemicals have increased as homeowners and others express concern about the potential presence of unknown chemicals in tainted well water near oil and gas operations. Of the states that produce oil, natural gas, or both, at least 15 require some disclosure of information about the chemicals added to the hydraulic fracturing fluid used to stimulate a particular well. State requirements, which take the form of laws, regulations, and administrative interpretations, vary widely. Generally, they fall into four overlapping categories: (1) which parties must disclose information about chemical additives and whether these disclosures must be made to the public or a state agency; (2) what information about chemicals added to a fracturing fluid must be disclosed, including how specifically parties must describe the chemical makeup of the fracturing fluid and the additives that are combined with it; (3) what protections, if any, will be given to trade secrets; and (4) at what time disclosure must be made in relation to when fracturing takes place. States update their laws on fracturing chemical disclosure frequently, and thus this section is designed to show trends in how states structure these provisions rather than to describe the current status of the law in any particular state. Appendix A provides a glossary of some of the terms used in this section. Appendix B contains a table summarizing the chemical disclosure requirements discussed in this section. State disclosure laws require at least one party involved in the hydraulic fracturing of a specific well to divulge information about the chemicals added to the fluid used to fracture that well. Under these laws, parties that must make disclosures include well owners, well operators, drilling permit holders, or "persons" that perform a fracturing treatment, such as service companies. Parties typically must divulge chemical information to the public, a state agency, or both. States that require public disclosure often mandate that parties post the information on an Internet website such as the FracFocus Chemical Disclosure Registry run by the Groundwater Protection Council and the Interstate Oil and Gas Compact Commission. Some state laws do not require direct public disclosure of fracturing chemicals. However, some state agencies may choose to post the information they receive on their own websites. Additionally, state open records laws may allow a person to obtain chemical information submitted to a state agency upon request, provided that the information is not shielded from disclosure by an exception, such as an exemption for trade secrets. Disclosure laws in at least four states require that chemical information be submitted directly to the public via posting of the information on the FracFocus Chemical Disclosure Registry or a comparable website. By contrast, at least a couple of states give disclosing parties a choice as to whether they will submit the information to a state agency or post it on a website accessible to the public. Several states where commercial natural gas exploration and production occur do not specifically provide for public disclosure, choosing instead to have parties submit details on chemical additives solely to state agencies, some of which may opt to post these disclosures to their websites. The particular parties involved in the fracturing of a well that must disclose chemical information to regulators or the public vary by state. In about half of the states with these laws, the operator of the well must disclose information about the chemicals used. State laws that require disclosure by either the owner or operator of the well include Idaho and Montana (after fracturing). The operator, well owner, or service company must divulge chemical information in North Dakota and Wyoming. In Arkansas, any "person" fracturing a well in the state must disclose chemical information before fracturing, and the permit holder must divulge more detailed information afterward. State disclosure laws require parties to provide various levels of detail about the chemical makeup of the fluid used in hydraulic fracturing. Because some states contain protections for trade secrets that may allow parties to withhold chemical information from regulators or the public, it may be difficult to compare the actual level of disclosure required. Moreover, in a few states, decisions about what details are trade secrets exempt from disclosure are made by the state attorney general or a state agency. These decision makers may shield information from public disclosure at their discretion, typically subject to judicial review. This section provides a few examples of state laws that require different levels of disclosure, but does not take into account the trade secret protections in those states. For a table showing the level of disclosure required on a state-by-state basis, see Appendix B . The level of disclosure required by a particular law depends on how specifically parties must describe the chemical composition of the fracturing fluid and the additives that are combined with it. Some states require a relatively high level of disclosure, at least before trade secret protections are taken into account. For example, Colorado requires parties to identify each chemical ingredient in the overall fracturing fluid by its CASRN and to provide the maximum concentration of each ingredient within the fluid. Other states require fewer details about the composition of a fracturing fluid. For example, West Virginia requires only that a list of additives be provided. Between these two ends of the spectrum are rules such as Louisiana's, which obligates parties to provide the CASRNs and maximum concentrations of hazardous ingredients present in the fluid, but not nonhazardous ingredients. At least four states require disclosures to be made before and after fracturing. In these states, the level of disclosure differs depending on whether the information is submitted before or after treatment of the well. Some states require that parties submit MSDS for additives or chemical ingredients in a fracturing fluid. Employers are required to use MSDS to warn employees of hazardous chemicals in the workplace under the OSHAct. Because MSDS provide data only on chemicals considered to be hazardous under OSHA regulations, they may offer a relatively low level of disclosure. The most specific details that parties must include on MSDS are the common or chemical names of certain hazardous ingredients, assuming that the names do not qualify for trade secret protection. Thus, under the regulations, CASRNs or the concentrations of ingredients within an additive do not have to be listed. This does not mean, however, that some parties would not voluntarily submit data sheets with more information. A few states specifically exempt certain information from disclosure. In Colorado, a party is not required to (1) disclose chemicals that are not disclosed to it by the manufacturer, vendor, or service provider; (2) disclose chemicals that were not intentionally added to the hydraulic fracturing fluid; or (3) disclose chemicals that occur incidentally or are otherwise unintentionally present in trace amounts, may be the incidental result of a chemical reaction or chemical process, or may be constituents of naturally occurring materials that become part of a hydraulic fracturing fluid. Laws in Pennsylvania and Texas contain similar language. Closely related to what must be submitted under a particular disclosure law are the protections provided for trade secrets. More than half of the disclosure laws examined contain trade secret protections. A state may require detailed disclosure of chemical information, but if it also provides a high degree of protection for trade secrets, parties may be able to avoid making significant disclosures to a state agency or the public. Although the definition of a "trade secret" may differ under various states' laws, this section assumes that a trade secret is (a) information valuable to its owner because others who could obtain value from it do not know the information and cannot easily discover it; and (b) information that is subject to reasonable measures to protect it from disclosure. Whether a particular law requires the public disclosure of trade secrets may have implications for whether a court would find that the law effects a taking of property under the Takings Clause of the Fifth Amendment—a finding that could potentially require that just compensation be made to the owner of the trade secrets. A couple of disclosure laws lack trade secret protections. These include Michigan's and West Virginia's. States may not provide trade secret protections because the information required to be disclosed under their laws is not detailed enough to be considered a trade secret, perhaps because it is knowledge that is generally known or easily discoverable. Or, in some instances, trade secret protections may be provided in another state law, such as an exemption for trade secrets contained in an open records law that could allow a state agency that had received chemical information to prevent it from being disclosed to the public. At least one state allows parties to withhold all details about fracturing additives that the parties consider to be trade secrets. New Mexico's rule states: "The division does not require the reporting or disclosure of proprietary, trade secret or confidential business information," apparently leaving the determination of what may be excluded to the discretion of the submitter. In contrast, a few states allow withholding only if parties provide alternative information about chemical ingredients to regulators or the public for disclosure, such as the chemical family for the ingredients. For example, Montana asks that, for withheld trade secret chemicals, parties provide the "trade name, inventory name, chemical family name, or other unique name and the quantity of such constituent(s) used." In Montana, as well as in Colorado and Louisiana, when parties withhold information and provide a less detailed description of chemical additives, it does not appear that regulators have the authority to compel further disclosure in ordinary circumstances. However, as described below, some states make an exception and require disclosure in special circumstances like spills or medical emergencies. Some disclosure laws give the state attorney general or a state agency the authority to approve or deny an exemption for trade secrets. These laws vary as to whether parties may withhold the information prior to the decision or must first submit it to the state. For example, the Texas rule, which allows parties to withhold information initially, allows landowners and others to challenge a claim of trade secret protection and lists procedures to be used by the state attorney general to decide whether to exempt the information from disclosure. Arkansas's rule states that parties may withhold the information and submit a claim for a trade secret exemption to the state agency. The agency decides whether information qualifies for protection under the criteria provided in the federal Emergency Planning and Community Right-to-Know Act. In Wyoming, the state oil and gas commission decides whether information that has been submitted to it is exempt from public disclosure under the Wyoming Public Records Act. At least seven disclosure laws make an exception to trade secret protections for situations in which a health care professional needs the information in order to provide medical care. Typically, the professional must execute a confidentiality agreement before or after disclosure occurs. For example, Colorado's rule states the following: Vendors, service companies, and operators shall identify the specific identity and amount of any chemicals claimed to be a trade secret to any health professional who requests such information in writing if the health professional provides a written statement of need for the information and executes a confidentiality agreement, Form 35. The written statement of need shall be a statement that the health professional has a reasonable basis to believe that (1) the information is needed for purposes of diagnosis or treatment of an individual, (2) the individual being diagnosed or treated may have been exposed to the chemical concerned, and (3) knowledge of the information will assist in such diagnosis or treatment. In addition, Colorado's rule provides that in immediate medical emergencies, trade secret information must be provided to the health professional "upon a verbal acknowledgement by the health professional that such information shall not be used for purposes other than the health needs asserted and that the health professional shall otherwise maintain the information as confidential." A written confidentiality agreement may be requested "as soon as circumstances permit." Other states with some form of medical emergency exception include Arkansas (confidentiality agreement not required in rule), Idaho (confidentiality agreement not required in rule), Louisiana (confidentiality agreement not required in rule), Montana (confidentiality agreement may be required in non-emergencies; may be requested in emergencies), Pennsylvania (written confidentiality agreement required in non-emergencies; may be requested in emergencies when circumstances permit), and Texas (information must be held confidential). Colorado's rule provides a similar kind of exception for disclosures provided to state agency employees responding to a spill or release, with provisions for confidentiality, as do similar provisions in states such as Montana and Pennsylvania. A few states mandate disclosures both before and after each fracturing treatment. For example, prior to fracturing in Wyoming, a party must disclose "for each stage of the well stimulation program, the chemical additives, compounds and concentrations or rates proposed to be mixed and injected." After the procedure, at least one of the applicable parties must disclose information about the actual chemicals used. Similar rules exist in states such as Arkansas, Idaho, and Montana, which require that disclosures made after fracturing contain a different level of detail than those made before fracturing. Disclosures made prior to fracturing that specifically identify the chemicals that will be used potentially give parties with access to the data the opportunity to perform baseline testing on water sources near the drilling site for those particular chemicals. Baseline testing results can then be compared with results from post-well stimulation testing to see if any groundwater contamination has occurred and, if it has, to possibly locate its source. Proponents of pre-fracturing disclosure have argued that, among other things, it would (1) provide landowners with the identities of the chemicals they should test for when they collect baseline water samples prior to drilling; and (2) assist emergency personnel and health professionals in responding to a spill or release by providing them with information about the identities of the chemicals that were used in the fluid. However, some in the industry have argued that requiring an operator to disclose chemical information prior to hydraulic fracturing is of questionable value and does not comport with realities in the field. Arguments to this effect include (1) the chemical composition of the fracturing fluid is often continually adjusted prior to treatment of the well, and so disclosures made prior to fracturing may not accurately reflect the actual chemicals that will be used; and (2) requiring the operator to gather chemical information from its contractors and report the information to regulators may slow down production. Other state disclosure laws require parties to submit information about the chemicals used to fracture a well at a single time following the drilling, fracturing, or completion of the well. States with laws that require disclosure after completion of a well that has been fractured include Louisiana (within 20 days), New Mexico (within 45 days), and Texas (timeframe varies). Ohio law mandates disclosures within 60 days after completion of the drilling of the well to the "proposed total depth" or "after a determination that a well is a dry or lost hole." Colorado, North Dakota, Oklahoma, and Pennsylvania require disclosure within 60 days after a fracturing treatment ends. Many federal and state legislators and regulatory authorities have adopted or proposed measures that would create new disclosure requirements applicable to the practice of hydraulic fracturing, a natural resource recovery technique that is widely used in the recovery of natural gas from shale formations. The Shale Gas Production Subcommittee of the Secretary of Energy Advisory Board has recommended the public disclosure, on a well-by-well basis, of all of the chemical ingredients added to fracturing fluids—even those ingredients that do not meet OSHA's standards for hazardous chemicals requiring MSDSs. The subcommittee recommended that some protection for trade secrets be provided. At the federal level, a few existing laws require some disclosure of information about the chemicals used in hydraulic fracturing. However, none of these laws requires disclosure of detailed information about the chemical composition of a hydraulic fracturing fluid. BLM has proposed disclosure requirements that would be applicable for hydraulic fracturing on all lands managed by the agency. Legislation was introduced in the 112 th Congress that would have created disclosure requirements for all hydraulic fracturing operations nationally. Chemical disclosure laws at the state level vary widely. Of the 15 laws examined in this report, fewer than half require direct public disclosure of chemical information by mandating that parties post the information on the FracFocus chemical disclosure website. The level of detail required to be disclosed often depends on how states protect trade secrets, as these protections may allow submitting parties to withhold information from disclosure at their discretion or to submit fewer details about proprietary chemicals, except, perhaps, in emergencies. Even if a disclosure law does not protect information from public disclosure, other state laws, such as an exemption in an open records law, may do so. A few states require the submission of MSDS for certain chemicals. MSDS may offer a relatively low level of disclosure, as the most specific details that parties currently must include on the data sheets under OSHA regulations are the chemical or common names of certain hazardous ingredients. With regard to the timing of disclosure, a few state laws require at least some disclosure of information about fracturing fluid chemical composition before fracturing is performed, but these states typically require less detailed information to be provided before fracturing than afterward. Appendix A. Glossary of Terms Appendix B. Summary of Chemical Disclosure Laws | Hydraulic fracturing is a technique used to free oil and natural gas trapped underground in low-permeability rock formations by injecting a fluid under high pressure in order to crack the formations. The composition of a fracturing fluid varies with the nature of the formation, but typically contains mostly water; a proppant to keep the fractures open, such as sand; and a small percentage of chemical additives. Some of these additives may be hazardous to health and the environment. The Shale Gas Production Subcommittee of the Secretary of Energy Advisory Board has recommended public disclosure, on a well-by-well basis, of all of the chemical ingredients added to fracturing fluids, with some protection for trade secrets. Although a few provisions of federal law require some disclosure of information about the chemicals used in hydraulic fracturing, none of them requires that detailed information about the chemical composition of a fracturing fluid be provided. In August 2011, environmental groups petitioned the Environmental Protection Agency (EPA) to promulgate rules under sections 4 and 8 of the Toxic Substances Control Act (TSCA) for chemical substances and mixtures used in oil and gas exploration or production. In October 2012, environmental groups asked the EPA to require the oil and gas extraction industry to report the toxic chemicals it releases under the Toxics Release Inventory. In his 2012 State of the Union Address, President Barack Obama said he would obligate "all companies that drill for gas on public lands to disclose the chemicals they use," citing health and safety concerns. In May 2012, the Bureau of Land Management (BLM) published a proposed rule that would require companies employing hydraulic fracturing on lands managed by BLM to disclose the content of the fracturing fluid. In addition, there were legislative efforts in the 112th Congress. H.R. 1084 and S. 587, the Fracturing Responsibility and Awareness of Chemicals Act (FRAC Act), would have created more broadly applicable disclosure requirements for parties engaged in hydraulic fracturing. Chemical disclosure laws at the state level vary widely. Of the 15 laws examined in this report, fewer than half require direct public disclosure of chemical information by mandating that parties post the information on the FracFocus chemical disclosure website. The level of detail required to be disclosed often depends on how states protect trade secrets, as these protections may allow submitting parties to withhold information from disclosure at their discretion or to submit fewer details about proprietary chemicals, except, perhaps, in emergencies. Even if a disclosure law does not protect information from public disclosure, other state laws, such as an exemption in an open records law, may do so. States also have varying laws regarding the timing of these disclosure requirements. This report provides an overview of current and proposed laws and regulations at the state and federal levels that require the disclosure of the chemicals added to the fluid used in hydraulic fracturing. Appendix A provides a glossary of many of the terms used in this report. Appendix B contains a table summarizing some of the fracturing chemical disclosure requirements described in this report. For an overview of the relationship between hydraulic fracturing and the Safe Drinking Water Act (SDWA), see CRS Report R41760, Hydraulic Fracturing and Safe Drinking Water Act Regulatory Issues, by [author name scrubbed] and [author name scrubbed]. |
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